Consumer Choice and Multi-Store Shopping: an Empirical Investigation

Abstract

The effectiveness of category pricing and promotions on store choice has been studied in prior literature. Although in theory all category promotions should attract consumers from competing stores, empirical support for this claim has been mixed. We propose that it is a subset of categories, called power categories, that drive cross-store traffic and that these are idiosyncratic to a retailer in its competitive set. Using scanner panel data, we investigate the consumer response to category pricing at competing stores via a random effects, multivariate probit model of store visits. We find that power categories tend to be high penetration categories. However, different stores have different power categories. Overall, our study recommends how retailers can find their power categories and identify segments of consumers who differ in their sensitivities to category prices.