Essays in Empirical Analysis of Consumer Behavior and its Impact on Retailer's Optimal Strategies

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I examine how consumers' purchase' decisions and intentions of purchases are affected by uncertainty about future deals (temporary price cuts or sales) for a product and how these results affect retailers' optimal pricing and marketing strategies. First I look at the effects of uncertainty about the timing of deals (i.e. temporary price cuts or sales) on consumer behavior in a dynamic inventory model of consumer choice. I derive implications for purchase behavior and test them empirically, using two years of scanner data for soft drinks. I find that loyal consumers buy a higher fraction of their overall purchases during deals as the uncertainty decreases. This effect increases with an increase in the product's share of a given consumer's purchase in the same category or if the consumer stockpiles (i.e., is a shopper). During a particular deal, loyal shoppers increase the quantity they purchase the more time that has passed since the previous deal, and the higher the uncertainty about the deals' timing. For the non-loyal consumers these effects are not significant. These results hold for products that are frequently purchased, like soft-drinks and yogurt, but do not hold for less frequently purchased products, such as laundry detergents. In the second chapter I analyze how the uncertainty about future deals affects consumers' intended purchases during the Christmas period for four product categories: CDs/DVDs, clothing, cosmetics/fragrances and electronics. Using a method to elicit and measure revisions to subjective expectations, I conduct an e-mail survey and present to the respondents different scenarios where the degree of uncertainty on whether there will be certain types of deals in the next Christmas seasonal period varies. I find substantial heterogeneity in the revision of expectations. The empirical findings suggest that there are hidden costs of advertisement, such as consumers who spend less when they become more aware of future deals. In the third chapter I discuss manufacturers and retailers optimal pricing strategies incorporating the effects of deals' timing on consumer behavior. I also discuss situations where firms can profit from unpredictability such as using it as a source of increasing overall consumption of the brand.

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  • 09/17/2018
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