Empirical Analysis of Consumer Purchase Behavior: Interaction Between State Dependence and Sensitivity to Marketing-Mix Variables1

People are intent to make similar choices especially in consumer goods markets. To address both explanations of this persistence, i.e. state dependence and heterogeneity in preferences, we use random coefficient logit model based on scanner panel data on juice purchases. The product differentiation of the chosen category allows us to model three dimensions of state dependence on brand, size and flavor characteristics. We provide evidence that the persistence in brand choices is positively correlated with persistence in size and flavor choices, thus the consumer pattern is prone to be inertial or variety seeking in every product characteristics. Simultaneously we show that the more sensitive to price and promotional activities consumers are, the less inertial is their behavior.     

A Micromodel of New Product Adoption with Heterogeneous and Forward-Looking Consumers: Application to the Digital Camera Category

We develop an empirical model for the adoption process of a new durable product that accounts for consumer heterogeneity as well as consumers forward-looking behavior. Accounting for heterogeneity is important for two reasons. As the mix of consumers with different preferences and price sensitivities could change over time, firms need to update their marketing strategies. Further, it allows for a variety of shapes for the aggregate adoption process over time. As prices for durable and technology products fall over time with firms continually introducing enhanced products, consumers may anticipate these prices and improvements and delay their purchases in the product category. Forward-looking consumers optimize purchase timing by trading off their utilities from buying the product and their expectations on future prices, quality levels, and brand availability. Such forward-looking behavior will result in price dynamics in the marketplace as price changes today influence future purchases. And it results in different shapes of the new product sales pattern over time by influencing the time to take-off. We show how the parameters of our model can be estimated using aggregate data on the sales, prices, and attributes of brands in a product category. We apply our model to market data from the digital camera category. Our data are consistent with the presence of both heterogeneity and forward looking behavior among consumers. At the product category level, we are able to decompose the effects of the entry of Sony into primary demand expansion and switching from other brands. At the brand level, we find that there exist several segments in the market with different preferences for the brands and different price sensitivities leading to differences in adoption timing and brand choice across segments. For a given brand, we show how the changing customer mix over time has implications for that brands pricing strategies. We characterize how price effects vary across brands and over time and how price changes in a given time period influence sales in subsequent periods. Model comparison and validation results are also provided.     

A cross-category investigation into the effects of nine-ending pricing on brand choice

Retailers largely adopt nine-ending prices and these prices have attracted greater attention from researchers in marketing. Despite this increased interest, very few empirical studies have tried to quantify the effects of nine-ending prices on consumer actual behaviors. Those who have studied the behavioral effects of nine-ending prices have produced mixed findings. In this article, we investigated the cross-category effects of nine-ending pricing on consumer brand choice at the SKU level. We distinguished between different types of nine-ending while controlling for the rounded prices and other marketing-mix variables. We conducted our analysis on over 11,000 SKUs in 102 product categories of two (2) grocery retailers. We find that the effects of 99 ending prices on the SKU's category choice are larger in concentrated and promotional categories but smaller in expensive categories. However, their influence on purchase quantity is larger in expensive categories but smaller in concentrated categories.     

Impact of different types of in-store displays on consumer purchase behavior

Research on consumer in-store shopping behavior does not account for the existence of different types of display locations (e.g. storefront, store rear, secondary, front end cap, rear end cap, and shelf displays). This article focuses on accounting for and understanding the impact of various displays on consumer purchase behavior based on the Stimulus-Organism-Response (SOR) theory. Specifically, we study how displays closer to and farther from the main location of the focal category influence consumer purchase behavior. Furthermore, within the different types of displays we investigate the impact of specific types of displays on consumer's category purchase and brand choice and the moderating role of price and discounts. A hierarchical Bayesian model is estimated using scanner panel data for a large U.S. grocery chain that contains unique information on the number of product facings at multiple display locations within a store. We find that displays closer to the focal category have a larger impact, with front end cap displays having the largest impact on category purchase and shelf displays having the largest impact on brand choice. We also demonstrate the synergistic impact of price and discounts in enhancing the impact of displays on consumer purchase behavior and brand choice. Equipped with these findings we propose a display allocation optimization that results in an average increase in revenue of about 11.15% and a strategy to distribute displays across all locations in the store rather than letting one location dominate.     

Understanding the impact of store flyers on purchase behaviour: An empirical analysis in the context of Spanish households

The purpose of this paper is to analyse how Spanish consumers are really influenced by store flyers. The present study examines decisions of households regarding: (i) incidence (using a binary logit model); (ii) brand choice (using a multinomial logit model); and (iii) quantity (using a Poisson model). The models described above are applied to scanner choice datasets of the purchases made by Spanish households in two product categories (olive oil and coffee) over 53 weeks. The study finds that the main effect of such flyers is brand switching, rather than acceleration or stockpiling. However, consumers are not homogeneous in these responses to store flyers. Price sensitivity is found to be a more important driver of flyer-proneness than brand loyalty; moreover, the study finds a strong relationship between price-sensitive, flyer-prone consumers and decisions on incidence, choice, and purchase quantities. In contrast, the influence of the presence of brands in store flyers on incidence of purchases is not more prevalent among brand-loyal consumers than among non-brand-loyal consumer; however, such flyers are able to induce loyal users to stock up on their preferred brand. The managerial implications underline that manufacturers and retailers should be aware that the inclusion of a brand in store flyers (without necessarily offering a price discount) can simultaneously cut promotional costs and increase sales profits. In addition, managers should use other types of promotions (such as in-store displays) to encourage consumers to stock up on the brand.     

Accounting for heterogeneity and dynamics in the loyalty-price sensitivity relationship

Marketers have been interested in the relationship between brand loyalty and price sensitivity for many years and have examined whether loyalty reduces consumer price sensitivity. The results, to date, indicate that loyalty does indeed raise the price that consumers are willing to pay for a brand. Other than this broad finding, however, there has been little research in the literature regarding whether and how this relationship varies across consumers and product categories and, within consumers, over time. This is the issue that we investigate in this paper. Specifically, we examine whether the price sensitivity-loyalty relationship is heterogeneous and dynamic. We propose an approach wherein the price sensitivity parameter of a brand choice model is specified as a function of loyalty with three parameters. The first parameter of this function represents the maximum possible reduction in price sensitivity due to loyalty. The second parameter affects the type and shape of the relationship between price sensitivity and loyalty. In particular, depending on the value of this parameter, the relationship could be non-existent, follow a concave shape, indicating decreasing response to increases in loyalty, or be S-shaped to capture the case of increasing response initially followed by decreasing response subsequently. Finally, the third parameter captures the rate at which price sensitivity falls as loyalty increases.We use the proposed approach to investigate the relationship in four frequently purchased categories. In each category, we select a sample of households and calibrate the model on the choices of all the households in the sample. We next employ an Empirical Bayes approach to obtain household-level estimates of all the parameters. These parameters are then used to assign each household in each category to a no response or concave or S-shaped response groups. Within each of these three groups, we assign each household to one of four different response level and rate segments, that is, high response-high rate, high response-low rate, low response-high rate, and low response-low rate. Each of these segments differs in the response level, that is, the maximum reduction in price sensitivity as loyalty reaches a maximum—and the response rate, that is, how quickly price sensitivity falls with increases in loyalty.Following the assignment of each household to a segment in each category, we pool the households across all four categories and calibrate a membership function. This function explains households’ membership in different segments in terms of product category characteristics, household demographics, the household’s responses to price, display, and feature promotions and the evolution of loyalty of the household.Our findings suggest that the nature of the loyalty-price sensitivity relationship does vary across consumers as well as over time. Specifically, the concave response is more likely than the S-shaped response or the absence of a response. We find that the S-shaped response is not related to responsiveness to in-store promotions. It is, however, associated with a slower growth in loyalty to a brand as it is purchased. The concave response, on the other hand, is associated with responsiveness to feature promotions but is unrelated to how loyalty to brands evolves with their purchases.We also find that demographic characteristics are related to the behavior of the concave and S-shaped responses. Specifically, for the S-shaped response, household demographics are related to both the maximum level of the curve as well as its rate of growth. In particular, the curve grows faster with age and its maximum increases with the weekly working hours of the household. In the case of the concave response, high income and more working hours raise the maximum level that the curve achieves. Its rate of growth, however, is unaffected by demographics.We also provide several managerial implications for loyalty and promotional programs based on our findings. Specifically, our first finding—that the loyalty-price sensitivity relationship is dynamic—suggests that, rather than having promotional programs, where the value of the price promotion is fixed and some consumers are targeted with the promotion while others are not, managers should have an entire schedule of price promotions with each level of promotions targeting consumers at a different loyalty level.Our second finding that the nature of the loyalty-price sensitivity relationship is heterogeneous across consumers suggests that designing loyalty programs on the basis of crude classifications such as loyals and non-loyals is not appropriate. Instead, households that are identified as loyal, need to be further divided based on how the loyalty affects their price sensitivity. Promotional programs should then be based on the specific type of relationship that a household exhibits.The third finding that the reductions in price sensitivity to loyalty can exhibit an S-shaped or a concave pattern also has an interesting managerial implication. Specifically, given the differences between the two patterns in how long it might take a consumer to reach a point where s(he) is willing to purchase a brand due to loyalty rather than due to a price promotion, and hence be a profitable customer, it may be preferable for managers to invest more in consumers who exhibit a concave rather than an S-shaped response.Finally, our result that different categories may exhibit different patterns of the relationship between price sensitivity and loyalty implies that each category needs to be analyzed by itself for what the nature of the loyalty-price sensitivity relationship is likely to be so that the most appropriate program for that category can be developed.     

Consumer heterogeneity in the longer-term effects of price promotions

While a significant literature has emerged recently on the longer-term effects of price promotions, as inferred from persistence models, there is very little if any attention paid to whether such longer-term effects vary across different types of consumers. This paper takes a first step in that direction by exploring whether the adjustment, permanent, and total effects of price promotions, and the duration of the adjustment period, differ between consumers segmented based on their usage rates in a product category and their loyalty to a brand. We also investigate whether such consumer segmentation will improve the forecasting performance of persistence models at both product category and brand levels. Expectations are developed based on consumer behavior theory on various effects of price promotions, such as the post-deal trough, the mere purchase effect, the promotion usage effect, and responsiveness to competitor's reactions. Evidence from household-level supermarket scanner data on four product categories is provided. We find substantial differences between consumer segments and provide insights on how managers can increase the longer-term effectiveness of price promotions by targeting each consumer segment with a different promotion program. In addition, consumer segmentation is found to significantly improve the forecasting performance of the persistence model for two of the four product categories. For the other two product categories, consumer segmentation provides forecasting performance similar to that obtained from aggregate-level persistence models.     

An Investigation of Consumer Brand Choice Behavior Across Different Retail Formats

There has been a blurring with respect to the retail formats because of competition and proliferation of different types of formats. In this research, we use a unique scanner panel dataset to investigate how brand choice behavior varies for the same consumer shopping for the same brand across different retail formats. We develop hypotheses pertaining to promotion sensitivity, price sensitivity, package size preference, and effects of demographic and shopping variables on consumer brand choice behavior and test them using a multi-format probit choice model that allows for the estimation of the cross-format differences with respect to the above. We find that consumers exhibit different promotion and price sensitivities in brand choice behavior between the mass merchandise format and supermarkets. Discussions and insights are provided.     

Consumer Shows in the Promotion Mix

Abstract

Consumer shows present a unique promotional opportunity by presenting a forum for attracting consumers with a specific interest in the products featured at the show. In this study we examine auto show attendees' perceived differences and similarities between attendance at an automobile consumer show and the traditional showroom visits made by automobile shoppers. Results of the study indicate that the promotional value of the show had a modest but positive impact on vehicle buying and leasing, a considerable positive influence on brand and model selection, but little influence on choice of dealer. We discovered that attendees perceive sales personnel they met at the show to be more knowledgeable, trustworthy and friendly than those they met at a dealership (even though the sales personnel at the show work at dealerships). Finally, we found that among the group from which most incremental purchases would be expected-those who came to the show with negative intentions but who then purchased a vehicle-the show is viewed more as a substitute for entertainment than for other shopping activities. The promotional implications of these results are then explored.     

Omnichannel-based promotions’ effects on purchase behavior and brand image

This paper examines the effects of utilizing consumers’ digital shopping traces when designing in-store promotions on purchase behavior and brand image. In two experimental studies with 526 and 550 espondents, the authors examine the effects of omnichannel-based promotions (e.g. using digital shopping trace to offer a promotion when the consumer enters the physical store) in two different product categories (utilitarian vs. hedonic), spontaneous/planned purchases and two different retail industries (durable good vs. travel). The results show that retailers benefit from using digital shopping traces as it increases purchases and enhances brand imagery. The effects are moderated by product category and type of purchase.     

Brand equity and retailer acceptance of brand extensions

Two important benefits of brand equity have largely been assumed in most previous research: reduced marketing expenditures required to launch brand extensions; and channel participants as an important source of brand equity. Results of a discrete choice experiment with independent retail grocers indicate that brand names influence independent retailers’ probability of listing brand extensions, but their sensitivity to mix elements such as consumer advertising, promotional allowances, and wholesale price, as well as competitors’ listing actions are not influenced by brand names. This means that retailers treat each dollar of consumer advertising or promotional allowance the same, regardless of who is spending it. Manufacturers should not assume that retailers will be less sensitive to other elements of the marketing mix for stronger brands.     

Drivers of and Barriers to Organic Purchase Behavior

Using a cost–benefit approach, this study is the first to jointly investigate supply-side factors and consumer characteristics that drive or hinder organic purchases. With scanner data that track actual purchase behavior in 28 product categories, the authors find that organic products are less popular in vice categories and categories with high promotional intensity and more popular in fresh versus processed categories. Biospheric values that reflect a person's concern for the environment and animal welfare increase organic purchases. Quality and health motives drive organic purchases only in certain categories, in particular categories with a low promotional intensity. Egoism and price consciousness act as barriers to organic purchases.     

Price competition during and after promotions

We provide a framework for setting regular prices and using promotional discounts in a duopoly where long‐term promotional effects are present and the firms' pricing and promotional strategies are common knowledge (e.g., as in online markets). We show that at equilibrium, the two firms may not promote and instead adopt an Everyday Low Price (EDLP) strategy. Consumers' tendency to stockpile promoted products, the level of brand loyalty and product differentiation, and the possibility of a postpromotional sales increase critically influence regular prices, price discount rates, and profits. Under some conditions consumer stockpiling intensifies promotional competition and reduces firms' profits while the possibility of attracting new consumers reduces the need to heavily promote and ensures better profits. Managerial implications are discussed. Copyright © 2007 ASAC. Published by John Wiley & Sons, Ltd.     

Factors that influence manufacturer and store brand behavioral loyalty

This study examines the factors that are linked to consumer goods brands having unusually high or low behavioral loyalty, after controlling for the association between brand size and loyalty that occurs due to the ‘double jeopardy’ effect. Behavioral, or repeat-purchase loyalty is measured as the brand's average share of category requirements (in volume) among its buyers over a 12-month period. We examine a range of factors that theory or past evidence suggests are associated with higher or lower behavioral loyalty, including brand type (store brand/manufacturer brand), price level, promotion intensity, as well as average brand volume per occasion and pack size. Using extensive US panel purchasing data, we find that store brands exhibit relatively higher behavioral loyalty than manufacturer brands. We explain the theory behind this result. We also find that the brand's average pack size and volume bought per occasion has a markedly positive association with behavioral loyalty. Finally, we find that the effect of low price on excess loyalty is moderated via a positive association with average volume purchase per occasion. These findings add to the body of knowledge relating to patterns in behavioral brand loyalty for both manufacturer and store brands, as well as the marketing-mix factors that influence it.     

The Effect of Price Promotions on Repeat Purchase Behavior

Abstract

While there is general agreement that price promotions generally have an immediate positive impact on the sales of consumer nondurables, there is little agreement about their repeat-purchasing effects. Promotion usage effects may exist in which brand repurchase rates are negatively affected by the fact that a promotion was used to make a purchase.

Using scanner data, this study examines the effect of price promotions on brand repurchase rates in four product categories. Findings indicate that repurchase rates are generally higher after non-deal purchases, however, this seems largely attributable to differences in household pre-purchase probabilities.     

The Impact of Price Disclosure on Dynamic Shopping Decisions

A potentially powerful way to assist consumers in making dynamic shopping decisions is to disclose price information to them before they shop, for example by posting prices on the Internet. This paper addresses the differential impact of disclosing either only current, or both current and future prices, on consumer shopping decisions in multi-period tasks involving multiple product purchases. In the context of an Internet-based experiment, we find that consumer expenditure deviates more strongly from that of a normative model when both current and future prices are disclosed than if only current prices are disclosed. We investigate the behavioral effects underlying this finding by estimating a model that allows for variations in consumer discounting, strength of store price format preferences, as well as choice consistency between different price disclosure conditions.     

Promoting promotions: Does showcasing free gifts backfire?

Two experiments examine the effect of the visual size of a gift in a free gift promotion on consumer judgments. Results show that promotional offers that highlight the free gift (rather than the product) are less effective than those that highlight the product to be purchased. Increasing the visual size of the free gift leads to perceptions of poorer product quality and has unfavorable consequences for purchase intentions of the offer. We propose that the larger the size of the gift in a promotional ad, the higher the perceived component of gift value in the total promotional offer, and accordingly the lower the value of the promoted product. Therefore, visually larger gifts can backfire and hurt the overall promotional offer. The presence of price information about the product moderates these effects. Implications for the use of visual cues to draw inferences, and managerial implications for advertising free gift offers are discussed.     

An Examination of the Incidence of Purchase Quantity and Timing Acceleration

One potential cause of sales increases for consumer nondurables during promotional periods is purchase acceleration. That is, a promotion may cause consumers to buy larger quantities of a product (quantity acceleration) and/or purchase the product sooner than they normally would (timing acceleration). A number of stud- ies, using a number of different types of products and consumer promotions, have examined the phenomenon but the results have not consistenlly shown that purchase acceleration occurs or is large enough to be perceptible. This study, using rather strict definitions of quantity and timing acceleration, finds evidence of considerable purchase quantity and timing acceleration by households in four product categories. These findings suggest that manufacturers may be overestimating the prof- itability of their promotions. A portion of the sales increase in promotional periods has been borrowed from future periods, where presumably some of the purchases would have been non-promo- tional, higher-margin purchases.     

Brand Loyalty and Price Promotion Strategies: An Empirical Analysis

Though brand loyalty has been studied extensively in the marketing literature, the relationship between brand loyalty and retail pricing strategies is not well understood. Designing promotion strategies involves two key decisions: the percentage reduction in price from the existing price point (depth), and the frequency with which a product is promoted. These decisions, in turn, are critically dependent upon how many consumers can be convinced to switch to a brand by temporarily reducing its price, and how many are instead brand loyal. Theoretical models of how the strength of brand loyalty influence optimal promotion strategies have been developed, but there are no rigorous tests of their hypotheses that take into account wholesale price variation. We test how brand loyalty impacts promotion strategies for two frequently purchased consumer packaged good categories. Our results confirm that retailers promote strong brands shallower and more frequently compared to brands with weak loyalty. Our results highlight the importance of carefully modeling wholesale prices when testing behavioral models on retail pricing.