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and
Offline
of Online
Comparison
ConsumerBrand Loyalty
Peter J. Danaher * Isaac W. Wilson * Robert A. Davis
Department of Marketing, University of Auckland, Private Bag 92019, Auckland, New Zealand
DataMine Ltd., Wellington, New Zealand
Department of Marketing, University of Auckland, Private Bag 92019, Auckland, New Zealand
p.danaher@auckland.ac.nz* Isaac@datamine.co.nz* r.davis@auckland.ac.nz
n this study we compare consumer brand loyalty in online and traditional shopping environments for over 100 brands in 19 grocery product categories. The online purchase data
come from a large traditional grocery retailer that also operates an online store for its products. The offline data corresponds to the exact same brands and categories bought in traditional stores by a panel of homes operated by ACNielsen for purchases made in the same
city and over the same time period. We compare the observed loyalty with a baseline model,
a new segmented Dirichlet model, which has latent classes for brand choice and provides
a very accurate model for purchase behavior. The results show that observed brand loyalty
for high market share brands bought online is significantly greater than expected, with the
reverse result for small share brands. In contrast, in the traditional shopping environment,
the difference between observed and predicted brand loyalty is not related to brand share.
(Brand Choice;ProbabilityModels; Internet Shopping)
1. Introduction
The rapid growth of electronic commerce provides
a challenge for marketers because "...as consumers
adopt new technologies, their behaviors change"
(Zinkhan and Watson 1998, p. 6). It is widely recognized by academics and practitioners that transacting
through a virtual medium is different from traditional shopping environments (Alba et al. 1997). Some
key differences include the means of obtaining product information, the greater perceived risk, and the
ability for consumers to repurchase the same product through the use of a savable personal shopping list. It is particularly important for managers
to be able to determine how these differences influence consumer brand choice because this will ultimately impact brand loyalty and, in turn, profitability
(Aaker 1991, Keller 1998, Kapferer 1998). The focus
of this study is the role of brands in an online
environment. Our findings show that high share
0732-2399/03/2204/0461
1526-548XelectronicISSN
(and therefore better-known) brands have greaterthan-expected loyalty when bought online compared
with an offline environment, and conversely for small
share brands. This has important implications for
established brands that can leverage their existing
awareness when offered online. It also highlights
the difficulties that fledgling online brands can have
when trying to compete with better-known brands.
2.
Relevant Literature
MARKETING SCIENCE
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MARKETINGSCIENCE/Vol.
We base this market share on purchase incidents rather than purchase quantity so as not to introduce biases known to affect the
Dirichlet (Bhattacharya et al. 1996, Bhattacharya 1997).
3.
A Comparison
of Onlineand OfflineConsumerBrandLoyalty
oo
=E
n=O
1=1AEPr(Xl,
nlr, a)
=
1=1
where
AlDir(a, S, r,a)
X2, ...,
Xg) represents
(1)
the vector of num-
(Xl,
of brand j, j = 1, ..., g. Pr(X, X2,
ber of purchases
I n, al) is modeled with a Dirichlet?..,Xg
multinomial
distribution having parameters a, =
(all, a12,
l2 ., ag) and S, = > alj for known n, while
=
n r, a) is modeled by a negative binoPr(N
mial distribution with parameters r, the mean number of purchases, and a, the shape parameter. Note
that L=1,1 = 1 and A > 0, VI, while
S1,r, a)
Dir(a/,
et al. (1984).
denotes the Dirichlet model of Goodhardt
Notice also that r and a do not vary by segment, as
the Dirichlet assumes that total category purchases
3 In the case of the online service offered by the grocery retailer
used in this study, when a brand is out of stock the shopper is
offered a substitute. In most cases this works out fine (e.g., Heinz
baked beans substituted for Oak baked beans). In cases where the
product is not easily substituted, the shopper is then either called
by phone to decide on a substitute or the product is left out and
an apology made.
SCRI'a- SCRIe) = a + P
+ ei,
(2)
MS/
where SCRIa)and SCRIe)are the actual and estimated
SCR for brand i, respectively; MS, is the market share;
and ei is a random error with zero mean. Fader and
Schmittlein (1993) fitted a separate regression model
for each category and tested whether or not P > 0 as
evidence of excess brand loyalty. In their case, 8 of 28
categories had positive slope terms at the 10% level
of significance. This is more categories than would
be expected if no excess brand loyalty existed. As
Fader and Schmittlein (1993) found, there are difficulties conducting separate regressions for each category
due to the small number of brands within each category. Instead, we propose a single regression across
all online and offline brands, as we now explain.
To compare brand loyalty for the same brands in
both an online and offline shopping environment,
we extend the Fader and Schmittlein (1993) model
in Equation (2) to incorporate two slope coefficients
465
niche
indexj
w,(1
- bj)
-
bj,)'
where wj is the purchase frequency and
is the
bj
of
brand
Values
of
the
niche
index
penetration
j.
than
one
indicate
the
brand
has
niche
greater
qualities; namely, it has a high purchase frequency relative
to its penetration and vice versa for change-of-pace
brands. Following Bhattacharya (1997) and Kahn et al.
(1988), we define niche brands to be those with
a niche index greater than 1.1 and change-of-pace
brands to be those with a niche index less than 0.9.
We use the same marketing-mix factors as used by
Bhattacharya et al. (1996) and Bhattacharya (1997):
average unpromoted price, denoted as Price; and
average price-cut depth divided by Price, denoted
as Price Cut.4 To obtain comparable measures across
j,MSj, wj,(1
466
categories, we standardize each of these marketingmix factors by subtracting the category mean and
dividing by the category standard deviation (precisely
as done by Bhattacharya et al. 1996 and Bhattacharya
1997).s Hence, our final regression model for analyzing brand loyalty is
SCRIa)- SCRIe)
= a +i3 ONi + 32(1 - ONi) x MSi + 03 ONi
+ 35chpacei + P6
+0 4
niche/
+ 07 Price_cuti + Ei,
MSi
Price/
(3)
/2
by Bhattacharya
Suppose that high share brands have greater positive differences between actual and estimated SCR,
with small share brands having negative values of
SCRIa)- SCRie). Then Equation (3) is unsuitable for
testing this possible switch in sign for SCRIa) - SCRIe)
from large to small brands. All it can test is that
SCR a) - SCR(e) increases (or decreases) with market share. Hence, we test the sign of the difference
between the actual and estimated SCR with a logistic regression model analogous to Equation (3) and
defined as
1)
(Pr(Di=
log Pr(D = 0)
= y+8
ONi+82(1-ONi)
x MS +83ONi x MSi
(4)
where Di = 1 if SCRIa) - SCR'e) > 0 and 0 otherwise.
4.
Data
4.1.
Online Data
467
DANAHER,WILSON,AND DAVIS
A Comparisonof Online and Offline Consumer Brand Loyalty
Figure1
Numberof OnlineShoppingOccasionsperHousehold
1600
1400
1200
1000
U
800
600
400
20
11
16
21
26
31
36 41
56
46
51
Numberof Purchase Occasions
61
66
71
76
81
parameters.
To select categories that provided a representative market basket of regularly purchased packaged
goods, we adopted the selection process developed by
Fader and Lodish (1990) and Bell and Lattin (1998).
468
Table1
UsedforAnalysis
Categories
OnlineCategories
Online
%
Penetration,
Offline
%
Penetration,
No.of Brands
Sodadrink
Butter
Cannedcatfood
Canned
fruit
Canned
tuna
Cheese
Eggs
Cookies
Frozenvegetables
Fruitjuice
Icecream
Instantcoffee
Laundry
powder
Potatochips
Slicedbrownbread
Milk
Bathroom
tissue
Toothpaste
Yogurt
83
83
48
76
64
86
91
63
78
86
67
59
75
73
76
86
96
89
82
92
88
43
85
49
59
57
57
80
69
73
80
75
70
87
82
69
94
53
12
6
5
5
6
6
3
4
6
9
6
8
10
5
11
6
7
7
7
Total
129
MARKETINGSCIENCE/Vol.
5.
Results
469
Table2
IceCream
Models-Online
fortheOne-andTwo-Segment
Parameter
Estimates
Dirichlet
Category
Dirichlet
Two-Segment
Dirichlet
One-Segment
-1,042.6
-1,080.2
-1,073.9
-1,091.3
Log-likelihood
BIC
SegmentOne
Proportion
(42%)
Brand
TipTop
FirstChoice*
Talleys
Generic
BlueRibbon
Litelicks
S parameter
1/(1 + S)
Market
Share,%
a1
63.1
14.0
10.0
5.9
5.2
1.8
0.843
0.209
0.133
0.088
0.092
0.021
a;/S, %
60.8
15.1
9.6
6.3
6.6
1.5
1.386
0.42
aly
0.565
0.018
0.041
0.001
0.011
0.021
0.655
0.60
SegmentTwo
Proportion
(58%)
/
aljl/S1, %
a2j
86.2
2.7
6.2
0.1
1.6
3.1
0.933
0.518
0.265
0.217
0.207
0.018
2.158
0.32
a2j/S2,
43.2
24.0
12.3
10.1
9.6
0.8
-
Two-Segment
Share
Market
Estimated
61.4
15.0
9.7
5.8
6.2
1.8
-
*FirstChoiceis thestorebrandforthisgroceryretailer.
to brand loyalty over and above that already predicted by an unsegmented Dirichlet. In addition, it is
known that the inverse of the Dirichlet S parameter
is related to consumer heterogeneity. Specifically, a
value of 1/(1 + S) near zero indicates homogeneity,
while a value near one indicates heterogeneity. Using
this criterion, Table 2 shows that Segment 1 is more
heterogeneous than Segment 2. This is precisely the
situation where Fader and Schmittlein (1993) show
that the unsegmented Dirichlet is most vulnerable
to understating brand loyalty to big brands. Hence,
it makes sense to allow for strong loyalty to big
brands by using a finite mixture of Dirichlets, as we
do. Indeed, we found that a two-segment Dirichlet
revealed a segment strongly loyal to big brands in 12
of the 19 categories, as demonstrated by higher BIC
values for the two compared with the one-segment
model. We also used the segmented Dirichlet for the
offline data. Here, 13 of the 19 categories had two or
more segments.
Table 3 compares the actual and estimated SCR for
the online ice cream category. Recall that Fader and
Schmittlein (1993) predicted that the unsegmented
Dirichlet would be likely to understate loyalty to high
share brands and that some form of segmentation is
required. We see evidence of this in the SCR measure
in Table 3, where the one-segment model underestimates the actual SCR for the highest-share brand
470
MARKETINGSCIENCE/Vol.
Table3
Actual
andEstimated
SCRfortheOne-andTwo-Segment
Dirichlet
Models
fortheOnline
IceCream
Category
SCR-Estimated
IceCreamCategory
Brand
TipTop
FirstChoice
Talleys
Generic
BlueRibbon
Litelicks
Averageabsolutedifference-icecream
Averageabsolutedifference-all
onlinecategories
Averageabsolutedifference-all
offlinecategories
Averageabsolutedifference-alloffline
homes
categoriesforproxyInternet
One-Segment Two-Segment
Market
Share SCR-Actual Dirichlet
Model Dirichlet
Model NicheIndex
63.1
14.0
10.0
5.9
5.2
1.8
-
67.0
35.8
32.8
31.1
31.2
28.6
3.5
7.2
68.4
37.0
32.0
27.9
28.7
34.4
2.3
5.7
6.5
5.2
6.3
5.6
in much lower average absolute errors (a 21% reduction) between actual and estimated SCR across all
129 online brands. The penultimate row of Table 3
gives the equivalent information for all the offline categories, where the reduction in absolute error is 20%
when going from a single to a multisegment Dirichlet
model.
Remember that a key component of our research
method when comparing online and offline brand
loyalty is that we compare observed SCRs for each
dataset against a segmented Dirichlet baseline, rather
than directly comparing observed SCRs between the
two datasets. We do this as we anticipate that comparing SCRs for online and offline shoppers will be
confounded by the knowledge that two respective
groups of buyers are demographically different, and
this might be causing any apparent brand loyalty differences. The purpose of using the baseline model is
to eliminate demographic effects, since the segmented
Dirichlet benchmark will adjust to whatever dataset is
used to fit the parameters, be it Internet grocery shoppers or a panel of shoppers purchasing in traditional
grocery stores.
To provide some evidence that the segmented
Dirichlet benchmark is robust against changes in
demographic composition, we examined our offline
database to find a group of homes that could act
as a proxy for homes with Internet access. We had
MARKETING SCIENCE/Vol.
72.0
37.8
32.5
31.4
25.2
36.2
-
1.04
0.89
1.03
0.92
0.77
1.16
-
only limited demographic information for the HomeScan panel, but two available demographic descriptors that are known to be associated with Internet
access are age and household income. Using information from Nielsen's e-ratings panel in New Zealand,
we set a criterion that approximately matches that of
homes with Internet access, namely, the annual household income had to exceed $40,000 and the age of
the main grocery buyer had to be less than 65 years.
Some 45% (199 homes) of the original 443 HomeScan
panel homes met this criterion, being very close to
the known Internet penetration of 47% in 1998 for
New Zealand.
We now pair up the standardized values of SCRIa)
SCRI') for the full offline panel and the subset of
proxy Internet-access homes. The correlation between
SCRIa)- SCRIe) values is 0.88 and the paired-sample
t-test figure is -1.31, having a p-value of 0.19, indicating there is no significant difference between the
standardized SCRIa) - SCRIe)values for the differing
demographic groups when purchasing offline. This
shows that even though the demographic groups
are different, the segmented Dirichlet can adjust to
these changes and produce consistent SCRIa) - SCRIe)
values. This helps validate our method, which relies
on the segmented Dirichlet to provide an accurate
benchmark to compare against observed brand SCRs.
471
472
Table4
of(Actual-Estimated)
Characteristics
SCRonBrand
Regression
OneDirichlet
Segment
Coefficient T-Statistic
Intercept
Onlinedummy
Offlinemarketshare
Onlinemarketshare
Niche
Changeof pace
Price
Pricecut
0.091
-0.044
0.212
0.395
0.690
-0.502
0.042
-0.143
MorethanOneDirichlet
Segment
p-Value
0.89
-0.47
2.72
5.84
5.76
-4.55
0.82
-2.73
0.375
0.638
0.007
0.000
0.000
0.000
0.413
0.007
R2= 46%
= 44%
Adj-R2
n = 224
F-statistic= 26.2 (p-value< 0.0001)
Coefficient T-Statistic
0.124
-0.022
0.113
0.316
0.547
-0.549
-0.178
-0.058
p-Value
1.13
-0.22
1.34
4.32
4.23
-4.61
-3.19
-1.02
0.262
0.829
0.181
0.000
0.000
0.000
0.002
0.309
R2= 35%
= 33%
Adj-R2
n = 224
F-statistic= 16.9 (p-value< 0.0001)
Notes.Dependent
andindependent
variableshavebeennormalized
the categorymeananddividing
bysubtracting
the
standard
deviation
dummies.
by category
(see Bhattacharya
1997),excepttheonline,niche,andchange-of-pace
Allvarianceinflation
factorsareless than1.4, indicating
thatthereareno multicollinearity
problems.
oftheSignof(Actual-Estimated)
Characteristics
Logistic
Regression
SCRonBrand
OneDirichlet
Segment
Coefficient T-Statistic
Intercept
Onlinedummy
Offlinemarketshare
Onlinemarketshare
Niche
Changeof pace
Price
Pricecut
0.198
-0.068
0.678
0.936
1.580
-1.827
-0.098
-0.190
0.57
-0.19
2.22
3.32
3.49
-4.55
-0.51
-0.96
MorethanOneDirichlet
Segment
p-Value
0.570
0.849
0.026
0.001
0.001
0.000
0.610
0.339
Coefficient
0.221
-0.006
0.205
1.125
1.233
-1.781
-0.452
-0.153
T-Statistic
0.65
-0.02
0.74
3.83
2.85
-4.48
-2.38
-0.78
p-Value
0.518
0.986
0.458
0.000
0.004
0.000
0.018
0.433
Note.Theindependent
variableshavebeennormalized
the categorymeananddividingbythe catebysubtracting
deviation(see Bhattacharya
dummies.
gorystandard
1997),exceptthe online,niche,andchange-of-pace
MARKETINGSCIENCE/Vol. 22,
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