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Shopping Cost and Brand Exploration in Online Grocery

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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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
Contact details of provider: Web page: http://www.NETinst.org/

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  1. J. Yannis Bakos, 1997. "Reducing Buyer Search Costs: Implications for Electronic Marketplaces," Management Science, INFORMS, vol. 43(12), pages 1676-1692, December.
  2. Austan Goolsbee, 2001. "Competition in the Computer Industry: Online Versus Retail," NBER Chapters, in: E-commerce, pages 487-499 National Bureau of Economic Research, Inc.
  3. Kenneth Train, 2003. "Discrete Choice Methods with Simulation," Online economics textbooks, SUNY-Oswego, Department of Economics, number emetr2, March.
  4. repec:rje:randje:v:37:y:2006:2:p:257-275 is not listed on IDEAS
  5. Burke, Raymond R, et al, 1992. " Comparing Dynamic Consumer Choice in Real and Computer-Simulated Environments," Journal of Consumer Research, University of Chicago Press, vol. 19(1), pages 71-82, June.
  6. Il-Horn Hann & Christian Terwiesch, 2003. "Measuring the Frictional Costs of Online Transactions: The Case of a Name-Your-Own-Price Channel," Management Science, INFORMS, vol. 49(11), pages 1563-1579, November.
  7. Scherer, F M, 1979. "The Welfare Economics of Product Variety: An Application to the Ready-to-Eat Cereals Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 28(2), pages 113-34, December.
  8. Han Hong & Matthew Shum, 2006. "Using price distributions to estimate search costs," RAND Journal of Economics, RAND Corporation, vol. 37(2), pages 257-275, 06.
  9. Barry L. Bayus, 1992. "Brand Loyalty and Marketing Strategy: An Application to Home Appliances," Marketing Science, INFORMS, vol. 11(1), pages 21-38.
  10. Gregory Lewis, 2011. "Asymmetric Information, Adverse Selection and Online Disclosure: The Case of eBay Motors," American Economic Review, American Economic Association, vol. 101(4), pages 1535-46, June.
  11. Ginger Zhe Jin & Andrew Kato, 2007. "Dividing Online and Offline: A Case Study," Review of Economic Studies, Oxford University Press, vol. 74(3), pages 981-1004.
  12. Aviv Nevo & Catherine Wolfram, 2002. "Why Do Manufacturers Issue Coupons? An Empirical Analysis of Breakfast Cereals," RAND Journal of Economics, The RAND Corporation, vol. 33(2), pages 319-339, Summer.
  13. Brown, Jeffrey, 2000. "Does the Internet Make Markets More Competitive? Evidence from the Life Insurance Industry," Working Paper Series rwp00-007, Harvard University, John F. Kennedy School of Government.
  14. Lesley Chiou, 2009. "Empirical Analysis of Competition between Wal-Mart and Other Retail Channels," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 18(2), pages 285-322, 06.
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  1. Shopping Cost and Brand Exploration in Online Grocery (AEJ:MI 2012) in ReplicationWiki

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