Consumer learning and evolution of consumer brand preferences

We develop a structural dynamic demand model that examines how brand preferences evolve when consumers are uncertain about product quality and their needs change periodically. We allow for strategic sampling behavior of consumers under quality uncertainty and allow for strategic sampling to increase...

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Bibliographic Details
Published in:Quantitative marketing and economics 2015-09, Vol.13 (3), p.173-202
Main Authors: Che, Hai, Erdem, Tülin, Öncü, T. Sabri
Format: Article
Language:English
Subjects:
Babies
Baby foods
Brand names
Brand preferences
Business and Management
Consumer behavior
Consumers
Contact lenses
Diapers
Economic Theory/Quantitative Economics/Mathematical Methods
Economics
Expected utility
Finance
Food
Insurance
Management
Marketing
Packaged goods
Price elasticity
Product development
Scanners
Statistics for Business
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Summary:We develop a structural dynamic demand model that examines how brand preferences evolve when consumers are uncertain about product quality and their needs change periodically. We allow for strategic sampling behavior of consumers under quality uncertainty and allow for strategic sampling to increase periodically as consumers’ needs change periodically. We differ from previous work on forward-looking consumer Bayesian learning by allowing for 1) spill-over learning effects across different versions of products or products in different product categories that share a brand name and 2) duration-dependence in utility for a specific version of a product or product class to capture systematic periodic changes in consumer utility and migration of consumers across product versions or classes. We also assess the evolution of price elasticities in markets where there is consumer quality uncertainty that diminishes over time as consumers get more experienced. We estimate our model using scanner data for the disposable diapers category and discuss the consumer behavior and managerial implications of our estimation and policy simulation results.
ISSN:1570-7156
1573-711X
DOI:10.1007/s11129-015-9158-x