Consumer Learning and Evolution of Consumer Brand Preferences

57 Pages Posted: 11 Oct 2015

See all articles by Hai Che

Hai Che

Indiana University - Kelley School of Business

Tulin Erdem

New York University (NYU) - Leonard N. Stern School of Business; New York University (NYU) - Department of Marketing

T. Sabri Oncu

United Nations - Conference on Trade and Development (UNCTAD)

Date Written: October 9, 2015

Abstract

We develop a structural dynamic demand model that examines how brand preferences evolve when consumers are uncertain about product quality and their needs change periodically. We allow for strategic sampling behavior of consumers under quality uncertainty and allow for strategic sampling to increase periodically as consumers’ needs change periodically. We differ from previous work on forward-looking consumer Bayesian learning by allowing for 1) spill-over learning effects across different versions of products or products in different product categories that share a brand name and 2) duration-dependence in utility for a specific version of a product or product class to capture systematic periodic changes in consumer utility and migration of consumers across product versions or classes. We also assess the evolution of price elasticities in markets where there is consumer quality uncertainty that diminishes over time as consumers get more experienced. We estimate our model using scanner data for the disposable diapers category and discuss the consumer behavior and managerial implications of our estimation and policy simulation results.

Keywords: Strategic sampling, Spill-over effects, Duration dependence, Consumer choice under uncertainty, Bayesian learning

Suggested Citation

Che, Hai and Erdem, Tulin and Oncu, T. Sabri, Consumer Learning and Evolution of Consumer Brand Preferences (October 9, 2015). Quantitative Marketing and Economics, Vol. 13, No. 3, 2015, Kelley School of Business Research Paper No. 15-74, Available at SSRN: https://ssrn.com/abstract=2671927

Hai Che (Contact Author)

Indiana University - Kelley School of Business ( email )

1309 East Tenth Street
Indianapolis, IN 47405-1701
United States

Tulin Erdem

New York University (NYU) - Leonard N. Stern School of Business ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States

New York University (NYU) - Department of Marketing ( email )

Henry Kaufman Ctr
44 W 4 St.
New York, NY
United States

T. Sabri Oncu

United Nations - Conference on Trade and Development (UNCTAD) ( email )

Palais des Nations
Office E 8074
Geneva, 1211
Switzerland

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