Consumer Shopping Behaviors and In-Store Expenditure Decisions

Abstract

The authors study the effect that consumers’ adopted shopping patterns have on their responsiveness to pricing activity of retailers. Two important dimensions of shopping behavior — inclination to switch stores and preference for a particular retail price format (every day low price (EDLP) or promotional price (HILO)) are hypothesized to systematically affect the responsiveness of in-store expenditure decisions to changes in prices. In particular, store loyal households should be more responsive to changes in prices when deciding how much to buy in a given store. Similarly, the household shopping in a HILO format (where price variability is greater) should be more responsive. These hypotheses are developed and then tested using a joint model of store choice and in-store expenditure which accounts for potential interdependence between these decisions. The findings attest to the ability of consumers to exploit variation in the environment: When constrained on one dimension (e.g., by shopping in only one store), consumers exhibit flexibility on another (e.g., by adjusting expenditures in response to price changes). If afforded the opportunity to be flexible (e.g., through variable prices at a HILO store), consumers take advantage of this. These aspects of shopping behavior interact in a theoretically interesting, but counter-intuitive way: the expenditure decisions of HILO switching consumers turn out to be the least responsive to changes in prices at a particular store. These shoppers exploit advertised price differences and move among stores. This responsiveness in the store choice decision means they have less incentive to exhibit flexibility in their expenditure decisions at a given store. The authors present estimates from a series of models calibrated on a scanner panel data set which captures store choices and expenditure receipts, and find all hypotheses to be supported.

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