Empirical Models of Consumer Behavior in Retailing

Lei Wang

doi:https://doi.org/10.21985/N2ST7K

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Empirical Models of Consumer Behavior in Retailing

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The main objective of this research is to enhance our understanding of consumer behavior in retailing. This objective is accomplished through the analysis of retailers' customer database. This research provides methodologies for retailers to process the large amount of readily available customer data and make more effective marketing decisions. This dissertation consists of two essays. The first essay provides an empirical analysis of consumers' learning process about a multi-product brand and its implication on managing brand equity. We propose a structural model to describe how consumers learn and form brand equity based on information from product usage experiences and mailing catalogs across multiple product categories of a retailer. The model is applied to a direct mail retailer that sells products in five categories. The results show significant learning within and across categories and also considerable heterogeneity across consumers in their learning processes. The model provides us a tool to track the evolution of brand equity and to identify the key product categories that have the most significant impact on this brand equity formation process for each individual consumer. The second essay provides an empirical analysis of consumers' product return behavior. To control product returns is as important as to increase sales for retailers to improve their profitability. In this paper we investigate how price influences product returns. We theoretically and empirically test a widely accepted assumption in the operation literature that return rate is constant. We identify two effects that may influence return rate when an item is discounted: the perceived value effect and the incremental customer effect. Empirically, we measure these two effects on two different datasets. We find that both effects have substantial impact on return rates and the effect size and direction vary by product categories.

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