A comparison of within-household price sensitivity across online and offline channels

Abstract

We use a unique data set to estimate the price sensitivities of households in online and offline shopping channels when the same households shop across channels. We observe households that shop interchangeably at the online and the offline stores in the same grocery chain and investigate their purchase behavior in specific product categories. Although nearly 90% of households in our sample shop both at online and offline stores, we find that, across 12 vastly different product categories, these households exhibit lower price sensitivities when they shop online than when they shop offline. Our analysis accounts for observed and unobserved household heterogeneity as well as price endogeneity. The results hold for large basket-share categories and small basket-share categories, for consumer packaged goods and nonpackaged goods, for categories that are more likely to be purchased online because of their bulkiness or heaviness, and for categories that are more likely to be purchased offline because of their "sensory" nature. Households' price sensitivities are also closely related to demographics and inversely related to how far the households are located from the offline stores. Reasons for the lower price sensitivities in the online medium are discussed. © 2008 INFORMS.