Preference Heterogeneity, Consumer Search, & Targeted Marketing
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.