Shopping Cost and Brand Exploration in Online Grocery
AbstractThis 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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Bibliographic InfoPaper provided by NET Institute in its series Working Papers with number 09-10.
Length: 56 pages
Date of creation: Sep 2009
Date of revision: Sep 2009
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Web page: http://www.NETinst.org/
retail; e-commerce; panel data; entry barriers;
Other versions of this item:
- Andrea Pozzi, 2012. "Shopping Cost and Brand Exploration in Online Grocery," American Economic Journal: Microeconomics, American Economic Association, vol. 4(3), pages 96-120, August.
- L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
- L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
- M21 - Business Administration and Business Economics; Marketing; Accounting - - Business Economics - - - Business Economics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-10-10 (All new papers)
- NEP-ICT-2009-10-10 (Information & Communication Technologies)
- NEP-MKT-2009-10-10 (Marketing)
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- 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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