Journal of Retailing and Consumer Services 6 (1999) 99—105

Cross-category sales promotion effects

Harald Hruschka *, Martin Lukanowicz
, Christian Buchta
Department of Marketing, University of Regensburg, Universitätsstrasse 31, D-93053 Regensburg, Germany

Telekom Control, Mariahilferstrasse 77, A-1060 Vienna, Austria
 Department of Tourism, University of Economics, Augasse 2, A-1090 Vienna, Austria
Received for publication 14 July 1998

Abstract

We introduce a multivariate binomial logit model measuring cross-category dependence and sales promotion effects of a retail
assortment. This model requires as data both the market baskets of individual shoppers and the categories currently promoted in
a retail outlet. A special section describes the stepwise procedure used to estimate parameters of this model. Its application is
demonstrated analyzing 6147 purchases that were acquired in a medium-sized supermarket. We finally discuss the managerial
relevance of this model for sales promotion decisions of retail firms.  1999 Elsevier Science Ltd. All rights reserved.

Keywords: Assortment; Market basket analysis; Sales promotion

1. Introduction pasta sauce, strawberry and rasberry yoghurt, soup and

The main focus of our study is the measurement of
dependencies and sales promotion effects across the cate-
gories of a retail assortment. Both dependencies and sales
promotion effects are conceived with regard to shoppers’
purchase probabilities. We use market basket data ac-
quired by scanner technology together with appropriate
software where a market basket is the set of items (cate-
gories) that a buyer acquires in the same purchase. The
other part of our database consists of information on the
categories currently featured in a retail outlet.
One finds a few contributions dealing with the mea-
surement of cross-category dependence in the literature.
Böcker (1975, 1978) uses pairwise association measures
to identify relationships between pairs of categories.
Similar approaches may be found in Julander (1992),
Dickinson et al. (1992) and Bultez et al. (1996). Chin-
tagunta and Haldar (1995) use sophisticated bivariate
hazard and probit models to measure cross-category
dependence with regard to purchase times or choices, but
they still only consider pairs of categories (pasta and
* Corresponding author. Tel.: 0049 941 943 2277; fax: 0049 941 943
2278.
yogurt).
In contrast to these approaches, the following contri-
butions are able to reproduce influences of many (i.e.
more than one) different categories on purchases of a
category. Hruschka (1991) develops a probabilistic model
consisting of logit equations, which measures cross-
category dependence by interaction parameters. He stud-
ies market baskets for an assortment of 72 categories.
Another probabilistic approach uses data mining algo-
rithms to discover association rules that indicate how
frequent pairs of subsets of assortment categories are
purchased together (Agrawal and Sikant, 1994).
There is a dearth of studies investigating the impact
of promotions on non-promoted products, especially
with regard to complementary effects. Walters (1991) or
Mulhern and Leone (1991) find evidence of asymmetric
promotion effects between pairs of categories. Schmalen
and Pechtl (1995) study cross-category promotion effects
of coffee on other categories. Effects are measured by
growth of monetary sales of the other category. Sales
growth is somewhat higher only in one of the other
categories (cut cheese).
Chintagunta and Haldar (1995) extend their models
mentioned above by including price and promotion vari-
ables. For the pairs of product categories considered they
obtain higher interdependence measures compared to

0969-6989/99/$ — see front matter  1999 Elsevier Science Ltd. All rights reserved.
PII: S 0 9 6 9 - 6 9 8 9 ( 9 8 ) 0 0 0 2 6 - 5
100 H. Hruschka et al. / Journal of Retailing and Consumer Services 6 (1999) 99—105
model specifications without independent variables.
Manchanda et al. (1997) analyse multi-category pur-
chases in four categories (laundry detergents, fabric
softeners, cakemix and cake frosting) using a multivariate
probit model. They obtain significant complementary
price effects between laundry detergents and fabric
softeners (cakemix and cake frosting).
In the next section we lay out the multivariate logit
model. This is followed by a section giving information
on the estimation method. Then results of an empirical
study are presented. We conclude with a discussion of the
managerial relevance of this model for sales promotion
decisions of retail firms.
2. Multivariate logit model
We extend the model of Hruschka (1991) by including
cross-category sales promotion effects influencing
purchase probabilities. Purchases ½ (i"1, I) and sales
G
promotion X (i"1, I) in I product categories are binary
G
variables. We assume that promotion of category i may
influence purchases of category i via its main effect as well
as joint purchases of other categories jOi via interaction
parameters.
We start from the loglinear model for joint purchase
probabilites P(½ , 2, ½ ):
 '
' first-order interactions. The coefficient of interaction of
ln P(½ , 2, ½ )"a # (a #b X ) ½
 '  G G G G
G
'\ '
# (a #b X #b X )½ ½ ,
GH GHG G GHH H G H
G HG>
where a is the main effect of category i (the change of the
G pendencies in terms of customers’ purchases (Betancourt
log expected joint probabilities by a purchase of category
i), and a the first-order interaction between the two
GH
categories i and j. Interactions measure the deviation of
the log observed joint probabilities from the log expected
joint probabilities if only main effects are considered.
The model includes interactions between pairs of
categories (first-order interactions) and neglects higher-
order interactions (e.g. between triples of categories). This
may be justified by the high number of variables (catego-
ries) of retail applications and the better interpretability
of such a simplified model. A similar approach is taken in
conjoint-analysis models (e.g. Green et al., 1989).
Omission of any first-order interaction a gives
GH
a model, where the purchase of category i is conditionally
independent from the purchase of category j given pur-
chases of other categories. By leaving out any a with
GI
kOj as well, one obtains a model according to which the
purchase of both categories i and k is independent from
the purchase of category j. If all interactions a with jOi
GH
are excluded, we arrive at total independence of
purchases of category i from purchases of the rest of the
assortment.
b denotes the effect of a sales promotion of category
G
i on the main effect of the same category, b the effect on
GHG
the interaction of categories i and j by a sales promotion
of category i.
Conditional probabilities of purchases of category i
given purchases of other related categories (whose
a O0) collected in the index set Z and sales promotions
GH G
X"+X , 2, X , are derived from the loglinear model
 '
as
P "1/(1#exp(!(aG #bG X
G8G 6   G
# (aG #bG X #bG X ) ½ )))
H HG G HH H H
HZ8G
with
aG "a , bG "b , bG "b . (2)
H GH HG GHG HH GHH
This model consists of one binomial logit equation for
each of the categories considered. It is a multivariate
binomial logit model using the terminology of Nerlove
and Press (1973).
The relationship of the multivariate logit formulation
to the loglinear model implies cross-equation parameter
restrictions of the following type (Maddala, 1987):
aG "aH"a . (3)
H G GH
These restrictions come up to equality conditions for
category j in the equation of category i, aG equals the
H
coefficient of category i in the equation of category j, aH .
G
We call two categories purchase complements (substi-
(1)
tutes) if joint purchases are more (less) frequent compared
to the case of stochastic independence (Mulhern and
Leone, 1991). Our definition is based on product interde-
and Gautschi, 1990).
A parameter aG greater (less) than zero indicates that
H
both categories are complements (substitutes). A para-
meter equal to zero shows that they are independent. To
be more specific, there is conditional independence with
those categories jOi, which have no interaction para-
meter different from zero in the logit equation of category
i. If the logit equation of category i has no interaction
parameters at all, its purchases are totally independent
from purchases of the rest of the assortment.
We distinguish the following types of effects of a sales
promotion of category i:
E more purchases of the same category (bG '0);

E less joint purchases of categories i and j (bG (0);
HG
E more joint purchases of categories i and j (bG '0).
HG
In the extreme a promotion may make two categories
purchase complements that without promotion joint
purchases are stochastically independent.
 H. Hruschka et al. / Journal of Retailing and Consumer Services 6 (1999) 99—105 101

3. Estimation of the multivariate logit model
Estimation of the multivariate logit model proceeds in
the following way:
1. Basic multivariate logit model:
E determination of significant cross effects for all pairs of
categories;
E specification of the multivariate logit model by com-
bining interaction parameters corresponding to all sig-
nificant cross effects and all main effect parameters;
E single equation estimation of the multivariate logit
model;
E stepwise elimination of interaction parameters;
E estimation of the multivariate model for all categories
taking cross-equation equality restrictions into ac-
count.
2. Introduction of the additional parameters of the ex-
tended model.
3. Stepwise elimination of additional parameters.
Single logit equations for each category are estimated
by generalized least squares. To include parameter re-
strictions the whole system of binomial logit equations is
formulated as one multivariate nonlinear regression
model. Parameter estimates (or variance weighted ave-
rages) obtained in the single equation step serve as initial
values for the multivariate nonlinear least squares es-
timation (Gallant, 1987).
The vast number of possible model specifications
because of the high number of categories even when
restricting to constant terms and first order interactions
forces to use a coarse model search heuristic. In several
steps, the parameter with maximal insignificance is se-
lected as candidate for elimination from the model. It is
actually eliminated, if the normed fit index of the unres-
tricted model with this parameter included compared to
the restricted model without this parameter is less than
0.02. Stepwise elimination stops, if all parameters are
significant at a"0.05.
The normed fit index gives the relative improvement of
the sum of weighted squared errors of an unrestricted
model (SSE ) compared to a restricted model (SSE ):
3 0
SSE !SSE
0 3. (4)
SSE
0 Independent categories
special software installed in the data-processing center of
the retail chain. The purchases of the data set occurred
on four successive saturdays. As frequencies for indi-
vidual items as a rule become very low, we analyze data
on the category level. In agreement with the classification
scheme of the retail chain 150 categories are distin-
guished.
Results demonstrate that dependence exists for 73
categories. Only 4.9% of the pairs formed by these 73
categories have significant interaction parameters. The
purchases of certain categories are totally independent of
purchases of the remaining categories. Table 1 shows
those isolated categories and their main effects, which
attain at least 100 purchases in the data set.
Using interaction parameters of the multivariate
binomial model one can identify clusters consisting of
more than one category that are independent from other
parts of the assortment (Fig. 1 contains a MDS map
computed on the basis of interaction parameters.).
These clusters are:
E detergents and related products;
E household cleansers, other cleansers;
E tobacco, cigars, cigarette paper;
E tropical fruit, frozen fruit;
E baby related products (food, care, hygienic);
E red wine, white wine;
E beer, water.
The categories most frequently bought are:
bread (1078 purchases);
fruit (1050 purchases);
vegetables (846 purchases);
yoghurt (782 purchases);
journals (713 purchases);
milk (705 purchases).
Table 2 contains main effects and interaction para-
meters of the logit equations of these categories. Bread
has the strongest interactions with cut cheese and fruit or
vegetables, fruit with vegetables and yoghurt, vegetables
with fruit and milk, yoghurt with milk and fruit, milk
with yoghurt and vegetables. Journals only interact with
bread.
Table 1

In the case of perfect fit the normed fit index assumes the Category Purchases aG

value one.
Champagne 116 !1.398
Cigarettes 443 !0.796
Frozen potato and flour products 108 !1.398
4. Empirical study Frozen poultry 157 !1.301
Gifts 193 !1.222
The empirical study is based on a data set consisting of Office articles 100 !1.523
6147 purchases acquired in a medium sized supermarket Rolls 265 !1.046
Snacks 251 !1.046
of the same retail chain. Usual scanner data were read in, Soft drinks 555 !0.770
transformed to and stored as market basket data by
102 H. Hruschka et al. / Journal of Retailing and Consumer Services 6 (1999) 99—105

Fig. 1. MDS map of interdependent categories.

On the whole, results confirm expectations that most gories promotion does not change their own main effect
categories of a retail assortment are complements as they (bG "0), i.e. the purchase frequency does not significantly

allow customers to do one-stop shopping (Betancourt increase (or decrease), if a category is promoted:
and Gautschi, 1990). Almost all of the interactions dis-
E deli;
covered comprise categories that are complements. The
E spread;
only substitutes found are cigars and tobacco as well as
E sweets;
cigars and cigarette paper. This may be explained by the
E vermouth and dessert wine;
fact that these categories are restricted to basically the
E dog food;
same consumption activity.
E toilet tissue;
The logit model is computationally more efficient than
E red wine;
the data mining approach of Agrawal and Sikant (1994)
E dishwashing detergents;
mentioned above. The latter leads to computing times for
E electric appliances.
small simulation problems with 20 categories which are
much higher than those necessary for the multivariate It may be possible that promotion in these categories
binomial logit model when applied to a real-world data only lead to switching of customers within a category. Of
set. course, to study this hypothesis one has to use brand-
Maximally, 47 categories are promoted per week. After specific data.
eliminating 26 categories that are promoted in every For salt & garlic as well as cat food the multivariate
week and categories with very low purchase frequencies, logit model indicates more purchases if these categories
28 promoted categories remain. For the following cate- are promoted (i.e. higher main effects because of bG equal

 H. Hruschka et al. / Journal of Retailing and Consumer Services 6 (1999) 99—105 103

Table 2
Main and interaction effects

Logit equation for

Bread Fruit Milk Journals Vegetables Yoghurt

Main effect !0.699 !0.824 !1.046 !0.658 !1.222 !0.959

Baking products 0.190 0.176
Bread 0.279 0.161 0.265 0.279 0.173
Butter 0.170 0.155 0.270
Canned milk 0.114
Canned vegetables 0.170 0.152
Cheese 0.185 0.185 0.185 0.146 0.238
Chocolate 0.170 0.182
Cut cheese 0.529 0.111 0.238 0.260 0.140
Deli 0.238 0.386
Dental care 0.286
Durable milk 0.173 0.185
Eggs 0.223 0.179 0.324
Fat & oil 0.140 0.086 0.204
Fruit 0.279 0.140 0.401 0.312
Fruit juice 0.272
Hygienic tissue 0.179
Journals 0.265
Milk 0.161 0.140 0.400 0.487
Pasta 0.121 0.255
Rice & legume 0.061
Salt & garlic 0.260
Soups & sauces 0.127 0.188 0.179
Sour canned food 0.230 0.199
Spices & mustard 0.093
Toilet tissue 0.182
Vegetables 0.279 0.401 0.400
Whole-meat bread 0.290
Yoghurt 0.173 0.312 0.487

to 0.176 and 0.230, respectively), but no effects on interac- i and j are only related if i is promoted:
tions (i.e. the interaction parameters are the same as
without feature, bG "0). Especially, salt & garlic is a rice & legume P milk (0.318);
HG soups & sauces P baking products (0.223).
category only weakly related to consumption activities.
Promoting it therefore does not change consumption
The multivariate logit model demonstrates that for
patterns of other categories.
some categories promotion decreases the joint purchase
For some of the other categories effects of promotion
probability compared to the situation without promo-
on interactions can be confirmed. Promotion increases
tion:
complementary relationships in some categories (para-
meters bG are shown in parentheses): flour P baking products (!0.276);
HG
canned vegetables P pasta (0.236); flour P fat & oil (!0.276);
canned vegetables P soups sauces (0.251); bread P fruit (!0.375);
dried fruit P baking products (0.338); bread P milk (!0.108);
hair care P hygienic products (0.021); deli P canned fish (!0.046);
soups & sauces P canned vegetables (0.206). exotic fruit P frozen fruit (!0.495);
fruit P bread (!0.215);
Most of these category pairs are complements with hygienic tissue P dental care (!0.260).
regard to consumption acitivities. Note that promotion
of canned vegetables increases the complementary rela- Accelerated purchases (of e.g. flour, tissue), reduction
tionship with soups & sauces, while promotion of soups of consumption activities including the categories on the
& sauces in turn increases the complementary relation- right-hand side (e.g. fruit or bread) or substitution in
ship with canned vegetables. consumption activities (e.g. of frozen by exotic fruit)
Promotion in some categories lead to complementary caused by promotion may be responsible for these
relationships with certain other categories, i.e. categories results.
104 H. Hruschka et al. / Journal of Retailing and Consumer Services 6 (1999) 99—105
5. Conclusions
Market basket data offer new possibilities to provide
information that is relevant from the point of view of
retail managers. Hitherto the most popular approaches
showing interdependencies in retail assortments rely on
association measures for pairs of categories. We present-
ed a multivariate binomial logit model for market basket
data analysis which overcomes limitations of these bi-
variate methods. It separates simple effects of frequency
from interactions between categories. It allows to identify
single categories as well as clusters of categories that are
independent from the rest of the assortment with regard
to purchase probabilities. Moreover, the multivariate
logit also measures cross-category effects of sales promo-
tions on purchase probabilities.
Nevertheless this new approach has certain limita-
tions. It only considers whether or not items are pur-
chased together, but neglects how much of these items
are purchased. In the form presented here, individual
shoppers are not identified and interdependencies across
purchases of an individual or household are neglected
due to data restrictions. Moreover, homogeneity across
purchases is assumed. Of course, most of these limi-
tations draw attention to possible extensions of the
model.
The capability to give a more valid picture of pur-
chases of categories and their interdependencies is
of managerial relevance. The multivariate logit model
calibrated on basket data is suited for assisting retail
managers in taking sales promotion and assortment
decisions.
With regard to sales promotion the relevant literature
focuses on the effects of features, displays, coupons and
price cuts on purchases of the same category or brand
(Blattberg and Neslin, 1990). Despite the obvious import-
ance of increasing purchase probabilities of the same
category or item (i.e. strong positive influences of promo-
tions on main effects), in many situations promotions are
effective only if they stimulate sales of non-promoted
categories or items, e.g. because of higher sales of other
categories or items to current customers (Mulhern and
Leone, 1991). To take an example from our empirical
study, soft drinks have a high purchase frequency, but do
not interact with the rest of the assortment. Promot-
ing soft drinks will raise their own sales without influ-
encing other categories. Promotion will only be
worthwhile, if soft drinks have high volume and margins.
On the other hand, if two categories are strong com-
plements, the retailer may achieve higher profits if he
promotes both.
If a retail manager is interested in cross-selling, she or
he should look for categories with high main effects that
are also strong complements with relationships to other
frequently bought high contribution categories. If cus-
tomers buy more of category A if it is promoted and
if they are also more likely to buy category B, then
the retailer’s profits may be higher if he promotes
only A. According to the empirical results this may be
valid for canned vegetables and pasta, dried fruit and
baking products as well as hair care and hygienic
products.
Such categories are also appropriate for loss leader-
pricing. This means that they are offered with a lower
price, which besides own category sales also increases
purchase probabilities of related high-margin categories.
This way the retailer earns higher profits.
On the other hand, if effects of promoting category
A are positive with regard to B and vice versa, it may
be of advantage to promote both. The results for
soups & sauces and canned vegetables provide an
example.
Promotion of categories may reduce purchases in
certain other categories. This makes promotion or loss-
leader pricing less attractive. Relevant examples in our
study are bread and fruit or milk, deli and fish, exotic
fruit and frozen fruit.
Acknowledgements
We thank Helmut Schmalen and his co-workers at the
Department of Marketing of the University of Passau for
their help in providing the data and discussing results.
Partial support by the Austrian Research Foundation
(Project P 7527) is acknowledged.
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