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Newsletter--Volume 2, Number 1

Household-level analyses of the impacts of commodity promotion programs typically hypothesize effects on both quantity and timing of product purchases. With commodity promotion there may be a direct positive impact on amount purchased and a concurrent reduction in the length of time between purchases. This reduction in interpurchase time is often referred to as “purchase acceleration.” In addition to the direct effects, commodity promotion efforts can also generate an indirect effect.

With households holding a given inventory, the reduction in interpurchase time implies smaller purchases per occasion. The possible conflict of the direct and indirect quantity impacts implies that unless shorter interpurchase time is recognized, comparing quantity consumed with and without product promotion may overestimate the true amount by which a particular promotion campaign increases demand. As a first step in investigating the relationships between purchase timing, quantity purchased, and commodity promotion, we focused on the dynamics of the consumer purchase process. We examined the effect of the use of one type of commodity promotion, coupon-based price deals, on interpurchase times for cheese, a frequently purchased food commodity.

We conducted this analysis using a data set which consists of a household panel observed over 170 consecutive weeks from April 1991 to June 1994. In addition to quantity and price data, we also used information on coupon usage and household demographic characteristics in the analysis. Only cheese purchased for at-home consumption was included in this analysis. On each purchase occasion a household in the panel recorded purchase date, UPC code, expenditures, and quantity purchased.

We used event history analysis to analyze purchases of four cheese types: all (excluding cottage), processed, natural cheddar, and cottage cheese. We used a variety of duration models in our analyses under alternative assumptions concerning the shape of the frequency distribution of the amount of time between purchase occasions (interpurchase time), the role of household characteristics in the determination of such distributions, and the presence of unobserved heterogeneity (variation) across households in these distributions.

RESULTS
In our duration models, we hypothesized that the distribution of cheese-specific interpurchase times was affected by the use of coupon-based price deals as well as household demographic characteristics. In addition to the two variables used to capture the effect of coupon redemption on the timing of cheese purchases, we also included several variables as distribution “shifters”--household size, age composition of household members, ethnicity of main meal planner, ratio of household income to poverty threshold income, lagged purchases, whether or not there was a shelf-price change since last purchase, dummy variables identifying the Thanksgiving/Christmas period and summer months, and urbanization of residence area.

For all cheese, we found that over 18 percent of the purchase weeks occurred with the use of some type of cents-off coupon. This is similar to what we found for processed cheese. Only 3 percent of cottage cheese purchase occasions involved the use of some type of coupon. An examination of average interpurchase time indicated that there was some coupon-driven acceleration of purchases. For processed cheese there was a 1.9 week difference in mean interpurchase time for weeks associated with coupon use versus non-coupon use. This compared with .6 weeks for cheddar and 1.1 weeks for cottage cheese.

Using the results from the duration models applied to the four cheeses, we conducted likelihood ratio tests on the null hypotheses that the distribution of interpurchase time was not affected by household demographic characteristics. This hypothesis was rejected for all four cheese types. We also tested and rejected the null hypothesis that coupon redemption does not affect the length of time between purchases.

Using our model results, we simulated “survival” probability profiles for a variety of household types. These profiles represent the probability of a household not purchasing a particular cheese for alternative interpurchase times (weeks). Figure 1 presents an example of these profiles for processed cheese. Profiles are presented for coupon-using black, hispanic, “nonminority,” and single person households as well as non-coupon-using households. For processed cheese, non-coupon-using households have a 5-week survival probability of 25 percent. This compares to 34 percent and 32 percent for black and single-person coupon-using households, and 19 percent and 15 percent for “nonminority” and hispanic coupon-using households. For cheddar cheese, non-minority coupon-using and non-coupon-using households have very similar survival probability profiles, with black coupon-using households exhibiting the lowest survival probability profiles.

SUMMARY AND AREAS FOR FUTURE RESEARCH
The use of coupon-based incentive programs continues to be an important marketing tool. The present analysis investigated one facet of coupon usage, its impact on the timing of purchases of cheese, a frequently purchased, non-durable commodity. We estimated a series of duration models for four cheese classifications: all, processed, natural cheddar, and cottage cheese. Within these duration models, we incorporated household demographic characteristics to allow the distribution of interpurchase time to vary across households. The results of likelihood ratio tests indicated that the household characteristics included as distribution shifters were statistically significant explanatory factors.

Two variables were used to account for the impact of coupon redemption on interpurchase times. Likelihood ratio tests clearly rejected the null hypothesis that coupon use has no impact on the timing of cheese purchases. As hypothesized, the use of coupons resulted in reduced interpurchase times for all cheeses. This impact, however varied across cheese type, especially when considering the type of household doing the purchasing.

As previous analyses have shown, coupon promotion has direct impacts on purchase timing and quantity purchased,as well as indirect impacts on quantity purchased that may counteract the direct impacts. One fruitful area for future research would be the development a model which takes into account the simultaneous decisions of coupon use, interpurchase time, and quantity purchased. Previous analyses have not recognized the simultaneous nature of these consumer decisions. Our work provides a foundation for future research to analyze the net effect of coupon promotion on commodity demand and whether or not the costs of such promotion are justified.

Brian W. Gould is a Senior Scientist with the Wisconsin Center for Dairy Research and the Department of Agricultural Economics at the University of Wisconsin-Madison.

Editor's Notes
John E. Lenz

With this issue, we begin the second year of publication of the NICPRE Quarterly. We thank all of you who took the time to respond to the reader survey we included in the last issue. Your responses will help us continue to provide a timely compilation of important program evaluation issues for your consideration.

In our lead article in this issue, Brian Gould summarizes his recent research on the impacts of coupon redemption on the timing of consumers’ cheese purchases. His results indicate that coupon use does result in more frequent cheese purchases, but that the impact of coupon use varies depending on the type of cheese being purchased and the type of household doing the purchasing.

Rick Naczi, in this issue’s Manager’s Viewpoint, discusses some key issues related to program evaluation. He points out that the necessity for a successful evaluation process to encompass the entirety of the organization’s marketing plan can require the use of a large variety of measurement tools. Rick also sounds a cautionary note regarding the quality of data used in evaluation, and suggests that there are times when a manager must move beyond the data and the guidance provided by evaluation and make decisions based on his or her skill and intuition.

As you will notice when you turn the page, Harry Kaiser is now writing the Director’s Corner. In his first column, Harry uses the occasion of Olan Forker’s retirement to highlight several of Olan’s many accomplishments during his career as an agricultural economist.

Although Olan has officially retired, he retains an active interest in commodity promotion economics. In this issue he shares some thoughts on why it is important to include economic analysis in any evaluation strategy.

In May, NEC-63, the research committee on commodity promotion, will be meeting in Cancun, Mexico in conjunction with the International Food and Agribusiness Management Association’s World Agribusiness Conference. For those of you who may be interested in participating, we’ve included some information on the back page.

Manager's Viewpoint
Rick Naczi, Executive Vice President
American Dairy Association and Dairy Council

Evaluation Is Necessary, But Not a Panacea

I do not think that there is a more difficult challenge for evaluation than the field of generic promotion. The large number of variables that impact category sales might lead any sane person to throw up their hands, but generic promoters are driven to find a way to prove their worth. The key to a successful evaluative process is the desire to measure everything that is part of the marketing plan. This means that you have to use a large variety of measurement tools to accomplish your objective.

The most valuable measurement tool is direct sales data. The problem is that it is very difficult to generate accurate category data. Many states have traditionally collected sales figures, but state budget cuts have made that data less timely and less accurate. In fact, we frequently find major problems in the fluid milk data from the more well-financed for-profit corporations. We try, whenever possible, to collect proprietary data from promotion partners, but the nature of that data makes it unavailable for use in reporting out to our investors.

Many commodities have had the benefit of using econometric modeling as a source of return on investment information for their constituents. This type of measurement suffers from the same problems as direct sales. The data sets may be incomplete and some information on competitive products is not available at all. This lack of perfection does not mean that econometrics is not valuable, it only means that it can be considered only one part of a total evaluative process.

There is also a place for attitudinal studies and focus group work. These are the least desirable evaluative techniques, but for some programs they are all we have. It is impossible to measure long range programs based on their annual contributions to sales. I do not believe that you should abandon such programs based on a lack of annual data, but I do believe that you should always benchmark the components of long term programming. We should never be allowed to let a program go by unmeasured simply because we are currently unable to measure its sales impact.

Finally, I believe that evaluation needs to be kept in perspective. I do believe strongly in research, but I also believe that at some point you must step out in faith. The evaluative process will give you guidance, but it will not make your decisions for you. At the point where many companies have skyrocketed to success, many of their competitors had access to the same data. Someone used that data and, along with some intuition and skill, made a move that went beyond the data. We need to continue perfecting our evaluations, while at the same time avoiding the trap of being paralyzed by the fear of moving into places where the data will not take us. We need to be even more cautious about using the data to tell us things that it has no right communicating.

WHY ECONOMIC ANALYSIS IN THE EVALUATION STRATEGY?
Olan D. Forker

In his Manager’s Viewpoint column in the first issue of the NICPRE Quarterly, John Huston, discussed three levels of evaluation: 1) basic evaluation--counting, 2) level two evaluation--attitudes-behavior-demand, and 3) key evaluation--return on investment. In recent discussions with several commodity promotion organizations, I have expanded on Huston’s terminology to put the economic analysis component into perspective. The terminology I have adopted is “counting” for level one, “monitoring” for level two, and “measuring” for level three.

Counting involves the collection of data concerning an organization’s activities. This information is necessary to document what you have done and to make sure you received the services you paid for. This process is similar to an audit. The data collected is a necessary component of an economic analysis, but, obviously not sufficient to determine economic benefits.

Data collected at the monitoring level, to assess changes in the marketplace, is also necessary for economic analysis but, again, by itself is not sufficient for making economic inferences. Monitoring is likely to involve the use of consumer surveys to determine how consumer attitudes and purchase patterns are changing. Information collected by the USDA or some other agency on the commodity’s prices and volume marketed might also be gathered and analyzed to determine if certain program objectives are being met. For example, if an objective is to change the attitude that the commodity is unhealthy to one that it is healthy, a consumer survey conducted over time could indicate if attitudes did in fact change. Or, if the objective is to increase total sales, monitoring changes in sales volume over time is necessary. However, improvements in attitudes or sales volume are not necessarily results of promotion efforts. Many factors affect consumer attitudes and behavior. To sort them all out, we need to move to level three.

Economic benefits to the industry, if any, can only be determined by doing what I refer to as measuring. In the economic analysis of level three, the analyst attempts to determine whether or not the changes observed by monitoring the marketplace are associated with the promotion effort. It is possible that other factors are equally, or more, important in causing changes. How much influence did price have on sales volume? How much did the weather factors that influence yield affect the supply available for consumption? Economic analysis can be very useful in assessing how much of a change, if any, can be directly associated with a promotion activity and how much can be directly associated with other forces operating in the marketplace.

An overall evaluation strategy must include consideration of all three components if economic benefits are to be determined. However, the kind of data collected for level one and two, and the analysis done under level three must be determined by and relate to program objectives. Program objectives coming out of a strategic promotion plan must be stated so that success or failure can actually be measured, and measured in an objective way. It is also important to note that the appropriate number of evaluation levels to undertake, and thus the scope of the evaluation strategy, depend crucially on the size of an organization’s budget.

Director's Corner
Harry M. Kaiser

On December 31, 1995, Olan Forker officially retired from Cornell University after a long and distinguished tenure in the field of agricultural economics. I am taking over some of Olan's responsibilities including the directorship of NICPRE. One of my immediate tasks was writing my first Director's Corner for the NICPRE Quarterly, which is just beginning its second full year in existence.

I think it only fitting to dedicate this issue to Olan, who has been a pioneer in the commodity promotion economics area. While most readers know Olan from his work in commodity promotion economics, many may not know that he has also been a leader in several other areas as well. In addition to being a professor in the department of Agricultural Economics at Cornell, Olan also served as chair of the department from 1976 to 1985, and chair of the undergraduate program from 1989 to 1994. He also served as a faculty trustee at Cornell University from 1984 to 1988. This is a prestigious and important position conferred upon only two faculty members from Cornell at a time. Olan was instrumental in getting funding from the Mellon Foundation and running an M.S. program in economics in Nitra, Slovakia for students from Eastern and Central Europe. This program currently trains about 25 M.S. students each year, some of whom have gone on to complete Ph.D. programs in the United States. Olan has also been a leader in the agricultural economics profession, serving as president of the Northeastern Agricultural and Resource Economics Association in 1991, and as a director of the American Agricultural Economics Foundation from 1988 to 1989. Olan is widely respected and appreciated by his colleagues for all of the service he has volunteered over the years.

On February 2, 1996, Cornell University honored Olan's achievements and retirement in a day-long set of activities including a symposium on commodity promotion economics, a reception, and an evening dinner. On behalf of my colleagues at NICPRE, I extend to Olan our best wishes in his retirement. I will also be somewhat selfish and call often upon his expertise in the future to help continue the excellence in commodity promotion economics that Olan helped create.

NEC-63 TO MEET IN CANCUN, MEXICO

How do market integration, privatization, and industrialization affect farmer and government efforts to develop and expand export markets? These subjects will be examined during the Spring 1996 meeting of NEC-63, the Research Committee on Commodity Promotion, being held in Cancun, Mexico in conjunction with the World Agribusiness Conference of the International Food and Agribusiness Management Association (IAMA). NEC-63 is organizing a symposium titled “Agricultural Commodity Promotion Policies and Programs in the Global Agrifood System” to be held on Sunday and Monday, May 26 and 27, 1996, preceding the Congress.

The NEC-63 symposium will include several discussion sessions, roundtable discussions, and research presentations to complement the general IAMA theme of market integration. A panel of program administrators, including Mr. August Schumacher, Administrator of the Foreign Agricultural Service of the U.S. Department of Agriculture (invited) will highlight the NEC-63 program. Other sessions will examine policy, trade, and effectiveness issues relating to export promotion.

Persons interested in providing a solicited paper for these sessions should submit a one to two page abstract and a separate sheet indicating the author’s name, organization, current title, address, fax and phone numbers. Submissions should also include a brief paragraph describing the author’s interests and activities in the area of commodity promotion. Please send this information to:

John P. Nichols
Chairman, NEC-63
Department of Agricultural Economics
Texas A&M University
College Station, TX 77843-2124
phone: (409)845-8491
fax: (409)862-3019

The submission deadline is March 15, 1996. Authors of papers selected for presentation will be notified by April 5, 1996. Registration and other expenses are the responsibility of participants.

As John Nichols notes in his memorandum announcing this NEC-63 symposium: “The meeting with IAMA is an excellent opportunity to take an international approach to the issues facing commodity promotion organizations. The IAMA program is also of great interest to many of us concerned with strategic issues of global agrifood markets.” If you have any questions about the NEC-63 symposium or the IAMA Congress, please call John at the number listed above.

Selected Readings

As you may have noticed, this quarter's NICPRE Quarterly has come with additional publications recently printed by the Cornell Commodity Promotion Research Program with NICPRE's assistance.

Reberte, J. Carlos, Harry M. Kaiser, John E. Lenz, and Olan D. Forker. 1996. "Generic Advertising Wearout: the Case of the New York City Fluid Milk Campaign." Department of Agricultural, Resource, and Managerial Economics, Cornell University, Ithaca, NY. NICPRE 96-01, R.B. 96-01.
This paper examines two major generic fluid milk advertising campaigns in New York City during the 1986-92 period. Estimates from a time-varying parameter model show that the evolution of the impact of generic advertising on fluid milk sales over each campaign followed a bell-shaped pattern.

Ferrero, Jennifer and Harry M. Kaiser. 1996. "Commodity Promotion Economics: A Symposium in Honor of Olan Forker's Retirement." Department of Agricultural, Resource, and Managerial Economics, Cornell University, Ithaca, NY. NICPRE 96-02, R.B. 96-04.
On December 31, 1995, Olan Forker officially retired from Cornell University after a long and distinguished tenure in the agricultural economics profession. To celebrate his retirement, a symposium dealing with commodity promotion was held on February 2, 1996 at Cornell University. Over 50 individuals from academia, government, and industry attended this one day symposium. This is a proceedings of the all the presentations given.

Ferrero, Jennifer, Leen Boon, Harry M. Kaiser, and Olan D. Forker. 1996. "Annotated Bibliography of Generic Commodity Promotion Research (revised)." Department of Agricultural, Resource, and Managerial Economics, Cornell University, Ithaca, NY. NICPRE 96-03, R.B. 96-03.
The purpose of this publication is to present relevant scholarly work directly related to generic commodity advertising and promotion research and evaluation in an easy-to-use form for further study and research. Sources for annotations include professional journals, books, university staff and working papers, and unpublished reports by commodity consulting firms.