The Swedish Pharmacy Industry: Cross-Promotional Effects on Purchase Behaviour and Customer Satisfaction

Abstract: Since the de-regulation in 2009, the Swedish pharmacy industry is a fiercely competitive landscape characterized by low profitability and market saturation. Certain actors have exited the market while others have merged, and the trend is pointing towards a progressive market consolidation. Financial performance is lower than expected. Consequently, several pharmacies are spurring into a commercial direction and becoming more campaign driven than before. This paper aims at shredding light on how the retail industry, with the pharmacy sector in particular, can increase its revenue streams derived from cross-promoting non-prescription pharmaceuticals. A field experiment is carried out in order to assess the impact of cross-promotions of private label products on customer satisfaction and purchase behaviour. Different levels of congruity are taken into consideration as well as the Moderate Incongruity Effect. Overall findings suggest that cross-promotions have a positive and significant impact on both sales and customer satisfaction. It is also found that a more frequently purchased product A can drive the sales of a less frequently purchased product B in a category. Decision makers may benefit from these findings by being able to reinforce consumers' intentions to cross-buy targeted products in order to increase store profitability.