Wednesday, October 13, 2010
Posted by D. Daniel Sokol
Bart J. Bronnenberg CentER, Tilburg University, Jean-Pierre H. Dube University of Chicago - Booth School of Business and Matthew Gentzkow University of Chicago - Booth School of Business describe The Evolution of Brand Preferences: Evidence from Consumer Migration.
ABSTRACT: We study the long-run evolution of brand preferences, using new data on consumers' life histories and purchases of consumer packaged goods. Variation in where consumers have lived in the past allows us to isolate the causal effect of past experiences on current purchases, holding constant contemporaneous supply-side factors such as availability, prices, and advertising. Heterogeneity in brand preferences explains 40 percent of geographic variation in market shares. These preferences develop endogenously as a function of consumers' life histories and are highly persistent once formed, with experiences 50 years in the past still exerting a significant effect on current consumption. Counterfactuals suggest that brand preferences create large entry barriers and durable advantages for incumbent firms, and can explain persistence of early-mover advantage over long periods. Variation across product categories shows that the persistence of brand preferences is related in an intuitive way to both advertising levels and the social visibility of consumption.