The Normative Impact of Consumer Price Expectations for Multiple Brands on Consumer Purchase Behavior

Abstract

Empirical research indicates that some consumers form price expectations which may impact their purchase behavior. While literature in operations research has built purchase policy models incorporating uncertain price expectations, these models have been built for commodities. Consumers face an environment with multiple brands. In this paper, we develop a model that incorporates consumer preferences and price expectations for multiple brands as determinants of normative consumer purchase behavior. The model demonstrates how commodity purchase policy models recognizing price uncertainty can be adapted to the study of multi-brand markets. The model is used to analyze the normative impact of changes in price promotion policies and holding costs on individual purchase behavior. It is also used in a Monte-Carlo market simulation that illustrates some scenarios where a post-promotion dip is more or less evident, and provides an explanation for the nonexistent post-promotion dip.