Why Do Consumers Choose Brand A Over Brand B?
Professor Jie Zhang's new study illuminates decision-making mechanisms of consumers.
ANN ARBOR, Mich.—Why do consumers buy items simply because they are prominently displayed or featured in promotion circulars? Do they assume that one brand is better than another based on in-store displays or featured ads, or are there other reasons that these promotional tools affect their decisions?
Studies have clearly documented that in-store displays and feature advertising can increase brand choices. But what actually takes place in a shopper's mind during the decision process is not so clear, says Jie Zhang, assistant professor of marketing at the University of Michigan's Stephen M. Ross School of Business.
Most brand-choice models simply assume that feature ads and displays increase a brand's appeal or usefulness and thus its probability of being chosen, she says. It is not clear, however, why being on display or in a feature ad itself would increase a brand's perceived utility.
Zhang conducted her own study to examine the underlying mechanisms by which consumers make brand-choice decisions. Using scanner panel data of consumer purchasing behavior provided by A.C. Nielsen, Zhang sheds light on the specific ways in which in-store displays and feature advertising affect consumer purchase choices. Two prominent decision mechanisms that she investigates are the price cut proxy effect and the consideration set formation effect.
In the price cut proxy effect, consumers rarely take the time to check closely and compare prices while simply inferring from a promotional sign that the item is being offered for a discount, even though there is no actual price reduction.
In the consideration set formation effect, consumers tend to select those brands that they are exposed to more often using in-store displays and featured advertisements to form their consideration sets. This is based on the idea that the more a consumer sees an item, the more likely he or she will select it.
Results of Zhang's empirical analysis reveal a distinct division among consumer segments with regard to their tendencies to equate in-store displays and/or feature advertisements with price discounts and to use them for consideration set formation. She says the pattern is consistent with consumer characteristics in each segment, such as degree of state dependence and price sensitivity.
Zhang concludes that if in-store displays and promotions were never accompanied by price reductions, they would no longer have the positive effect on brand choice for consumers who treat them as signs for price discounts. She suggests that some, but not all, such promotions should be accompanied by price discounts to reinforce consumer assumptions.
"Although retailers may not know the detailed decision mechanisms underlying consumer brand choice processes, they seem to have the right intuition for frequently combining price discounts with other forms of promotions," she said.
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