Asymmetric Response to Price in Consumer Brand Choice and Purchase Quantity Decisions

Abstract

The study investigates whether consumers exhibit asymmetry (i.e., different sensitivity) to negative (“loss”) and positive (“gain”) differences between the reference price and the purchase price in brand choice and purchase quantity decisions. Using panel data for two frequently purchased products with three brands in each product category, we find that consumers loyal to a brand (“loyals”) respond to gain and loss with the same sensitivity in brand choice decisions. However, consumers not loyal to any brand (“switchers”) respond more strongly to gains than to losses. In purchase quantity decisions, brand-loyal consumers are found to respond asymmetrically to gains and losses, but the direction of the asymmetry depends on whether the decision is made before or after the household inventory reaches a stock-out level (i.e., the level at which the household inventory needs to be replenished). When the decision is made after a stock-out, brand-loyal consumers are more responsive to a gain in the price of their favorite brand than to a loss. In contrast, when the quantity decision is made before a stock-out, loyals are more sensitive to a loss than to a gain. In only two of the six brands examined do we find evidence of asymmetry in switchers' quantity decisions. In both cases, switchers respond more strongly to a price loss than to a gain, regardless of whether the purchase decision is made before or after a stock-out.