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Retailers’ product location problem with consumer search

Author

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  • Raluca M. Ursu

    (New York University)

  • Daria Dzyabura

    (New Economic School)

Abstract

With few exceptions, today’s retailers sell products across multiple categories. One strategic consideration of such retailers is product location, which determines how easy or difficult different categories are for customers to access. For example, grocery or department stores determine which products will be located closer to the entrance of the store versus at the back of it, while online retailers decide which products to feature on the homepage, and which will require scrolling or keyword search to get to. In this paper, we study how a retailer should optimally locate products within a store, when the locations chosen affect consumer search costs. We show that the retailer has an incentive to prioritize products with lower utility, contrasting with prior work. The intuition for our result is that the consumer may be willing to search less preferred products only at the lower cost, while the more preferred products will be searched even at higher search costs. This strategy benefits the retailer by increasing the number of products the consumer searches and thus, the ones she may buy. Our finding is robust to several extensions: (i) a retailer determining not only product locations, but also prices, (ii) independent (e.g. categories), as well as substitute products, and (iii) a focal retailer that faces competition. From a managerial perspective, we show that allocating products in the store without taking into account how this affects consumer search costs, might mean consumers overlook products they would otherwise purchase.

Suggested Citation

  • Raluca M. Ursu & Daria Dzyabura, 2020. "Retailers’ product location problem with consumer search," Quantitative Marketing and Economics (QME), Springer, vol. 18(2), pages 125-154, June.
  • Handle: RePEc:kap:qmktec:v:18:y:2020:i:2:d:10.1007_s11129-019-09214-6
    DOI: 10.1007/s11129-019-09214-6
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    References listed on IDEAS

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    Cited by:

    1. Greminger, Rafael, 2022. "Essays on consumer search," Other publications TiSEM 404020a9-8337-4950-b57f-0, Tilburg University, School of Economics and Management.
    2. Fan, Ying & Fu, Yuqi & Yang, Zan & Chen, Ming, 2024. "Search frictions in rental markets: Evidence from urban China," China Economic Review, Elsevier, vol. 83(C).
    3. Fan, Ying & Fu, Yuqi & Yang, Zan, 2024. "Door-in-the-face heuristics: Intermediaries’ diversion in rental markets," Working Paper Series 24/2, Royal Institute of Technology, Department of Real Estate and Construction Management & Banking and Finance.
    4. Honka, Elisabeth & Seiler, Stephan & Ursu, Raluca, 2024. "Consumer search: What can we learn from pre-purchase data?," Journal of Retailing, Elsevier, vol. 100(1), pages 114-129.
    5. Harris, Mark N. & Novarese, Marco & Wilson, Chris M., 2022. "Being in the right place: A natural field experiment on the causes of position effects in individual choice," Journal of Economic Behavior & Organization, Elsevier, vol. 194(C), pages 24-40.
    6. Raluca M. Ursu & Qianyun Zhang & Elisabeth Honka, 2023. "Search Gaps and Consumer Fatigue," Marketing Science, INFORMS, vol. 42(1), pages 110-136, January.
    7. Giovanni Compiani & Gregory Lewis & Sida Peng & Peichun Wang, 2024. "Online Search and Optimal Product Rankings: An Empirical Framework," Marketing Science, INFORMS, vol. 43(3), pages 615-636, May.

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    More about this item

    Keywords

    Consumer search; Multi-category retailer; Product location problem;
    All these keywords.

    JEL classification:

    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory

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