Brands, Information, and Loyalty

Abstract:     
Consumers in many markets face a growing variety of products grouped under different umbrella brands, and can access vast amounts of information about these products. This may result in increasing product-level competition between firms. However, some observers argue that the increase in the availability of products and information can cause clutter and confusion, and that brands play a useful role as shorthands that convey information about the underlying products. This effect works to reduce product-level competition and increase the relative importance of brands.

In this paper, we estimate the informedness of consumers about product attributes, and study the consequences of "information complexity" for brand loyalty. We study a discrete product choice model where consumers may not have full information about product attributes. A consumer's loyalty to a brand then stems from one of four reasons: switching costs (or, state dependence); homogeneity in offerings of products by different brands; unobserved tastes or emotional attachment to a brand; and, incomplete information about product attributes. The model has several testable implications. First, individuals' choices over a product should be a function of the attributes of the other products of the same brand. Second, the influence of brand image should be lower for more informed individuals. Third, it should be greater as the clarity of the brand image increases. Using data on television viewing choices, we find support for each of these implications. We also find that the effect of brand images on product choices is stronger than the effect of products' attributes. Finally, we demonstrate that in this market, the lack of information contributes to observed brand loyalty more than the oft-discussed "emotional attachment" to brands.

Number of Pages in PDF File: 35

JEL Classification: D12, D80, L82, M81

working papers series