It is a well-known stylized fact in quantitative marketing that consumers are highly persistent in their product choices. Such persistence has typically been rationalized through strong heterogeneity in preferences across consumers. In a (recently updated) working paper with Xiaojing Dong, Ilya Morozov, and Liwen Hou, we show that even mild preferences for specific products can lead to persistent choices if consumers only evaluate a limited set of options. We show that when data on search and purchase behavior is available, we can disentangle the role of preferences and search frictions and, taking search costs into account leads to smaller estimates of preference heterogeneity. As a consequence there is less scope for targeted marketing.
The Impact of Soda Taxes
In a recent working paper (joint with Anna Tuchman and Song Yao), we study how consumers reacted to the Philadelphia soda tax using detailed supermarket scanner data. We find that the tax leads to a 34% price increase and a 46% reduction in sales in Philadelphia. There is no substitution to untaxed beverages (water and natural juices), but a large amount of cross-shopping to stores outside of Philadelphia. After taking into account cross-shopping, the total demand reduction is equal to only 22%. We do not detect a significant reduction in calorie and sugar intake. The video interview below explains our findings in more detail.
Large-Scale Demand Estimation & Optimal Price Setting in Online Retail
Many online retailers sell hundreds of different products, which makes optimal price setting a difficult task that requires the retailer to understand substitution patterns between similar products in their assortment. In a new working paper (joint with Tomomichi Amano and Andrew Rhodes) we propose a demand model that leverages information on which products consumers tend to search (i.e. browse) together before making a purchase. Such data on search behavior is often collected by online retailers, more abundant than purchase data, and highly informative about product similarity and hence substitutability.
Firms are increasingly trying to tab into social media and have users promote products on their behalf. But how effective is such a marketing strategy? In recent research of mine (with Song Yao and Wenbo Wang), we address this question. Stanford Business Insights provides a great summary of our findings (including a video interview, also posted below).