The Effect of Variability in Price on Consumer Brand Choice

Abstract

Grocery store managers change prices on a weekly basis either as part of price promotions or in response to changes on their supply side. Consumers experience this price variability and may respond to it. Even though behavioral literature suggests that price variability affects consumers' decisions, most brand choice models have not focused on the consumers' response to such variability. This study attempts to remedy this omission and examine the effect of price variability on consumer brand choice. We use scanner data to show that price variability affects consumer's price sensitivity. We also find that accounting for the effects of price variability in brand choice models improves the model fit over conventional benchmark models. Our finding has important managerial implications for the strategic use of price variability.