Analyzing the Effects of Coupons and Promotion in the Grocery Retail Sector

Modern scanner technology is pervasive throughout the retailing sector of the economy and is almost universal in the food retail industry. Along with loyalty programs, it has led to the development of massive databases which accurately and proficiently track the purchasing habits of customers. Making use of this information is one of the most important efforts in the management of this sector to further increase profitability.

This thesis explores the application of several statistical techniques to extract specific information from two large databases of customer purchasing behavior at a major US grocery chain. In particular, we first focus on the impact of coupon use on brand loyalty in two commodity groups, pasta with sauce and pancake mix with syrup. Furthermore, we devise a graphical tool to visualize relationships between complementary commodities in order to aid retailers and brand managers accurate portrayal and measurement of the success of their specific products. Next we consider a larger database with complete purchasing information for 2500 frequent shopper households. Here we develop tests and models to evaluate the effect of direct marketing on customer loyalty and spend. Based on our results, we discuss the impact of direct marketing and coupons to retail firms as well as consumer products manufacturers.