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Griffith_et_al_lecturenotes

Griffith_et_al_lecturenotes - GriffithI LeibtagI Leicester...

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Unformatted text preview: GriffithI LeibtagI Leicester and NevoI “Consumer Shopping Behavior” 1. How consumers can save money on purchases of a given good: buy on sale buy in bulk (at lower unit price) buy generic brands choose outlets 2. How much money can be saved through these methods? 3. What are the implications of such money—saving behavior? (e.g., for calculating consumer price changes) 4. How does the use of these money—saving techniques vary in the population? by age, income level, etc. - e.g., high cost of time (high wage) may mean less reliance on sales low income level may have less flexibility/liquidity to buy on sale 5. Data refer to 23,877 UK households in 2006 6. Buying on sale: save on price, incur storage cost (and interest cost) * typical promotion: price promotions (e.g., x% off the second unit) quantity promotions (buy n units, get unit n+1 for free) * to analyze sale buying, use regression : log piht = [5j sit + r]ij + tj + pj + eiht where log piht = price paid for product | by household h at time t B]. = average discount obtained by buying on sale sit = dummy, equal to 1 if purchase was at a sale, zero otherwise nij = barcode-specific product characteristics 1?] = dummies for time pi = dummies for region em = error term There are 189 products, so there are 189 [3.j coefficients Distribution of the savings from buying on sale is roughly bell-shaped savings are between 0-21% of annual expenditures; mean = 6.5 percent households that are poor/have retired head save much less by buying on sale (but demographics explain relatively little of the variation in savings) Buying in bulk/quantity discounts * again, consumers must trade off lower price with storage costs * a lot of buying in bulk: for average household, 15.8% of expenditures are in top 20% of largest sizes 21.2%, 21.3%, 26.8% and 14.9% on progressively smaller sizes * single persons buy in bulk less often than multi-person households * use regression to analyzing savings from buying in bulk (very similar to the one used to study buying on sale) '03 piht = Bj 5it + Z Bjn qin + rIij + tj + pj + eiht where Bi“ = savings from buying size n of product i qin = dummy for purchased size n of product | 9 estimates imply substantial savings, e.g. buy largest size and save 37% relative to second-smallest quintile buy second-largest size, save 28% relative to second-smallest quintile average household saves 16% of average expenditure by buying in bulk 8. Buying generic or “private-label” (or “no-name") brands I) (I I) ll stores sometimes have “house, economy-house, premium” brands (often made by manufacturers who also sell using their own brand name) again, study this using a regression: log piht = B]. economyi + B]. standardi + nij + tj + pj + eiht ”on average, the economy store brand is almost 39 percent cheaper and the standard store brand is 25 percent cheaper” [than “regular” brands] buying economy brands saves 2% of annual expenditure, buying standard brands saves 3.7% percent of annual expenditure 9. Outlet choice (Tesco vs. others) Tesco market share is in the high 20’s to low 30’s, depending on household type and product type — very important retailer in the UK again, study using a regression: log piht = BjTescoiht + Vii} + tj + pl. + eiht average savings at Tesco is 1.6% (median = 1.0 percent) - not much! and Tesco prices are higher in 79 out of 189 product categories ("Tesco stores may compete on nonprice grounds or may simply be more or less conveniently located for different households.”) 10. Overall conclusions households that buy more on sale also buy more in bulk, and spend less on generic goods savings from bulk purchasing are the largest next largest: buying on sale buying generics (standard, then economy) shopping at Tesco rise in consumer prices may induce more bulk buying, etc. - thus, conventional consumer price index may overstate true rise in cost of living 11. Problems * why not include all effects in the same regression? (authors’ analysis considers each money-saving behavior in turn, doesn’t test them all together in the same regression) * price paid (= dependent variable) may affect money-saving behavior— buying in bulk, using generic, etc. (= independent variables) * if so, then error term may be correlated with the money-saving variables for example, recall log piht = B] Sit + rlij + tj + D] + eiht ...
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