The Impact of Switching Stores on State Dependence in Brand Choice

37 Pages Posted: 8 Apr 2016

See all articles by Raphael Thomadsen

Raphael Thomadsen

Olin School - Washington University in St. Louis

Date Written: March 22, 2016

Abstract

This paper demonstrates that brand-level state dependence is affected by the store at which a consumer shops. The classic structural state dependence literature models inertia in brand choice by assuming that consumers experience an extra boost in utility from consuming the products they last purchased. We demonstrate that the level of inertia depends on the context in which the purchase was made, which suggests that a richer decision process is driving the state dependence. Specifically, we find that consumers exhibit more state dependence if they shop at the same store that they previously patronized as compared to if they switch to a different store. This result replicates across 14 diverse consumer packaged goods (CPG) supermarket categories, and on-average across categories, the level of state dependence when the customer switches stores is about two-thirds of the level of state dependence when the customer patronizes the same store. This difference in same vs. different store state dependence translates into an additional willingness-to-pay for a product equal to 8% of the product’s price. When consumers switch back to a store they previously visited, both the brand purchased on the last shopping occasion (at the different store) and the brand purchased the last time the consumer was at the store they are currently patronizing influence the consumer’s decisions, but the consumer is more influenced by the last purchase they made at the particular store they are currently patronizing. We conclude by discussing possible theories behind the results.

Keywords: State Dependence, Consumer Behavior

JEL Classification: D12, M31

Suggested Citation

Thomadsen, Raphael, The Impact of Switching Stores on State Dependence in Brand Choice (March 22, 2016). Available at SSRN: https://ssrn.com/abstract=2759868 or http://dx.doi.org/10.2139/ssrn.2759868

Raphael Thomadsen (Contact Author)

Olin School - Washington University in St. Louis ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

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