Habits in consumer purchases: Evidence from store closures

Abstract

In-store shopping is a recurring behavior often happening in a stable context, making it very likely for the formation of habits. Relying on heuristics and habits can help consumers free up their mental resources for more important deliberative tasks. This is broadly consistent with the finding that consumers' choices exhibit state dependence. However, much prior work has simply distinguished all state dependence from other sources of correlated choices (e.g., latent consumer heterogeneity), thus leaving open the question of whether some of this state dependence should be attributed to habits. Here, using panel data on households' purchases across many product categories, we use store closures as a shock that partially disrupts households' shopping behavior to identify the role of formed shopping habits in repeated brand purchases. Closures force people to visit new stores to purchase products in categories they previously bought at the closed store, where we posit they are more likely to engage in deliberative decision-making processes --- driving them to explore some options that are normally ignored in a familiar store because of learned habits. Following a store closing at which they frequently purchased products in a given category, households are more likely to purchase something other than their modal brand in that product category. This effect remains after accounting for the reduced availability of their modal brand. Over time, households return to higher levels of purchasing their modal brand, consistent with the formation of new habits. However, we find that the temporarily increased deviation from their prior modal brand due to store closures results in a lasting impact on households' brand choices, leading them to permanently lower rates of purchasing their baseline modal brands. This illustrates how habit formation, while advantageous for consumers in other ways, can lead to non-optimal choices.

Overcoming Challenges and Unlocking the Potential: Empowering Small and Medium Enterprises (SMEs) with Data Analytics Solutions

“…According to Tohidi et al [5], there has been a notable shift in consumer preferences towards online sales over traditional in-store purchases, leading to a significant expansion in the e-commerce market. However, small and medium enterprises (SMEs) have not been able to fully capitalize on these opportunities.…”