This paper has shown that store-level differences in demand at the product can be measured. Furthermore these differences in price sensitivities translate into significant profit gains for the retailer. Beyond the question of statistical significance there is also the question of whether the magnitude of these profit increases are managerially significant. Our results indicate that micro-marketing strategies result in roughly a 3% increase in gross profits. Gross profits only consider the difference between the retail price and the retailer's cost, and do not reflect administrative and other selling costs. For refrigerated juices, gross profits are around 25%, which is the average for supermarket retailers (Supermarket Business 1992). On the otherhand operating profits were around 3% in 1993 (see publicly disclosed financial statements or a summary in Forbes 1994). If we assume that these micro-marketing increases are consistent across categories, then a 3% increase in gross profits would translate into a .75% increase in the retailer's operating profit margin or a 25% increase in operating profits.

It is difficult to know whether these results generalize to other retailers or whether these results are peculiar to this retailer at this specific time. But the supermarket retailer considered in this paper follows a Hi-Lo pricing strategy, which is the most commonly employed pricing strategy in this industry. Therefore we are optimistic that these results can be generalized to other retailers, in addition previous research suggests that these results will most likely generalize across categories (Hoch et al. 1995).

Our purpose has been to generate realistic estimates of the increases on profits given model and data limitations. To do this we have advocated placing constraints on promotion, revenue, and average price to guarantee there will be no change from current uniform pricing strategies. Our purpose has been to give a conservative estimate of the effects of micro-marketing pricing strategies. As these constraints are lifted off it becomes apparent that the retailer is systematically underpricing. While these predictions may seem disputable, they correlate well with results from studies conducted with the Micro-Marketing Project at the University of Chicago (Dreze, Hoch, and Purk 1993) which show a 10% increase in prices results in an 15% increase in profits averaged across 17 different categories. But clearly there is a need for future research to determine how cross-category substitution, loss leaders, and a store's image are affected on a long term basis.

A further reason to believe that these estimates on the profitability of micro-marketing strategies are conservative is that we have not exploited the retailer's dynamic cost structures (i.e., forward buying and promotional offers). We would expect that the retailer's costs would drop due to more efficient inventory allocation to each store. Furthermore previous research into promotions by Jeuland and Narasimhan (1985) advanced a price discrimination mechanism for promotions that would suggest that micro-marketing feature policies could be successful. If we were to allow feature prices to be store specific, we would expect a 7.72% increase in store profits instead of a 3.46% increase. Although this seems a promising direction, it is difficult to gauge consumer and competitive reaction. Therefore, we leave the specification of joint pricing and promotion micro-marketing strategies to future research.

The results presented in this paper show that the information contained in the retailer's store-level scanner data is an underutilized resource. By exploiting this information using newer and more powerful computational techniques retailers can better appreciate its value. There are profit incentives to the manager to better utilize the data resources that are available. The implication is that profits can be increased beyond what they are currently. This shows that gains can be made by using this information more efficiently. This also raises a question for a future research to study how limits on management's analytical capacities constrain a retailer's ability to use this information effectively.