An analytical framework for retailer price and advertising decisions for products with temperature-sensitive demand

Abstract

The demand for weather-sensitive products, such as beverages, ice creams, or chocolate varies with changes in temperature. Yet, retailers lack a framework to adapt the marketing mix elements, such as price and advertising, in line with such changes. We provide a theoretical framework to fill this gap by developing an analytical model to derive the optimal marketing mix when product demand depends on temperature. The model prescribes how price and advertising for different demand characteristics should be set following a temperature change. Integrating the temperature element in the marketing mix offers an original profit-enhancing strategy.