RESEARCH PAPER:

Transcription

1 RESEARCH PAPER: A STUDY OF THE IMPACT OF TROPICANA S MARKETING STRATEGY CHANGES ON OJ DEMAND BY Jonq-Ying Lee Senior Research Economist - FDOC FLORIDA DEPARTMENT OF CITRUS Economic and Market Research Department P.O. Box Gainesville, Florida USA Phone: Fax: mgbrown@ufl.edu

2 1 A Study of the Impact of Tropicana s Marketing Strategy Changes on OJ Demand In January 2009, Tropicana introduced a new package design as part of a $35 million advertising and branding campaign, with the theme Squeeze it s a Natural, created by Arnell. After Tropicana s package redesign, its customers complained about the new package, saying they missed the orange-and-straw graphic of the original design. Advertising Age reported that after its package redesign, sales of the Tropicana Pure Premium line plummeted 20% between January 1 and February 22, costing the brand tens of millions of dollars. By the end of February, Tropicana had changed its mind and went back to the earlier packaging. To recapture its market share, Tropicana had a buy-one-get-one (BOGO) promotion for its Pure Premium line orange juice (OJ) with Publix during the period from April 2 through April 11. The purposes of this study are (1) to examine the impact of Tropicana s marketing strategy changes on the Tropicana OJ gallon sales in January and February 2009 when Tropicana used the redesigned package for its Pure Premium OJ and in April and May of 2009 when Tropicana had the BOGO promotions; and (2) to examine the impacts of Tropicana s OJ package redesign and BOGO promotion on overall OJ gallon sales. Study Method In this study we assume that the demand for OJ is a function of prices, income, retail promotional activities, and Tropicana s marketing strategy changes. Formally this relationship can be written as (1) q t = f(p t, inc t, z t ) where q t is the OJ gallon sales in week t, p t is a vector of prices in week t, and z t is a vector of promotional variables. The prices include own-price and prices of competing beverages, such as the prices of grapefruit juice (GJ), OJ blend (OJ BL), GJ blend (GJ BL), GJ cocktails (GJ CKL), OJ drinks (OJ DRK), and OJ blend drinks (OJ BL DRK). Because the study period only covers 120 weeks, we assume that income has not changed during the study period and thus deleted it from the model. The promotional variables include retail promotions and Tropicana s marketing strategy changes (package redesign in January and February and BOGO promotion in April). The actual statistical model used is (2) ln q t = α 0 + j β j ln p jt + k γ k ln ap kt + l φ l z l + ε t ; where ap kt is the share of k type of OJ dollar sales under any retail promotion in week t; z l s are dummy variables for week l, z 1 = 1, if t is the week ending 12/20/08; z 2 = 1, if t is the week ending 12/27/08, and so on; α, β, γ, and φ are parameters to be estimated; and ε t is the error term.

3 2 Note that βs and γs are demand elasticity estimates and φs provide measures for the disturbances (in gallon sales) for the weeks ending from 12/20/08 through 05/09/09. These are catch-all terms, i.e., the disturbances during this time period can be the result of changes in price slopes, income slope, or other exogenous changes. In this study, we assume they are the impacts of Tropicana s marketing strategy changes. If φ l is greater than zero, i.e., outside of the confidence regions, it means that there are gallon sales changes net of price and retailer promotional impacts, or in other words, it is an estimate of the impact of Tropicana s marketing strategy changes. Data The above model was applied to Nielsen $2MM+ grocery store OJ sales data for the period from the week ending 01/27/07 through the week ending 05/09/09, a total of 120 weeks. Table 1 shows the percent changes in Tropicana OJ gallon sales and average prices from a year ago. As shown in Table 1, total OJ gallon sales of Tropicana OJ had declined from a year ago before its introduction of redesigned package; however, during January and February of 2009, Tropicana OJ gallon sales in $2MM+ grocery stores had a solid two months declined from a year ago without abatement and the West region had the worst decline. In addition, the average prices in the U.S. for Tropicana OJ were higher during January and February than a year ago. Prices started to become lower than a year ago after February As the result of BOGO in Publix in early April 2009, average price in the Southern region declined over 15% from a year ago and the average price of Tropicana OJ declined over 9% in $2MM+ grocery stores across the nation during the promotion weeks. Figure 1 depicts the gallon sales and average prices for Tropicana OJ over the study period. As shown in Figure, there is seasonality in gallon sales and price and gallon sales demonstrate an inverse relationship. Two variables were added, i.e., s1 = sin(2π wk t /52), and s2 = cos(2π wk t /52) to take care of the seasonal pattern in gallon sales. Where π = and wk t is the week of the season there are 52 weeks in a season. Two models were estimated, a model for brands (i.e., Florida s Natural, Minute Maid, Tropicana, other brands, and private label) and the other for all OJ sold in $2MM+ grocery stores; results are presented in Tables 2 and 3. Results As shown in Table 2, all own-price elasticity estimates are negative and consistent with our expectation. Results show that the demand for Florida s Natural OJ had the highest price, followed by other brands of OJ, Tropicana OJ, Minute Maid OJ, and generic OJ had the lowest price response. Cross-price elasticity estimates show that most brand OJs do not have close substitutes. Demand elasticity estimates for retail promotions show that retailers promotions

4 3 increased the demand for the OJ that was promoted and decreased the demand for the OJs that were not promoted. The coefficients of the sine and cosine variables show that there were seasonal patterns for the five types of OJ studied. The coefficients of the week dummy variables, as mentioned previously, measures the changes in demand after taken out the retail promotion, price, and seasonal effects; what is left, could be considered Tropicana s marketing strategy effect. As shown in Table 2, under the heading of Tropicana, these coefficient estimates changed from either positive and/or statistically not different from zero to negative and statistically different from zero after the week ending 01/17/09 and stayed negative until the week ending 05/02/09; an indication that after Tropicana introduced its new Pure Premium package the demand for Tropicana OJ had decreased and the demand had not recovered during the study period. The coefficient estimates for other brands and private label OJ show that the demand for non-tropicana OJ had increased, especially for Florida s Natural OJ, in January and February. For the weeks when Tropicana had the BOGO promotion with Publix in the Southern region, Tropicana OJ gallons sales recovered the coefficient estimate for the week ending 04/11/09 dummy is negative, small, and statistically not different from zero. The coefficient estimates of the dummy variable for the week ending 04/11/09 are positive and statistically different from zero indicating that Tropicana s BOGO actually helped the sales of non- Tropicana-brand OJ. To examine the impact of Tropicana s marketing strategy changes on the demand for OJ in general, we estimated two additional models using equation (2) and sales data for $2MM+ grocery stores provided by Nielsen. Results are presented in Table 3. The first model includes the any promo variable and the result shows that the own-price coefficient estimate is positive but statistically not different from zero; there are signs that multicollinearity could be the problem (the simple correlation coefficient between own-price and Any Promo is ). Therefore, we deleted the Any Promo variable and re-estimated the model. This time, the own-price coefficient is negative; however, it is still statistically not different from zero. Generally speaking, the results are very similar in these two models. The coefficient estimates for dummy variables are mostly not statistically different except for the week ending 04/11/09, i.e., when Tropicana had its BOGO promotion. This result indicates that when Tropicana had its redesigned package, total OJ gallon sales did not decrease; however, when Tropicana had its BOGO promotion, total OJ demand increased; or in other words, the OJ category benefited from Tropicana s BOGO promotion. Similar results are found in the regional models. The results for the four regions are presented in Table 4 through 9; and the regional gallon sales and price data are depicted in Figures 2 and 5. Since the regional results are so similar to those found the U.S., no further discussion is provided. Another model specification using dollar share as dependent variable was also estimated and similar result was found, i.e., Tropicana s market share (in term of dollar

5 share) had not recovered as of 05/09/09. Therefore, the parameter estimates obtained from using dollar shares as dependent variables were not reported in this study. 4

6 4,000 3,800 3,600 3,400 3,200 3,000 2,800 2,600 2,400 2,200 2,000 Figure 1. Tropicana price and gallon sales statistics in 2MM+ grocery stores /30/06 01/13/07 01/27/07 02/10/07 02/24/07 03/10/07 03/24/07 04/07/07 04/21/07 05/05/07 05/19/07 06/02/07 06/16/07 06/30/07 07/14/07 07/28/07 08/11/07 08/25/07 09/08/07 09/22/07 10/06/07 10/20/07 11/03/07 11/17/07 12/01/07 12/15/07 12/29/07 01/12/08 01/26/08 02/09/08 02/23/08 03/08/08 03/22/08 04/05/08 04/19/08 05/03/08 05/17/08 05/31/08 06/14/08 06/28/08 07/12/08 07/26/08 08/09/08 08/23/08 09/06/08 09/20/08 10/04/08 10/18/08 11/01/08 11/15/08 11/29/08 12/13/08 12/27/08 01/10/09 01/24/09 02/07/09 02/21/09 03/07/09 03/21/09 04/04/09 04/18/09 05/02/ gallons $/gal Total US Gallon Sales (000) Price ($/Gal)

7 1,300 1,200 1,100 1, Figure 2. Tropicana price and gallon sales statistics in the Southern region /30/06 01/13/07 01/27/07 02/10/07 02/24/07 03/10/07 03/24/07 04/07/07 04/21/07 05/05/07 05/19/07 06/02/07 06/16/07 06/30/07 07/14/07 07/28/07 08/11/07 08/25/07 09/08/07 09/22/07 10/06/07 10/20/07 11/03/07 11/17/07 12/01/07 12/15/07 12/29/07 01/12/08 01/26/08 02/09/08 02/23/08 03/08/08 03/22/08 04/05/08 04/19/08 05/03/08 05/17/08 05/31/08 06/14/08 06/28/08 07/12/08 07/26/08 08/09/08 08/23/08 09/06/08 09/20/08 10/04/08 10/18/08 11/01/08 11/15/08 11/29/08 12/13/08 12/27/08 01/10/09 01/24/09 02/07/09 02/21/09 03/07/09 03/21/09 04/04/09 04/18/09 05/02/ gallons $/gal South Gallon Sales (000) Price ($/Gal)

8 Figure 3. Tropicana price and gallon sales statistics in the North Central region /30/06 01/13/07 01/27/07 02/10/07 02/24/07 03/10/07 03/24/07 04/07/07 04/21/07 05/05/07 05/19/07 06/02/07 06/16/07 06/30/07 07/14/07 07/28/07 08/11/07 08/25/07 09/08/07 09/22/07 10/06/07 10/20/07 11/03/07 11/17/07 12/01/07 12/15/07 12/29/07 01/12/08 01/26/08 02/09/08 02/23/08 03/08/08 03/22/08 04/05/08 04/19/08 05/03/08 05/17/08 05/31/08 06/14/08 06/28/08 07/12/08 07/26/08 08/09/08 08/23/08 09/06/08 09/20/08 10/04/08 10/18/08 11/01/08 11/15/08 11/29/08 12/13/08 12/27/08 01/10/09 01/24/09 02/07/09 02/21/09 03/07/09 03/21/09 04/04/09 04/18/09 05/02/ gallons $/gal North Central Gallon Sales (000) Price ($/Gal)

9 1,700 1,600 1,500 1,400 1,300 1,200 1,100 1, Figure 4. Tropicana price and gallon sales statistics in the North Eastern region /30/06 01/13/07 01/27/07 02/10/07 02/24/07 03/10/07 03/24/07 04/07/07 04/21/07 05/05/07 05/19/07 06/02/07 06/16/07 06/30/07 07/14/07 07/28/07 08/11/07 08/25/07 09/08/07 09/22/07 10/06/07 10/20/07 11/03/07 11/17/07 12/01/07 12/15/07 12/29/07 01/12/08 01/26/08 02/09/08 02/23/08 03/08/08 03/22/08 04/05/08 04/19/08 05/03/08 05/17/08 05/31/08 06/14/08 06/28/08 07/12/08 07/26/08 08/09/08 08/23/08 09/06/08 09/20/08 10/04/08 10/18/08 11/01/08 11/15/08 11/29/08 12/13/08 12/27/08 01/10/09 01/24/09 02/07/09 02/21/09 03/07/09 03/21/09 04/04/09 04/18/09 05/02/ gallons $/gal North East Gallon Sales (000) Price ($/Gal)

10 Figure 5. Tropicana price and gallon sales statistics in the Western region /30/06 01/13/07 01/27/07 02/10/07 02/24/07 03/10/07 03/24/07 04/07/07 04/21/07 05/05/07 05/19/07 06/02/07 06/16/07 06/30/07 07/14/07 07/28/07 08/11/07 08/25/07 09/08/07 09/22/07 10/06/07 10/20/07 11/03/07 11/17/07 12/01/07 12/15/07 12/29/07 01/12/08 01/26/08 02/09/08 02/23/08 03/08/08 03/22/08 04/05/08 04/19/08 05/03/08 05/17/08 05/31/08 06/14/08 06/28/08 07/12/08 07/26/08 08/09/08 08/23/08 09/06/08 09/20/08 10/04/08 10/18/08 11/01/08 11/15/08 11/29/08 12/13/08 12/27/08 01/10/09 01/24/09 02/07/09 02/21/09 03/07/09 03/21/09 04/04/09 04/18/09 05/02/ gallons $/gal West Gallon Sales (000) Price ($/Gal)

11 10 Table 1. Tropicana OJ gallon sales and price statistics % change from a year ago Gallon Sales Average Price 2MM+ NE SOUTH WEST NC 2MM+ NE SOUTH WEST NC Week Ending 12/06/ % 11.9% 7.7% 2.7% 24.9% 0.3% 1.4% 1.1% 4.6% 5.6% 12/13/ % 13.5% 8.8% 17.0% 19.0% 0.1% 2.2% 0.0% 3.9% 2.5% 12/20/ % 5.5% 24.0% 40.0% 37.7% 3.8% 0.9% 3.4% 10.8% 8.6% 12/27/ % 17.4% 14.9% 22.2% 8.4% 1.2% 0.4% 3.3% 2.7% 0.2% 01/03/ % 10.4% 24.3% 25.4% 33.6% 1.7% 0.8% 1.1% 2.5% 7.5% 01/10/ % 12.8% 19.0% 36.3% 21.1% 3.5% 4.1% 1.0% 8.7% 3.4% 01/17/ % 15.3% 34.9% 35.0% 13.1% 2.1% 1.5% 5.4% 4.9% 1.7% 01/24/ % 13.7% 1.5% 30.1% 8.9% 0.1% 3.0% 4.1% 4.0% 0.7% 01/31/ % 12.2% 15.6% 12.3% 23.3% 2.4% 1.4% 4.8% 6.2% 1.9% 02/07/ % 3.0% 20.4% 16.9% 19.9% 2.7% 3.2% 1.1% 7.4% 0.7% 02/14/ % 32.2% 4.5% 27.5% 23.1% 2.2% 11.8% 5.6% 1.4% 0.4% 02/21/ % 14.7% 34.1% 22.8% 13.3% 1.2% 2.0% 3.3% 0.9% 1.9% 02/28/ % 13.9% 24.8% 27.0% 17.5% 0.3% 2.7% 1.2% 0.0% 4.4% 03/07/ % 8.8% 4.5% 26.8% 10.1% 3.5% 1.2% 6.9% 4.3% 5.5% 03/14/09 1.2% 6.2% 3.1% 13.0% 3.0% 5.7% 0.4% 8.3% 11.1% 6.6% 03/21/ % 4.1% 26.3% 4.6% 26.5% 3.4% 5.2% 0.0% 8.7% 0.5% 03/28/09 8.2% 8.8% 13.6% 1.9% 4.1% 2.8% 2.5% 3.1% 11.8% 5.7% 04/04/09 9.9% 11.6% 14.2% 2.0% 6.4% 3.3% 0.4% 2.9% 12.7% 5.8% 04/11/ % 6.7% 9.1% 8.4% 31.9% 9.3% 1.6% 15.2% 7.4% 11.4% 04/18/09 2.8% 3.4% 19.8% 5.8% 15.2% 9.2% 3.9% 15.3% 14.2% 2.7% 04/25/09 8.8% 6.3% 18.1% 2.3% 3.4% 3.0% 2.7% 1.5% 6.5% 2.7% 05/02/ % 13.4% 25.2% 13.7% 20.3% 2.8% 6.3% 2.8% 4.2% 1.7% 05/09/ % 28.7% 28.6% 11.1% 10.5% 9.9% 13.4% 13.7% 3.7% 2.7%

12 11 Table 2. Coefficient estimates by OJ brand, total US FLNAT MM TROP OTHER PL/GEN Variable Estimate SE Estimate SE Estimate SE Estimate SE Estimate SE Intercept * Log Price FLNAT * MM TROP OTHER * PL/GEN GJ * OJ BL * * GJ BL ** GJ CKL OJ DRK OJ BL DRK Any Promo FLNAT * * MM * * TROP * * OTHER * * ** * PL/GEN * * ** * s s

13 12 Table 2. Continue total US Variable Dummy Var FLNAT MM TROP OTHER PL/GEN Estimate SE Estimate SE Estimate SE Estimate SE Estimate SE 12/20/ * /27/ * * * /03/ * * * /10/ * * * /17/ * * /24/ * * * /31/ * * ** /07/ * * * /14/ ** * /21/ * /28/ * * /07/ * * * ** /14/ * * ** /21/ * ** /28/ * /04/ * * * /11/ * * * * /18/ * /25/ * ** * /02/ ** ** /09/ ** * * R

14 13 Table 3. Coefficient estimates total US $2MM+ grocery stores With Any Promo w/o Any Promo Variable Estimate SE Estimate SE Intercept * * Log price OJ GJ OJ BL * * GJ BL ** GJ CKL OJ DRK * OJ BL DRK Any Promo OJ * s s * * Dummy Var 12/20/ /27/ * * /03/ * ** /10/ * ** /17/ /24/ /31/ ** /07/ /14/ /21/ /28/ ** /07/ /14/ /21/ /28/ /04/ /11/ * * /18/ /25/ /02/ /09/ * * R

15 14 Table 4. Coefficient estimates by OJ brand, Southern region Variable FLNAT MM Trop Other B PL/GEN Estimate SE Estimate SE Estimate SE Estimate SE Estimate SE Intercept * * * * * Log Price FLNAT * * * * MM ** TROP * * ** OTHER * * * * PL/GEN * * * GJ OJ BL ** GJ BL ** GJ CKL * * * OJ DRK OJ BL DRK * * * * Any Promo FLNAT * * * * MM * * ** TROP * * ** OTHER * ** PL/GEN * * ** * s * * s * * *

16 15 Table 4. Continue Southern Region Variable FLNAT MM TROP OTHER PL/GEN Estimate SE Estimate SE Estimate SE Estimate SE Estimate SE Dummy Var 12/20/ * /27/ * * * /03/ ** ** * /10/ * * * /17/ * * * * /24/ * * /31/ * * * /07/ * * /14/ * * ** /21/ * * /28/ * * * * /07/ * * * /14/ ** * * * /21/ * * ** /28/ * /04/ * * /11/ ** * * * /18/ * ** /25/ * /02/ ** * /09/ * ** R

17 16 Table 5. Coefficient estimates by OJ brand, North Central region Variable FLNAT MM TROP OTHER PL/GEN Estimate SE Estimate SE Estimate SE Estimate SE Estimate SE Intercept * * * * * Log Price FLNAT * * * MM * * * * TROP * * OTHER * ** PL/GEN * * ** * * GJ ** * OJ BL * * * * GJ BL GJ CKL ** OJ DRK * * * * OJ BL DRK ** Any Promo FLNAT * * MM * * TROP * * * OTHER * * PL/GEN * s ** * s * * * * *

18 17 Table 5. Continue North Central region Variable FLNAT MM TROP OTHER PL/GEN Estimate SE Estimate SE Estimate SE Estimate SE Estimate SE Dummy Var 12/20/ * ** * ** /27/ * * * /03/ * /10/ * /17/ * * /24/ * * * /31/ * ** /07/ * /14/ * * * * /21/ * /28/ ** * * /07/ * * /14/ * /21/ * * /28/ * /04/ * /11/ * /18/ * /25/ ** ** ** /02/ ** * /09/ ** R

19 18 Table 6. Coefficient estimates Southern and North Central regions, $2MM+ grocery stores Southern Region North Central region With Any Promo w/o Any Promo With Any Promo w/o Any Promo Variable Estimate SE Estimate SE Estimate SE Estimate SE Intercept * * * * Log Price OJ * * GJ ** OJ BL * * GJ BL GJ CKL * * OJ DRK * ** OJBLDRK * * ANY PRO * * Seasonality S * * S * * * * Dummy Var 12/20/ /27/ * * * * /03/ ** /10/ * /17/ /24/ ** * ** /31/ * ** * /07/ * ** /14/ * * /21/ /28/ * * /07/ /14/ ** /21/ /28/ ** ** /04/ * /11/ ** ** /18/ * /25/ /02/ ** /09/ R

20 19 Table 7. Coefficient estimates by OJ brand, North Eastern region FLNAT MM TROP OTHER PL/GEN Variable Estimate SE Estimate SE Estimate Estimate SE Estimate SE Intercept * * * * * Log Price FLNAT * * * MM * * * * TROP ** * * * OTHER * * * PL/GEN * * GJ * OJ BL GJ BL GJ CKL * * ** OJ DRK OJ BL DRK * * ** * Any Promo FLNAT * * * MM * TROP * * * OTHER * PL/GEN * * ** * s * * ** s * * * * *

21 20 Table 7. Continue North Eastern region Variable Dummy Var FLNAT MM TROP OTHER PL/GEN Estimate SE Estimate SE Estimate Estimate SE Estimate SE 12/20/ * * ** /27/ * ** /03/ * * * /10/ * * * /17/ * * * * /24/ * * ** /31/ * ** ** /07/ * * * * /14/ ** * ** /21/ ** * /28/ * ** /07/ * /14/ * /21/ * /28/ * /04/ * * /11/ * ** /18/ * /25/ * /02/ * /09/ **

22 21 Table 8. Coefficient estimates by OJ brand, Western region FLNAT MM TROP POTHER PL/GEN Variable Estimate SE Estimate SE Estimate Estimate SE Estimate SE Intercept * * * * * Log Price FLNAT * * * MM ** * * * ** TROP ** * * ** OTHER * * ** PL/GEN * * * * GJ ** OJ BL * * * GJ BL * ** GJ CKL ** OJ DRK * OJ BL DRK Any Promo FLNAT * MM * * * ** TROP * * * * OTHER * * PL/GEN s ** ** * s * * * * *

23 22 Table 8. Continue Western region Variable Dummy Var FLNAT MM TROP OTHER PL/GEN Estimate SE Estimate SE Estimate Estimate SE Estimate SE 12/20/ ** * /27/ ** /03/ * ** * * /10/ * * * * /17/ * * /24/ * * * /31/ * * /07/ * /14/ * * * /21/ * * * /28/ * * * /07/ * * * /14/ * /21/ * ** /28/ * * * /04/ * * * /11/ * * /18/ ** /25/ /02/ * * /09/ * * * R

24 23 Table 9. Coefficient estimates western and North Eastern regions, $2MM+ grocery stores Western Region North Eastern Region Variable Estimate SE Estimate SE Intercept * * Log Price OJ * * GJ * OJ BL * GJ BL * GJ CKL * OJ DRK ** OJBLDRK * ANY PRO * Seasonality S * S * * Dummy Var 12/20/ /27/ ** /03/ * /10/ /17/ ** /24/ /31/ * /07/ /14/ * /21/ /28/ * /07/ /14/ /21/ /28/ * /04/ /11/ /18/ * /25/ /02/ /09/ R