The Consumer's Rent Vs. Buy Decision in the Rentailer

44 Pages Posted: 25 May 2006 Last revised: 4 Apr 2012

See all articles by George Knox

George Knox

Tilburg University

J. Eliashberg

University of Pennsylvania - Marketing Department

Date Written: December 15, 2008

Abstract

In this paper, we focus on the perspective and business model of the rentailer - a retail outlet that rents and sells new and used home video titles. This requires predicting the consumer's decision to rent or buy a particular title, segmenting its customer base, and pricing new and used titles. We develop a new model based on a simple heuristic found in the behavioral marketing literature of how people predict their own usage of a service. We estimate the model using a unique panel data set obtained from a large rentailer, and nd it provides a good t to the data. Using the model estimates we obtain a metric indicating a latent customer tendency to buy at full price (compared to buying at a lower price or renting). Other diagnostic information from the model may help convert renters into buyers. First, expected viewing may be pitched to the consumer in order to persuade consumers that the movie will be well utilized. Secondly, we use the model to generate customized new and used title prices.

Keywords: Entertainment Models, Discrete Choice, Bayesian Methods, Customized Pricing

Suggested Citation

Knox, George and Eliashberg, Jehoshua (Josh), The Consumer's Rent Vs. Buy Decision in the Rentailer (December 15, 2008). Available at SSRN: https://ssrn.com/abstract=904208 or http://dx.doi.org/10.2139/ssrn.904208

George Knox (Contact Author)

Tilburg University ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands
+31 13 466 8778 (Phone)
+31 13 466 3219 (Fax)

HOME PAGE: http://www.tilburguniversity.edu/webwijs/show/?uid=g.knox

Jehoshua (Josh) Eliashberg

University of Pennsylvania - Marketing Department ( email )

700 Jon M. Huntsman Hall
3730 Walnut Street
Philadelphia, PA 19104-6340
United States

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