The Temporal and Spatial Dimensions of Price Search: Insights from Matching Household Survey and Purchase Data

Abstract

Price promotions are pervasive in grocery markets. A household can respond to price promotions by effective cherry picking through (1) spatial price search across stores and (2) temporal price search across time. But extant research has only analyzed these two dimensions of price search separately; thus they under-estimate both the consumer response to price promotions and the impact of promotions on retail profit. We therefore introduce the first integrated analysis of spatial and temporal price search. We seek answers to three questions: First, how effective are the temporal, spatial and spatio-temporal price search strategies in obtaining lower prices? Second, what is the impact of alternative price search strategies on retailer profit? Finally, what are the predictors of household decisions to perform either spatial or temporal price search, both or neither? We use a unique data collection approach that combines household surveys with purchase data to address these questions. Our key results are: Households that claim to search spatio-temporally avail about ¾ of the available savings on average; even those that claim not to systematically search on either dimension avail about ½ of the available savings. Households that search only temporally save about the same as ones that search only spatially. The negative effect of cherry picking on retailer profits is not as high as is generally believed. Geography (the spatial configuration of store and household locations) and opportunity costs are useful predictors of a household's price search pattern.

Keywords: Price Search, Cherry Picking, Profit Impact

JEL Classification: C20, C50, D12