Marketing Seminar（2018-01）

Title:In-store Learning and Trial of New Brands: Implications for Retail Competition

Speaker:Jialie CHEN,Samuel Curtis Johnson Graduate School of ManagementCornell University

Time:Wednesday, 10 January 2018, 13:30-15:00

Location:Room K01, Guanghua Building 2

Abstract:

Retail stores serve as venues for consumers to observe and learn about new brands, before making trial purchases. However, limited academic research investigates consumer in-store learning and its implications for competition. This paper contributes to the extant literature on information search, consumer learning, and new product trial from both methodological and substantive perspectives. On the methodological side, we propose a Bayesian dynamic structural model that includes in-store information as a source of consumer learning about the quality of a new brand. The model uses data more efficiently by including consumers’ store visits before a consumer makes a trial purchase of the new brand. From a substantive perspective, this paper highlights the role of the retailer, in particular, information obtained in-store by consumers, in promoting trial of a new brand. We apply the model to consumer purchases of yogurt soon after the introduction of Chobani Greek yogurt and find that information obtained in-store about brand quality affects consumers’ brand preference as well as trial of the new brand. Our counterfactual analyses based on the estimated model further highlight two findings that are contrary to conventional wisdom. First, defensive price promotions offered by established brands in response to the introduction of the new brand have an unanticipated adverse impact on the incumbents. This occurs because lower prices encourage consumers to search in-store, which reduces their uncertainty about quality of the new brand, thereby generating higher trial rates. Second, information gathered by consumers during a visit to one retail store increases their likelihood of trial of the new brand in competing retail stores. These information spillovers imply that “competing” retailers are not entirely competitors in the traditional sense. Understanding such information spillovers across retailers is important for both retailers and manufacturers as it enables them to optimally allocate marketing resources. Our framework also provides insights into the value of “showrooming” in brick-and-mortar stores who face growing online competition.

Keywords:Dynamic demand estimation, Learning model, In-store search, Information spillover, Stockpiling, Retail competition

Introduction:

Jialie CHEN is a Ph.D. candidate in Marketing at Cornell University. His research focuses on consumers’ decisions under uncertainty and information search using dynamic structural models. Currently, he has four working papers that focus on the application of this issue to contemporary marketing topics including digital marketing and omni-channel retailing. His teaching interests include marketing management, marketing strategy, pricing, digital/mobile marketing.

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