The Power of Before and After: How the Dirichlet Can Analyze the Sales Impact of a Promotional Activity

James McCabe

ABB

Philip Stern

Loughborough University

Scott G. Dacko

Warwick Business School

Management slant

  • The Dirichlet is a well-established theoretical model that describes and predicts patterns of purchasing behavior in stationary markets.
  • This paper uses data from a highly nonstationary market to demonstrate that the Dirichlet norms also provide a baseline to interpret change in purchasing behavior—in particular, the changes in market structure that result from a sustained marketing campaign.
  • Organizational markets characterized by a concentration of large buyers exhibit deviations from Dirichlet predictions of brand loyalty.
  • Direct targeting of individually significant buyers can deliver growth by securing an increased share of the purchases made by heavy buyers, followed by a more typical growth strategy of attracting more buyers.