A Model of Multi-Store Shoppers’ Buying Decisions

We propose an analytical model of multi-store shoppers buying items from their shopping lists; specifically, “common items” that are available at competing stores. Multi-store shoppers buy some common items at the first store they visit, others are deferred to a competing store. These buying decisions depend on the prices observed at the first store and uncertainty about savings if purchases are deferred to a competing store. Analysis of our model shows that, if multi-store shoppers enjoy psychological benefits (in addition to rational economic benefits) from saving money, their purchase decisions depend on the ratio of expected savings to the variance in savings. If multi-store shoppers are motivated only by rational economic benefits, however, their purchase decisions depend on expected savings alone. To demonstrate empirically that some multi-store shoppers are motivated by psychological benefits, we develop a finite mixture model capable of capturing heterogeneity in shoppers’ response to price savings. Using actual purchase data, we demonstrate that a substantial proportion of multi-store shoppers (38% in our sample) enjoy psychological benefits, in addition to rational economic benefits, from saving money. Our findings imply that retailers can affect where multi-store shoppers buy by pricing in a way that reduces or increases uncertainty about price savings. Thus, our analysis provides a new perspective on the connection between retail pricing and multi-store shopping behavior.