The Fox School of Business and Management
1801 Liacouras Walk
Philadelphia, PA 19122
NBER Working Papers and Publications
|August 2013||Do Firms Use Coupons and In-store Discounts to Strategically Market Experience Goods Over the Consumption Life-Cycle? The Case of Cigarettes|
with Dean R. Lillard: w19310
Cigarettes are experience goods - most of their utility value only gets revealed when one consumes them. We hypothesize a three phase consumer life cycle for experience goods. Consumers initially do not know their utility from the good or their preferences for particular characteristics, and may initially choose the most familiar brand. In the second phase, they are informed about the good and may experiment with different brands. In the third phase, they may become loyal to one brand or exit the market. Firms could target price discounts for each phase, either to encourage experimentation (pay-to-switch), to retain customers (pay-to-stay), or to price-discriminate. We use market-level data on price, sales, in-store discounts, and coupon offers of 15 brands from 1995 to 2007 and individ...