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Modeling Consumer Behavior (Autumn 2015)

Curator: Praveen Kopalle

Modeling consumer behavior is an exciting area as it attempts to examine issues related to consumption and the behavior of consumers through the use of quantitative models that provide a paramorphic representation of an underlying process of consumer behavior.  Papers in the Journal of Consumer Research that have employed models have provided novel, interesting, and important insights regarding consumption and consumer behavior. In fact, many of the seminal papers in the area of marketing models were published in JCR, including some of the most cited papers in JCR.

Empirical and analytical models of consumer behavior complement the experimental, sociological, and survey-based approaches in three ways.  One, the results drawn from a laboratory experiment or field research typically form the basis for the underlying assumptions of quantitative models.  Second, the results of quantitative models demonstrate the real-world incidence and robustness of a phenomenon, and examine differences across consumer segments (latent or observed), over time, etc.  Third, the conclusions drawn from modeling papers set the stage for a more thorough investigation of an empirical or analytical finding.

The papers chosen for this curation have all made central contributions in enhancing our understanding of consumer behavior via quantitative models.  In the first paper selected, Winer (1986) develops and estimates (i) alternative models of reference price formation and (ii) incorporates the corresponding reference prices in a brand choice purchase probability model.  In this original paper, the author finds that, after controlling for the main effect of price, reference prices significantly impact consumers’ brand choice behavior.  In marketing, the “sticker shock” effect found in Winer (1986) spawned a large research sub-field on reference price effects, with particular emphasis on reference price formation processes, differential impact of “gains” and “losses,” implications for firms’ pricing strategies, Bayesian inference, etc.   

Another fundamental paper in modeling consumer behavior is that of Hauser and Wernerfelt (1990) who propose a two-stage process of consumer choice where a consideration set is first formed from a larger set of alternatives, followed by a purchase/consumption decision in the second stage.  In this analytic paper, the key aspects in both stages are the trade-offs a consumer faces with respect to the (i) cost of evaluative search and the expected incremental benefits of including an alternative in the consideration set, and (ii) incremental benefits expected at the consumption stage relative to the expected incremental decision costs.

The idea of consumers viewing alternatives as bundles of attributes and the corresponding modeling of consumer preferences among multi-attribute alternatives is a widely researched topic in consumer research.  Green and Srinivasan (1978) provide a thorough analysis of the use of conjoint analysis in consumer research by discussing the various issues in implementing conjoint analysis (such as alternative models of consumer preference, data collection alternatives, stimulus set construction and presentation, measurement scales for the dependent variable, estimation methods, reliability and validity of tests, etc.) and new developments in conjoint research (such as preference models, incorporating interaction effects, multi-stage consumer decision processes, componential segmentation, allocation of scarce resources, modeling of perception data, etc.).

McAlister (1982) proposes a dynamic attribute satiation model for variety seeking which suggests that preference for a product at time t is a function of the consumption history and the point of satiation.  Such a model explains various patterns of switching among brands over time by consumers. The author operationalizes the model by taking into consideration preference contributions of the attributes of a product and the attribute inventory level, then estimates the model using data collected over time, and shows the model superiority relative to those that ignore past choices.

More recently, Kamakura and Du (2012) question the traditional wisdom from economic analysis that consumers’ tastes will remain unchanged during times of recession or economic growth.  Based on repeated cross-sectional data of expenditures from 66,368 U.S. households spanning twenty years and covering over 30 major commodities, the authors find that, from a consumer taste point of view, more visible nonessential goods (e.g., apparel, jewelry, personal care, airfare, etc.) become relatively less desirable, while less visible goods (food at home, housing, prescription drugs, etc.) gain in relative desirability, during a recession relative to the baseline and vice-versa during times of economic growth. 

Hui, Bradlow, and Fader (2009) test the impact of three factors (time pressure, composition of the shopping basket, and the presence of other shoppers) that have been found to influence consumer decision making in laboratory experiments.  They do so using data collected via a path tracker system installed in a large supermarket store.  The authors not only provide external validity for the corresponding behavioral hypotheses but also show the differential strength of these effects.

The papers selected for this curation demonstrate the value of incorporating rich consumer insights into quantitative models as well as how quantitative models can provide insights that lay the ground for further inquiry using other disciplinary approaches. JCR aims to continue to publish impactful papers that use quantitative models to extend our knowledge about consumer behavior. The types of modeling papers that are best suited for JCR are those that are focused on consumers and consumption (vs. on firm level analyses or on other stakeholders).  These include (but are not limited to) (i) developing new tools to learn about consumers, (ii) testing behavioral assumptions with real world data, (iii) drawing testable conclusions about consumers and consumption, and (iv) quantifying effect sizes across people and over time.  What makes such models thought-provoking is that they involve an integrative understanding across different arenas including consumer psychology, economics, statistics, mathematics, etc. in order to address questions such as, “What is the relative impact of various attributes on consumer choice?”, “How do (should) consumers choose from a large set of alternatives?”, “What is the role of reference prices on consumer brand preference?”, and “What are the dynamics of consumers’ variety seeking behavior?”  Note that issues in these areas greatly benefit from an integrative/multi-disciplinary perspective, a hallmark of JCR.  Many marketing scholars have devoted considerable effort toward building models of consumer behavior with a goal of developing inspiring and noteworthy insights with respect to consumption.  Thus, via an interplay of disciplinary approaches, much can be learned about consumers and consumption.  Ultimately, by drawing on multiple paradigms, the vision is that we develop a much stronger, more thorough, and a more impactful base of consumer research.

A Reference Price Model of Brand Choice for Frequently Purchased Products

Russell S. Winer

A brand choice model that incorporates both reference and observed prices is proposed for frequently purchased products. The model is composed of a probability-of-purchase component and a reference-price-formation component. Empirical testing of the model using coffee UPC scanner panel data demonstrates that for two of the three brands, the model predicts probability of purchase better than do standard demand models that utilize only current observed brand prices.

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An Evaluation Cost Model of Consideration Sets

John R. Hauser 

Birger Wernerfelt 

If utility (net of price) varies by consumption occasion, the consideration set of a rational consumer will represent trade-offs between decision costs and the incremental benefits of choosing from a larger set of brands. If evaluating a brand decreases biases and uncertainty in perceived utility, the decision to evaluate a brand for inclusion in a consideration set is different from the decision to consider an evaluated brand. The decision to consume is, in turn, different from the decision to consider. This article provides analytical expressions for these decision criteria and presents four aggregate implications of the model: (1 ) distributions of consideration set sizes, (2) order-of-entry penalties, (3) dynamic advertising response, and (4) competitive promotion intensity.

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Conjoint Analysis in Consumer Research: Issues and Outlook

Paul E. Green

V. Srinivasan

Since 1971 conjoint analysis has been applied to a wide variety of problems in consumer research. This paper discusses various issues involved in implementing conjoint analysis and describes some new technical developments and application areas for the methodology. 

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A Dynamic Attribute Satiation Model of Variety-Seeking Behavior

Leigh McAlister

This paper presents a model of individual consumer choice for separate choice occasions. Contrary to the notion that each choice is essentially independent of its predecessors, dependence is proposed as the key to variety-seeking behavior. As an individual's consumption history evolves, the pattern of attribute accumulations changes, leading to preference for items rich in different attributes at different points in time. The model is operationalized using soft drink consumption diaries, and predicts choices better than a model that ignores choice dependence.

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How Economic Contractions and Expansions Affect Expenditure Patterns

Wagner A. Kamakura

Rex Yuxing Du

In this study, we attempt to understand how household budget allocations across various expenditure categories change when the economy is in recession or expansion. The common assumption is that a household's tastes would not change as a function of economic conditions and therefore any adjustments in expenditure patterns during economic contractions/expansions would simply be due to changes in the consumption budget. Standard economic models translate these budgetary effects into lateral movements along a set of fixed Engel curves, which relate category expenditure shares to total expenditures. We propose and test a conceptual framework based on the notion of relative consumption, which prescribes that, for any given total consumption budget, expenditure shares for positional goods/services will decrease during a recession, while shares for nonpositional goods/services will increase (i.e., shifting the entire Engel curve upward or downward, depending on the nature of the expenditure category and the economic conditions).

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Testing Behavioral Hypotheses Using an Integrated Model of Grocery Store Shopping Path and Purchase Behavior

Sam K. Hui

Eric T. Bradlow

Peter S. Fader

We examine three sets of established behavioral hypotheses about consumers' in-store behavior using field data on grocery store shopping paths and purchases. Our results provide field evidence for the following empirical regularities. First, as consumers spend more time in the store, they become more purposeful-they are less likely to spend time on exploration and more likely to shop/buy. Second, consistent with "licensing" behavior, after purchasing virtue categories, consumers are more likely to shop at locations that carry vice categories. Third, the presence of other shoppers attracts consumers toward a store zone but reduces consumers' tendency to shop there.

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