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Shopping Cost and Brand Exploration in Online Grocery

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Abstract

This paper explores differences in consumers' grocery shopping behavior when they shop online and in a brick-and-mortar store. To do so, I assemble a new scanner dataset that tracks customers' grocery purchases in-store and on the Internet. This allows comparison in behavior of the same households, shopping in the same chain, for identical items and for identical prices, eliminating many possible confounding factors. I focus on the breakfast cereals category, and start by documenting that brand exploration is systematically more prevalent in-store than online. I propose three possible explanations for this finding: (i) shocks to the instantaneous utility of time correlated with the decision to shop online (ii) features of the grocer's website; and (iii) difficulty in assessing quality of unknown items while shopping online. I then continue by developing and estimating a model of consumer behavior that allows me to quantify each effect. I find that all of these effects contribute to hamper trial of new brands online. The counterfactual shows that altering the design of the website to remove potential obstacles to new trials increases brand exploration by 23%. More generally, in contrast to the conventional wisdom of the Internet reducing entry barriers, my work points to features of the online environment that in certain contexts actually could make entry of new brands more difficult.

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File URL: http://www.netinst.org/Pozzi_09-10.pdf
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Bibliographic Info

Paper provided by NET Institute in its series Working Papers with number 09-10.

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Length: 56 pages
Date of creation: Sep 2009
Date of revision: Sep 2009
Handle: RePEc:net:wpaper:0910

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Web page: http://www.NETinst.org/

Related research

Keywords: retail; e-commerce; panel data; entry barriers;

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Cited by:
  1. Andrea Pozzi, 2013. "E-commerce as a Stockpiling Technology - Implications for Consumer Savings," EIEF Working Papers Series 1308, Einaudi Institute for Economics and Finance (EIEF), revised Mar 2013.
  2. Andrea Pozzi, 2011. "Who Is Hurt by E-Commerce? Crowding out and Business Stealing in Online Grocery," EIEF Working Papers Series 1114, Einaudi Institute for Economics and Finance (EIEF), revised Sep 2011.

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