Shopping Cost and Brand Exploration in Online Grocery

57 Pages Posted: 12 Nov 2009

See all articles by Andrea Pozzi

Andrea Pozzi

Einaudi Institute for Economics and Finance (EIEF)

Date Written: September 24, 2009

Abstract

This paper studies 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 document that brand exploration - the purchase of a brand not tried in the past - 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) possibility to reduce shopping cost; and (iii) difficulty in assessing quality of unknown items while shopping online. I develop a model of consumer behavior that allows me to quantify each effect. I find that all of them 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.

Suggested Citation

Pozzi, Andrea, Shopping Cost and Brand Exploration in Online Grocery (September 24, 2009). NET Institute Working Paper No. 09-10, Available at SSRN: https://ssrn.com/abstract=1499855 or http://dx.doi.org/10.2139/ssrn.1499855

Andrea Pozzi (Contact Author)

Einaudi Institute for Economics and Finance (EIEF) ( email )

Via Due Macelli, 73
Rome, 00187
Italy

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