Economic Shocks, the Dispersion of Consumer Preferences and the Assessment of Price and Product Strategies
Final Report Abstract
The research found evidence for the dispersions of consumer preference and the necessity of taking this into account to assess price and product strategies and impacts of economic shocks. Our research project advances and develops modeling approaches to represent dispersions of heterogeneous consumer valuations. This by is achieved through combining micro and macro data to obtain a better understanding of the dispersion of consumer valuation and to determine the consequences of the decisions of firms. Micro data are typically available from consumer surveys that enable us to estimate individual preferences of consumers to activities such as pricing or advertising. Micro data may allow measuring effects of consumer perceptions on certain product features on their purchase decision, such as the quality image of a shampoo or coffee brand and the attitude of a consumer towards its advertising or in relation to a consumer’s demographics, such as age. This individual level information is then combined with typical aggregate sales data to explain observed sales. Panel data however do not allow repeatedly surveying consumers’ perceptions, such as e.g. product image or attitudes, because of the resulting bias when repeated surveying the same respondents (repeated measurement bias). But when working with disaggregate consumer level panel data, we can directly make use of specific information of consumers from the panel to account for consumer heterogeneity. That means, due to repeated observations of choices of single consumers, we can estimate the individual preferences of this panelist accurately. Therefore, this individual-level data enables us to throughout represent various forms of consumer heterogeneity and distinguish e.g. heterogeneous preferences from non-linear effects of influence variables, such as product prices. The research showed that an adequate representation of consumer heterogeneity is necessary because otherwise it can not only lead to incorrect measurements of marketing effects, such as of brand preferences but also can induce misleading implications about the price elasticity of demand, the consumer surplus or the willingness to pay. In the context of the effect of price endings of consumer goods, we found for instance that consumers indeed are non-linear affected in product utility by price endings and this effect can different for different consumers. The predominate presence of prices with certain endings was found to be mainly driven by consumer demand and for example by an any erroneous price setting of retailers. Based on the results of a policy simulations in the empirical example and without taking further issues into account, a regulatory policy of withdrawing one- and two-cent coins from circulation is beneficial from the consumer perspective; this is the case if a policy maker intends to increase the overall consumer surplus, for instance. From the joint perspective of the firms, the results advise against implementing either of the two regulatory policies, i.e., maintaining the current policy of unrestricted pricing with all cent values. Overall, the sum of the gain and loss from the profit and the consumer surplus is positive for both regulatory policies and larger for withdrawing one- and two-cent coins from circulation. In summary, this research projects focused on economically relevant research topics that are related to the dispersion of consumer valuation, suppliers’ marketing strategies (such as product, price and/or advertising strategy) and the outcomes of economic shocks to this relationship.
Publications
- (2014). Bayesian estimation of the random coefficients logit from aggregate count data. Quantitative Marketing and Economics, Vol. 12, No. 1, pp. 43-84
Zenetti, G. and Otter, T.
(See online at https://doi.org/10.1007/s11129-013-9140-4) - (2014). Search Engine Advertising Effectiveness in a Multimedia Campaign. International Journal of Electronic Commerce. Vol. 18, No. 3, pp. 7–38
Zenetti, G., Bijmolt, T., Leeflang, P. and Klapper, D.
(See online at https://doi.org/10.2753/JEC1086-4415180301) - (2016). Advertising Effects Under Consumer Heterogeneity - The Moderating Role of Brand Experience, Advertising Recall and Attitude. Journal of Retailing 2016
Zenetti, G. and Klapper, D.
(See online at https://doi.org/10.1016/j.jretai.2016.02.004) - Differences between Classical and Bayesian Estimates for Mixed Logit Models - A Replication Study. Journal of Applied Econometrics, 32,2, March 2017, Pages 470-476
Elshiewy, O., Zenetti, G. and Boztug, Y.
(See online at https://doi.org/10.1002/jae.2513)
