The consumer must make quick decisions, so to choose which brand to buy, he or she focuses on a tiny subset of options. In “Pennies for Your Thoughts: Costly Product Consideration and Purchase Quantity Thresholds,” Simon professor Yufeng Huang and Bart Bronnenberg of Tilburg University in the Netherlands examine what this means for product managers.
Price is the main feature busy consumers use to compare products and make purchase decisions, they found. It is a way to lure customers who have a limited attention span—especially when confronted by that giant wall of yogurt options, Huang says. Other distinguishing characteristics, such as nutritional content, take more time to determine.
“It’s costly to the consumer to pay attention to anything,” Huang says. “It’s costly for me to look at Dannon or Yoplait; it’s even more costly to look at both. Usually I’ll look at just one or the other.”
Price is the feature that jumps out most quickly, leading to more price competition on the manager side, Huang says. It is here that the paper differs from typical marketing models: The authors find that a shift to a different brand is not the gradual change predicted in most models.
“If you change prices a little bit, some consumers will find it more attractive to consider your product rather than something else,” Huang says. “Because it’s mentally too costly for me to consider both, I’d rather completely shift my purchase basket from the other product to you.
“Let’s say I usually buy four units of Yoplait. Today I’m in the store and Dannon’s price is slightly lower, to a point where it triggers me to switch to Dannon. In our model, I’ll buy four units of Dannon instead of Yoplait, just because of that small change in price.”
This example is different from how quantitative marketers typically think of consumer demand: A gradual lowering of price leads to a gradual shift from one brand to another. In that case, the consumer changes to a cheaper brand one unit at a time—replacing a container of Yoplait with a Dannon of the same size, for example.
“People do use prices as cues, and that’s why companies compete harder on price than the standard models would predict,” Huang says.