Active Versus Passive Loyalty: A Structural Model Of Consideration Set Formation

Overview: This article offers an econometric framework that models a consumer's brand choice decision as a two-stage process: consideration set formation followed by brand selection from the brands in the consideration set. The proposed structural model of consideration set is motivated by the fact that consumers have limited information-acquisition ability. In the context of frequently purchased products (FPPs), since these product categories are characterized by frequent price promotion of varying depths of discount, a consumer faces significant uncertainty about the net utilities associated with the different brands. Thus, while a consumer might know the range of potential prices, she is unaware of the actual posted price of a brand on any given purchase occasion unless she engages in pre-evaluation price search. Since information acquisition is costly, she needs to first decide how many and which brands to search the posted prices of. In the proposed framework, the process of pre-evaluation price search is conceptualized as "brand consideration" and the set of sampled brands is referred to as the consumer's "consideration set".

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Format: PDF | Size: 220KB | Date: Jun 2001 | Pages: 44