Consumer Shopping and Spending across Retail Formats

Marketing Science, 2012

Households incur transaction costs when choosing among offline stores for grocery purchases. They may incur additional transaction costs when buying groceries online versus offline. We integrate the various transaction costs into a channel choice framework and empirically quantify the relative transaction costs when households choose between the online and offline channels of the same grocery chain. The key challenges in quantifying these costs are (i) the complexity of channel choice decision, and (ii) that several of the costs depend upon the items a household expects to buy in the store and unobserved factors that influence channel choice also likely influence the items purchased. We use the unique features of our empirical context to address the first issue and the plausibly exogenous approach in a hierarchical Bayesian framework to account for the endogeneity of the channel choice drivers. We find that transaction costs for grocery shopping can be sizable and play an important role in the choice between online and offline channels. We provide monetary metrics for several types of transaction costs such as travel time and transportation costs, in-store shopping time, item picking costs, basket carrying costs, quality inspection costs, and inconvenience costs. We find considerable household heterogeneity in these costs and characterize their distributions. We discuss the implications of our findings for the retailer's channel strategy.

Journal of Interactive Marketing, 2010

We study the moderating effects of household (e.g., shopping frequency) and product (e.g., sensory nature) characteristics on household brand loyalty, size loyalty and price sensitivity across online and offline channels for grocery products. We analyze the shopping behavior of the same households that shop interchangeably in the online and offline stores of the same grocery chain in 93 categories of food, non-food, sensory and non-sensory products. We find that households are more brand loyal, more size loyal but less price sensitive in the online channel than in the offline channel. Brand loyalty, size loyalty and price sensitivity are closely related to household and product characteristics. Light online shoppers exhibit the highest brand and size loyalties, but the lowest price sensitivity in the online channel. Heavy online shoppers display the lowest brand and size loyalties, but the highest price sensitivity in the online channel. Moderate online shoppers exhibit the highest price sensitivity in the offline channel. The online-offline differences in brand loyalty and price sensitivity are largest for light online shoppers and smallest for heavy online shoppers. The online-offline differences in brand loyalty, size loyalty and price sensitivity are larger for food products and for sensory products.

Quantitative Marketing and Economics, 2004

An important question that has been raised in supermarket retailing is whether weekly promotions induce households to increase their in-store expenditures or merely reallocate a predetermined spending amount in that week. That is, are households' grocery shopping expenditures preset before entering the store or are flexible and determined while in the store as a function of the specific store offerings encountered during the store visit? This is an important question for the retailer in light of the vast array of temporary promotions offered to consumers. Indeed, should expenditures be fixed before entering the store (for instance, as a function of the household's inventory and/or income), it is possible that retailers might decrease their profitability when running promotions by displacing expenditures from high margin items to lower margin products. We claim that to answer this question meaningfully one must consider the totality of the household's within-store purchases (i.e., the market basket) and not just purchases of the promoted products. Using a rich database that contains the entire basket of goods bought over time by households from a given supermarket chain, we attempt to describe the drivers of both the level of expenditure and its allocation over the different groups of products. We use an extended version of the Almost Ideal Demand System (AIDS) for this purpose and our empirical results provide convincing evidence that while household expenditures do increase with promotions, there is also a significant reallocation of expenditures among the different groups of products. This implies that retailers have to choose carefully which items are promoted and to what depth, if promotions are also to increase profits, not merely store level expenditures.

Marketing Science, 2006

One of the most important activities for the supermarket retailers is the creation and maintenance of their store brands. A well-developed private label program could not only contribute directly to retailer profitability but also have positive indirect effects such as better bargaining power with the manufacturer and building store loyalty. Given their strategic importance, it is imperative for retailers to understand the behavior of their store brand buyers. In this paper, we investigate whether store brand preference is category specific or a general household "trait". We develop a multi-category brand choice model where the household and category specific brand preferences and marketing mix sensitivities are decomposed into three components: due to observed household factors, unobserved household and category specific factors that uncorrelated across categories, and unobserved household and category specific factors that correlated across categories. Further, to keep the dimensionality of the third component manageable, we impose a factor structure. Besides parsimony, the proposed methodology allows us to elicit the basic latent tendency for a household to buy the store brand while controlling for other causes such as price sensitivity.

We compare the brand loyalty, size loyalty and price sensitivity of the same households across online and offline channels in grocery shopping. Further, we study the effects of household and product characteristics on online and offline behavior. We observe the same households that shop interchangeably in the online and offline stores of the same grocery chain and analyze their shopping behavior in 93 categories of food, nonfood, sensory and nonsensory products. We find the same households are more brand loyal, more size loyal but less price sensitive in the online channel than in the offline channel. Brand loyalty, size loyalty and price sensitivity are related to household and product characteristics. Light online shoppers exhibit the most brand loyalty and size loyalty, but the least price sensitivity in the online channel. Heavy online shoppers show the least brand loyalty and size loyalty, but the most price sensitivity in the online channel. Medium online shoppers show the most price sensitivity in the offline channel. The online-offline differences in brand loyalty and price sensitivity are largest for light online shoppers and smallest for heavy online shoppers. The online-offline differences in brand loyalty, size loyalty and price sensitivity are larger for food products and for sensory products. We discuss the potential managerial implications of the research findings.

The International Review of Retail, Distribution and Consumer Research, 2014

This study investigates the relationship between type of grocery shopping, consumers' choice of store format and demographic characteristics. By simultaneously observing consumers' choice of store format and whether they are major or fill-in shopping, we are able to investigate more combinations of shopping types and store format than has been done previously. In an Internet survey, a sample of 1575 Swedish consumers reported how they shop groceries. Statistical analyses were performed to determine what consumer characteristics explain frequency of major versus fill-in shopping and frequency of shopping in supermarkets versus convenience stores. Five different segments of consumers are distinguished on the basis of how they shop (major versus fill-in shopping) and where they shop (supermarkets versus convenience stores): Planning Suburbans, Pedestrians, Social Shoppers, City Dwellers and Flexibles. These segments differ on various characteristics. The results inform retailers of the characteristics of consumers patronizing their stores, enabling them to change the store attributes to fit consumer needs as well as the needs of new consumers.

Journal of Marketing Research, 2009

We investigate the impact of product assortments, along with convenience, prices and feature advertising, on consumers' grocery store choice decisions. Extending recent research on store choice, we add assortments as a predictor, specify a very general structure for heterogeneity, and estimate store choice and category needs models simultaneously. Using household-level market basket data, we find that assortments are generally more important than retail prices in store choice decisions. We find that the number of brands offered in retail assortments has a positive effect on store choice for most households, while the number of stock-keeping-units [SKUs] per brand, sizes per brand and proportion of SKUs sold at a store that are unique to that store (a proxy for presence of private labels) have a negative effect on store choice for most households. We also find more heterogeneity in response to assortment than to either convenience or price. Optimal assortments therefore depend on the particular preferences of a retailer's shoppers. Finally, we find a correlation in householdlevel responses to assortment and travel distance (r=0.43), suggesting that the less important assortment is to a consumer's store choices, the more the consumer values convenience and vice versa.

Management Science, 2009

A key question for Internet commerce is the nature of competition with traditional brick-and-mortar retailers. Although traditional retailers vastly outsell Internet retailers in most product categories, research on Internet retailing has almost entirely neglected this fundamental dimension of competition. How and where can Internet retailers win this battle? This paper attempts to answer these questions using a unique combination of data sets. We collect a data set on the local market structure, and then match this data set on local market structure to a data set on consumer demand that is through direct channels that include Internet and catalog channels. Our analyses provide strong evidence that the local market structure can significantly explain the variation in demand through direct channels, even after controlling for the relevant demographic and socioeconomic variables in each local market. We find that the impact of the local market structure on consumer demand through direct channels is smaller in size for niche products than that for popular products. In addition, we identify the role of demand for popular products and demand for niche products in shaping the impact of local stores on the catalog channel and the Internet channel. The sales of niche products, which are often unavailable in physical stores, are largely immune from competition by traditional retailers. Since the Internet channel sells proportionately more niche products than the catalog channel, the level of competition between the Internet channel and local stores is lower than the level of competition between the catalog channel and local stores.

2000

Supermarkets operate in an increasingly competitive environment. The rapid growth of alternative retail formats has transformed not only the competitive structure of the industry, but also the way in which consumers shop. The biggest challenge to the industry is coming from none other than the world's largest retailer: Wal-Mart. Although a relatively new player, Wal-Mart through its supercenter format has become the nation's largest grocer and is cited by supermarket managers as their biggest concern in the coming years. Despite the dramatic proliferation of supercenters, relatively little is known about the impact it has on the performance of a traditional grocery store or how it changes consumer buying behavior. This paper provides an empirical study of entry by a Wal-Mart supercenter into a local market. Using a unique frequent shopper database from a supermarket, we study the impact of Wal-Mart's entry on household purchase behavior. The database records purchases for over 10,000 households before and after Wal-Mart's entry. Our primary focus in this paper is to analyze Wal-Mart's impact on the two key household decisions: store visit and basket size. We develop a joint model of interpurchase time and basket size and allow for a structural break at the time of competitive entry. The model allows us to evaluate the impact of Wal-Mart on household store visit frequency and basket size, while allowing for consumer heterogeneity. We investigate the shopping and demographic characteristics of the consumers that are most likely to shift purchases to Wal-Mart.

International Journal of Research in Marketing, 2000

Are brand names more valuable online or in traditional supermarkets? Does the increasing availability of comparative price information online make consumers more price-sensitive? We address these and related questions by first conceptualizing how different store environments (online and traditional stores) can differentially affect consumer choices. We use the liquid detergent, soft margarine spread, and paper towel categories to test our hypotheses. Our hypotheses and the empirical results from our choice models indicate that: (1) Brand names become more important online in some categories but not in others depending on the extent of information available to consumers -brand names are more valuable when information on fewer attributes is available online, (2) Sensory search attributes, particularly visual cues about the product (e.g., paper towel design), have lower impact on choices online, and factual information (i.e., non-sensory attributes, such as the fat content of margarine) have higher impact on choices online (3) Price sensitivity is higher online, but this is due to online promotions being stronger signals of price discounts. The combined effect of price and promotion on choice is weaker online than offline. A dynamic analysis of market structure based on panel data. Marketing Science 15, 359-78. Financial Times, 1998. Marketing and Media section. February 18, 13. Heckman, J.J., 1976. The common structure of statistical models of truncation, sample selection and limited dependent variables and a simple estimator for such models. Annals of Economic and Social Measurement 5, 475-92.