Abstract
In this chapter, we examine the strategic effects of state-dependent consumer preferences, including effects of habits and variety seeking. We begin by discussing how habits and variety seeking have been modelled in the quantitative marketing and economics literatures. We then discuss the various ways that these state-dependent preferences affect pricing, which is the most studied strategic effect of habit and variety seeking. We also consider the impact of these preferences on different members of the retail channel, as well as considering how these preferences affect which products firms will offer and the optimal advertising levels, among other topics. While habits and variety seeking are often modelled as being the opposites of each other in models, they sometimes have similar impacts on prices and other strategies.
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Notes
- 1.
Seetharaman allows for variety seeking in a similar way if ρ < 0. In such a situation, consumers would buy any other product with a fixed probability and buy according to their utility with the remaining probability. However, the estimates support habit over variety seeking so we simplify the exposition here.
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Thomadsen, R., (Seethu) Seetharaman, P.B. (2018). The Strategic Effects of State-Dependent Consumer Preferences: The Roles of Habits and Variety Seeking. In: Verplanken, B. (eds) The Psychology of Habit. Springer, Cham. https://doi.org/10.1007/978-3-319-97529-0_8
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