Store Choice and Shopping Behavior: How Price Format Works

In this paper, we present a perceived shopping utility framework for analyzing the impact of retail price format on store choice, which in turn determines three key performance metrics: (1) number of shoppers, (2) number of trips, and (3) average spending per trip. Our approach is based on the premise that when choosing a store, consumers evaluate both the fixed and variable utilities of shopping. The fixed utility does not vary from trip to trip whereas the variable utility depends on the size and composition of the shopping list. We apply our model to summarize prior findings on store choice, analyze how retailers can improve their performance, and interpret the practices of leading retailers. Our framework can also accommodate situations when retailers face multiple segments who have different sensitivities to fixed and variable utilities. Finally, we discuss recent trends (e.g., online shopping) using our approach.