An Experimental Test of Brand Insulation Against Competitor Attacks: Effects of Consumer Heterogeneity and Residual Desire

摘要

Price discounts generally move consumers from lower-qualitybrands to higher-quality brands more than from higher-quality brandsto lower-quality brands. This asymmetry can reverse, however, tofavor the lower-quality brand when improvements are made to prod-uct quality. Whether such variations exist when the goal is to retainrather than steal customers remains untested and constitutes thefocus of this study. Experimental results indicate that customerretention strategies tend to favor higher-quality brands. Higher-quality brands are able to retain customers by matching the formof the lower-quality brand's attack (price reduction or qualityimprovement). For lower-quality brands, matching is effective onlyin the case of a price attack by a higher-quality brand. Furthermore,higher-quality brands are able to effectively retain customers withprice reductions that are smaller than the discount offered by alower-quality competitor, whereas lower-quality brands must matchthe magnitude of a discount by a higher-quality brand to retain cus-tomers. The findings suggest that differences in customer retentionacross quality levels arise from (1) heterogeneity among consumersof different quality levels in the relative weightings of price andquality, and (2) switching decisions based on reasons that arebiased toward continuing to purchase, or moving to, higherquality products.