Consumer Heterogeneity Research Articles

Designing shipping policies with top‐up options to qualify for free delivery

Motivated by the booming online grocery market and the extensive use of contingent free‐shipping (CFS) policies in the e‐grocery industry, we investigate the optimal CFS and pricing decisions for online grocers. Under a CFS policy, consumers enjoy free shipping for orders exceeding a certain threshold value; otherwise, they are charged a flat fee for orders below this threshold. We adopt a utility‐based model to capture consumers' behavior of purchasing additional items to qualify for free shipping under a CFS policy and analyze its impact on policy structure and consumer surplus. We characterize the e‐grocer's optimal pricing and CFS policy and find that consumer heterogeneity and demand distribution lead to different forms of the optimal shipping policy. When consumer heterogeneity is large enough, the optimal policy induces some consumers to top up and may allow some others to ship for free. In this case, the e‐grocer can charge a high‐profit margin. Otherwise, a top‐up option is unnecessary, and a flat‐rate shipping fee policy is optimal. Moreover, while the optimal policy never induces all consumers to top up when they are rational, it is possible to do so when consumers associate some psychological disutility with the shipping fee. Surprisingly, the total consumer surplus under the optimal policy may increase in the latter case. We further model a Stackelberg game between an e‐grocer and an offline channel and find that the difference between the e‐grocer's internal shipping cost and consumers' inconvenience cost of shopping offline is a main driver for market segmentation. Lastly, we show that a subscription‐based free‐shipping program, in addition to the jointly optimized CFS and pricing policy, cannot improve profits when consumers' order size and frequency are independent. Our findings help online grocers make operational and marketing decisions under the impact of consumers' top‐up behavior.

How, where, and when to charge electric vehicles – net-zero energy system implications and policy recommendations

A coordinated Charging Infrastructure (CI) strategy could accelerate the adoption of Battery Electric Vehicles (BEVs). Policymakers need to understand the tradeoffs between several types of CI developments. To support decision-makers, we apply the Swiss TIMES Energy system Model, which we extended with heterogeneous consumer segments with four trip types and several CI options. The novelty of this work lies in the interplay of such method advancements, representing BEV charging options with various CI types that can be accessed based on their location type at an hourly intraday temporal resolution. In explorative scenario analyses, we evaluate the effects of CI on car fleet deployment and their energy system implications in achieving net-zero CO2 emissions in Switzerland by 2050. Our analysis shows that the BEV share makes up 39%–77% of the fleet by 2050, and each BEV needs about 5 kW total charging capacity, split into 1.6–2.6 BEVs per private charger and 18–25 BEVs per public charger. Providing overnight charging access through private home chargers or public chargers in residential areas facilitates a 12%–20% increased BEV penetration compared to the reference scenario. For consumers without private home charging, improved public CI in non-residential areas increases BEV uptake by 24%. While low-power slow CI is cost-effective at home, high-power fast CI in commercial areas supports integration of solar PV. We highlight the need for coordinated CI policies and provide a variety of policy options based on our analysis and international insights.

Information design for selling search goods and the effect of competition

I study optimal information provision by a search goods seller. While the seller controls a consumer's pre-search information, he cannot control post-search information because the consumer will inevitably learn the product's match after search. A relaxed problem approach is developed to solve the optimal design, which accommodates both continuous value distributions and ex-ante heterogeneous consumers with privately known outside options. The optimal design is shown to crucially depend on the outside option value distribution, and can be implemented by a simple upper-censorship signal under certain regularity conditions. Several applications are provided, including comparing information designs for search goods and experience goods, and studying the effect of competition with a large number of sellers.

Impact of product sharing and heterogeneous consumers on manufacturers offering trade-in programs

Many large manufacturers offer trade-in programs as a way to protect the environment and to generate greater revenues by attracting and retaining consumers. However, the emergence of product-sharing platforms alters consumers’ purchase decisions. We develop an analytical framework for examining how manufacturers that offer trade-in programs can respond to product-sharing markets and heterogeneous consumers. Two classes of consumers are considered: myopic and strategic. This study establishes that a sharing market reduces the manufacturer’s profit when consumers are strategic rather than myopic. Moreover, a smaller salvage value will always (resp. sometimes) boost the manufacturer’s profit when consumers are myopic (resp. strategic). The manufacturer’s profit increases with the product’s depreciation rate and maintenance cost when consumers are myopic, but it may be decreasing in the depreciation rate and maintenance cost when consumers are strategic. We show that these unexpected results follow from the interaction – under certain parameters – between a propelling effect (that encourages consumers to trade in old products) and a hauling effect (that discourages consumers from buying new products). Finally, the manufacturer derives more profit from strategic than from myopic consumers regardless of whether or not there is a product-sharing market.

Modelling consumers' choice of novel food.

A variety of approaches to reducing the environmental impact of food production and consumption are being explored including technological solutions, such as food produced via biotechnological processes. However, the development of these technologies requires significant upfront investment and consumer acceptance is not guaranteed. The purpose of this research is to develop a system dynamics model to forecast demand, under multiple marketing and quality scenarios, for foods produced via novel technologies, using cellular agriculture as a case study. The model considers consumer heterogeneity, product awareness, word of mouth marketing (WOM), in-store marketing options, pricing options and product utility to estimate diffusion rates and market penetration. To our knowledge, there is no demand forecasting model available for food produced via novel technologies which relies on purchase intention data and incorporates all these factors. Therefore, this research closes a critical gap for that industry. Ultimately, the model shows that price and the consumers' utility for the product drives the final demand regardless of marketing scenario. Further, the rate of diffusion was highest when product samples are provided in store for all scenarios except when product utility is low and the product price is high. Model results suggest that market saturation was reached within the 32-week trial period when the price of the cellular agriculture product was the same as a traditional product but not when the price was double that of traditional meat. Given the lack of available trial data, the model scenarios should be considered a prior probability which should be refined as more data becomes available.

Circular business cannibalization: A hierarchical Bayes conjoint analysis on reuse, refurbishment, and subscription of home appliances

Despite the growing expectations of the transition to a circular economy, consumer preferences and the potential for circular products in a market in which multiple circular business models coexist are not well understood. Accordingly, here, in a case study of refrigerators in Japan, we applied a hierarchical Bayesian choice-based conjoint analysis to compare: i) purchasing brand-new, ii) purchasing reused, iii) purchasing refurbished, and iv) using a subscription to acquire products without a transfer of ownership. The estimated part-worth utilities show that older circular products are more accepted by consumers under the subscription or refurbished models than under the traditional reuse model. Four distinct consumer segments—subscription-prone (12%), price-sensitive (13%), balanced decision-makers (25%), and brand-new stubborn (51%)—were identified using ensemble clustering based on individual-level part-worth utilities. Market simulations under eight scenarios revealed significant cannibalization among multiple business models, such as reduced sales of reused products due to the introduction of a subscription system. Consequently, the potential market share of circular products was shown to be at most 35% when there are coexisting circular business models, which is less than the sum of the shares and assuming separate business models. The potential market share across consumer segments is quite diverse (e.g., as much as 50–90% for the ‘subscription-prone’ and ‘price-sensitive’ segments, whereas ‘brand-new stubborn’ consumers never choose circular products). However, if consumers screen out alternatives that are not in their awareness set (known alternatives) or consideration set (alternatives evaluated in the last phase of decision-making), the potential market share could be as low as 11%, implying that approaching the early phase of screening in the consumer decision-making process is crucial. The proposed approach can be used to improve the design of business models and policies for a circular economy that considers cannibalization among multiple circular models, consumer heterogeneity, and bounded rational decision-making.

Impacts of consumer virtual showrooming behavior on manufacturer and retailer strategic decisions in a dual-channel supply chain

A dual-channel supply chain is considered with a manufacturer selling its product through an offline retailer and an online store. The manufacturer can set up a virtual showroom to help consumers judge the product suitability. Consumers may switch to the offline retailer to buy the product after experiencing virtual demonstration, called virtual showrooming behavior (VSB). Consumers are divided into H-consumers with, and L-consumers without, positive experience cost. The problem is modeled as a Stackelberg game with the manufacturer as the leader and the retailer as the follower. Based on consumer heterogeneity and VSB, the manufacturer makes the strategic decision of whether to set up a virtual showroom and the retailer makes the strategic decision of whether to support consumer VSB. The conditions influencing the manufacturer and retailer decisions are explored. The results show H-consumers may engage in VSB if their experience cost is low, and L-consumers may engage in VSB if their store visit cost is relatively low. Consumer VSB significantly depends on the product suitability and the virtual showroom informatization degree. When the experience cost is neither too high nor too low, the manufacturer will set up a virtual showroom if the consumers are relatively sensitive to the store visit cost. The retailer may not benefit by supporting consumer VSB regardless of the experience cost, when consumers are relatively insensitive to the store visit cost. The retailer will choose the same strategy and the manufacturer may choose the opposite strategy when the wholesale price is endogenous instead of exogenous.

Divergent consumer preferences and visions for cooking and heating technologies in the United Kingdom: Make our homes clean, safe, warm and smart!

Decarbonising the global housing stock is imperative for reaching climate change targets. In the United Kingdom, hydrogen is currently being tested as a replacement fuel for natural gas, which could be used to supply low-carbon energy to parts of the country. Transitioning the residential sector towards a net-zero future will call for an inclusive understanding of consumer preferences for emerging technologies. In response, this paper explores consumer attitudes towards domestic cooking and heating technologies, and energy appliances of the future, which could include a role for hydrogen hobs and boilers in UK homes. To access qualitative evidence on this topic, we conducted ten online focus groups (N = 58) with members of the UK public between February and April 2022. The study finds that existing gas users wish to preserve the best features of gas cooking, such as speed, responsiveness and controllability, but also desire the potential safety and aesthetic benefits of electric systems, principally induction hobs. Meanwhile, future heating systems should ensure thermal comfort, ease of use, energy efficiency and smart performance, while providing space savings and noise reduction, alongside demonstrable green benefits. Mixed-methods multigroup analysis suggests divergence between support levels for hydrogen homes, which implies a degree of consumer heterogeneity. Foremost, we find that domestic hydrogen acceptance is positively associated with interest and engagement with renewable energy and fuel poverty pressures. We conclude that internalising the perspectives of consumers is critical to enabling constructive socio-technical imaginaries for low-carbon domestic energy futures.

Network Externalities and Market Dominance

We propose a monopoly and Stackelberg duopoly model for “new economy” markets—with a Beckerian S-shaped demand curve at its center—that allows for intermediate degrees of firm focality and consumer heterogeneity. Because of network externalities, firms compete for the dominant market share, rather than the marginal consumer. This leads to a type of limit pricing—from within, rather than from outside the market—where the nondominant firm captures a positive market share that serves as a consolation prize. We characterize how firms’ technologies, “consumer impulses” (which might be influenced by past sales, defaults, or advertising), and network externalities affect competition, and derive implications for firm strategy. Broadly speaking, we find that the dominant firm should adopt an aggressive “top-dog” stance (akin to, but not identical to, that of a firm seeking to deter rival entry), whereas the nondominant firm should respond with an accommodating “puppy-dog” approach. This paper was accepted by Alfonso Gambardella, business strategy. Funding: R. Akerlof received financial support from the Institute for New Economic Thinking.

Trophic ecology of epibenthic communities exposed to different sea-ice concentrations across the Canadian Arctic Ocean

Sea ice is one of the most critical environmental drivers shaping primary production and fluxes of organic inputs to benthic communities in the Arctic Ocean. Fluctuations in organic inputs influence ecological relationships, trophic cascades, and energy fluxes. However, changes in sea-ice concentration (SIC) induced by global warming could lead to significant shifts in trophic interactions, ultimately affecting the functioning of Arctic food webs. Despite the increasing concern over the need to understand benthic species and food web responses to rapid sea-ice loss, few studies have addressed this topic so far. Using multiple niche metrics based on stable isotopes, this research examined the trophic ecology of epibenthic communities in areas with different SIC across the Canadian Arctic Ocean. We found that trophic niches varied according to complex interactions between environmental conditions, resource supply, and biotic pressures such as predation and competition. Our results highlighted a lower isotopic richness (i.e., shorter food chain length and niche width) in low and high SIC areas, suggesting homogeneity of resources and a low diversity of food items ingested by individuals. In contrast, a higher isotopic richness (i.e., broad niche) was observed in the moderate SIC area, implying higher heterogeneity in basal food sources and consumers using individual trophic niches. Finally, our findings suggested a lower isotopic redundancy in areas with high SIC compared to low and moderate SIC. Overall, our results support the idea that sea ice is an important driver of benthic food web dynamics and reinforce the urgent need for further investigations of declining sea ice cover impacts on Arctic food web functioning.

Research on the Trade-in Pricing Strategy of New Energy Vehicle Producers Considering the Consumers’ Heterogeneous Behavior

In practice, trade-ins are offered by new energy vehicle producers and include trade-in-for-new fuel vehicles. And trade-in-for-new energy vehicles. By using the game-analytical method, we mainly analyze the optimal pricing strategy of new energy vehicle producers when they provide both of the above mentioned trade-in services. The results show that automobile producers should consider the production cost of new vehicles and the trade-in rebate when they provide a trade-in strategy. On the one hand, when the production cost of new vehicles is high but the trade-in rebate is very low, automobile producers do not provide the trade-in service. On the other hand, when the production cost of new vehicles is very low but the trade-in rebate is very high, automobile producers should provide trade-in services to heterogeneous consumers. Moreover, when the heterogeneous behavior of consumers is strong and the innovation value of new generation fuel vehicles is low, automobile producers should choose the preannounce pricing strategy. Otherwise, these producers should adopt the dynamic pricing strategy.

Pricing and structuring product trials: Separate versus mixed wine tastings

Many sellers offer product trials to allow consumers the option to try products before purchasing. With a product trial, a consumer may find they like a product more than expected, thus stimulating a purchase, but the opposite may be equally likely. Understanding when product trials are profitable, and optimizing the trial structure and associated pricing decisions is a complex challenge. Product trials are common in practice, yet their impact on segmentation and pricing is not well understood, particularly for a multi-product setting. For example, using the example of wine, should a vineyard offer mixed tastings spanning both red and white varietals, or have separate tastings for each, and what are the pricing implications? Product trials can be product specific or offered jointly across multiple products. We model and analyze these separate versus mixed trial structures, considering optimal fee-setting and product pricing decisions and the resulting consumer segmentation, in markets with heterogeneous consumers. By analyzing the relative profitability of separate and mixed trials, we develop a deeper understanding of their distinct strengths. We prove that mixed trials are preferable to separate when customers’ trials are more likely to lead to favorable product impressions, and when consumers have a low-to-moderate preference gap between the products. Our results stipulate when sellers should offer mixed tastings across product varieties, versus the alternative separate tastings, or potentially no tastings at all. We also analyze how product-trial fees should be set, as well as the impact of these trial alternatives on product pricing decisions.

Investigating Heterogeneous Consumer Preference for Sustainable Sewerage Asset Management: The Case of South Korea

This study proposes a data-based strategy for prioritizing sewerage services and developing consumer-centric asset management systems. Sewerage systems are essential infrastructure, but resource-intensive, and governments have faced challenges due to limited budgets and aging facilities. Most countries are still in the early stages of adopting consumer-centric approaches. By using the mixed logit model, this study identified heterogeneous service preferences among consumers based on their priority for physical and social services. Groups who attributed their importance to physical services were more sensitive to sewerage bills; however, those who emphasized social services were more interested in water activity environment improvement and odor intensity reduction. This study also showed that people are willing to pay USD 10 for odor intensity reduction and USD 6 for water activities improvement on average, but those who prioritized sinkhole reduction and flood reduction answered less willingness to pay for each service improvement. Applying these heterogeneous service preferences to service improvement strategies can lead not only to higher consumer satisfaction and lower economic burden, but also to a deeper understanding of residents’ willingness to pay for service improvement in certain service preference areas. Therefore, the results contribute to the development of sustainable asset management strategies.

Consumption heterogeneity and monetary policy in an open economy

We incorporate two types of agents (Ricardian versus Keynesian) into a standard open economy macro model. We find that consumption heterogeneity has major implications for the impact of monetary policy shocks, the international transmission mechanism, and the design of optimal monetary policy. With sticky prices, the existence of Keynesian agents causes a spillover of shocks across countries, and leads to the interdependence of optimal monetary targeting rules. In the case of local currency pricing, consumer heterogeneity leads an optimal monetary policy to generate currency misalignment and deviations from the law of one price. Theoretically, there are ranges of household heterogeneity in which monetary policy becomes ineffective, but this depends sensitively on the interaction of aggregate demand and relative price effects.

Pricing Game Models of Hybrid Channel Supply Chain: A Strategic Consumer Behavior Perspective

The current sales model combining online and offline channels meets the diverse requirements of consumers. However, consumers’ inter-channel switching behavior and strategic behavior also pose significant challenges to pricing decisions in the hybrid channel. Using game theory and consumer utility theory, a retailer-driven pricing model is developed to study the optimal pricing problem for each channel in a mixed-channel supply chain considering the characteristics of channel competition and the waiting behavior of strategic consumers. Study results show there is a negative correlation between the proportion of strategic consumers and the optimal pricing and profit of each channel, and as the proportion of strategic consumers rises, the optimal pricing and profit of manufacturers and retailers all trend downward. Incorporating strategic consumers into the pricing model will assist the supply chain in elucidating the behavior of consumer heterogeneity during various decision-making periods and in making reasonable pricing decisions. Effective guiding strategies, such as pre-discount and purchase restrictions, can reduce the profit loss caused by strategic consumer behavior. The optimal combination of pre-announcement discount and strategic consumer ratio can generate the greatest profit for retailers and the supply chain.

The Effect of Customer Engagement, Content Personalization, and Trust on Purchasing Decisions in Indonesian E-commerce: A Case Study on the Fashion Industry

An in-depth understanding of the elements influencing consumer behavior is necessary given the constantly changing environment of e-commerce in the Indonesian fashion industry. This study looks into how trust, content personalization, and customer engagement affect consumers' decisions to buy. Using Structural Equation Modeling, a quantitative analysis examines a sample that reflects the heterogeneous consumer base of Indonesian e-commerce. The measuring model demonstrates strong psychometric qualities, and analyses of discriminant validity attest to the latent constructs' uniqueness. Fit indices support the structural equation model's suitability, while regression analysis demonstrates the importance of trust, content personalization, and customer engagement in influencing purchase decisions. Future research directions and their practical implications for enterprises are highlighted.

Understanding heterogeneous consumer preferences for residential zero-energy buildings (ZEBs) in South Korea: A latent class approach

The development of energy-efficient buildings has been deemed a critical component in accomplishing reduction targets and making cities more sustainable. Hence, governments of highly developed countries with large urban populations have set policy targets and introduce incentive schemes to expand the supply of the green buildings, which are environmentally friendly and energy-efficient over their entire lifecycle. However, the low return on investment, lack of awareness, and insufficient information and incentives have hindered the adoption of zero-energy buildings (ZEBs) in the Korean housing sector. This study aimed to examine the public's heterogeneous preference structure towards residential ZEBs to identify marketing and policy implications for promoting demand. The findings showed that cost-related factors were the most significant elements affecting public acceptance of ZEBs in Korea. Additionally, the study simulated the acceptance of ZEBs as a function of subsidy levels and found that consumers are willing to pay a premium for more energy-efficient homes with greater environmental contributions and that provide long-term benefits in overall housing expenses. In all, it is recommended for the government to identify suitable regions for the implementation of ZEBs based on regional characteristics and to implement a subsidy program to achieve the goal of expanding environmentally sustainable homes.

Consumer heterogeneity for shared accommodations at pre-and-post adoption stages: Insights from travelers in Shanghai, China.

As shared accommodation has become one of the most important market developments in the tourism industry, numerous contributions have emerged regarding travelers' motivations to choose shared accommodation. A debated question, however, resides in the heterogeneity of travelers based on motivations. This paper aims to reconcile opposing perspectives by comparing motivation segmentation at two distinct phases of the adoption of this accommodation option: (i) before the first travel-potential users showing interest (n = 420) and (ii) after the first travel-current users (n = 420). Factor analysis, combined with clustering, is applied to both samples to identify underlying motivations and traveler segments. Interestingly, we find that factors defining choice motivations are relatively stable throughout the adoption process, but the heterogeneity of motivations among travelers is higher in users, increasing from three to six clusters. This suggests that travelers' motivations are dynamic and dependent on the phase of adoption.

Co-creating affective atmospheres in retail experience

Despite substantial research focusing on retail atmospheric elements and the creation of social atmospheres, a holistic theory of atmosphere addressing consumer heterogeneity remains elusive. This research examines how embodied interactions with retail socio-material elements and consumers’ expertise levels create affective atmospheres. Through a three-year-long ethnographic study of winery tours, we identify three core elements in the co-creation of affective atmospheres: material features, sensory modalities, and social interactions. We use text mining to build corresponding dictionaries and analyze customer review data from several retail sites, demonstrating the positive effect of retail atmospherics on customer sentiment. Focusing on consumer segmentation, we further show that different levels of consumer expertise (novices, enthusiasts, and experts) influence the subjective perception of atmospheric elements and the way staff members are expected to behave to jointly create affective atmospheres. Based on our multi-method findings, we offer theoretical and managerial implications that are generalizable to broader retailing contexts.

Investigating the deployment of initial public charging infrastructure: Planning-based VS market-based approaches

An efficient planning of public charging infrastructure is crucial for the uptake of electric vehicles, which requires not only the cost-effectiveness of charging infrastructure construction, but also the effects in accelerating the process of EV promotion. However, the existing studies on the layout of public charging facilities have rarely taken both of these aspects into account. This study aimed to enrich the available literature by evaluating planning-based versus market-based approaches to installing charging piles and optimizing the scheme for initially deploying public charging infrastructure. An agent-based model that integrated the individual heterogeneity of manufacturers and consumers was constructed, with parameter settings that were defined based on the Chinese market. The impact of the initial deployment of public charging piles was compared in terms of planning-based and market-based strategies. The main results indicated a significantly positive effect of public charging piles construction. The market share of passenger EVs at 2040 could increase from 23.58% to 39.38% at most compared to the baseline scenario. Among the two approaches to deploying charging piles, the planning-based strategy proved superior in cultivating a niche market; however, the market-based approach was more cost-efficient from the perspective of long-term market cultivation, allowing savings of up to 14.2% of the investment costs. The study findings provide new evidence and policy implications for the long-term promotion of electric vehicles.