21.04.2021

Consumer Choice in the Information Age

KE, T. Tony | 林松

In today’s digital era, online research plays a key part in the decision to buy a particular product or brand. The enormous amount of product information instantly available to customers on the Internet has changed the way they choose between similar offerings. Shedding light on this complex process, Assistant Professor Song Lin of HKUST’s Department of Marketing and a co-researcher developed and rigorously tested the novel concept of “informational complementarity.”

In many markets, products in the same category have attributes in common. For example, cars that belong to the same brand have a similar brand image and design. “BMW cars are known for their performance, Mercedes for luxury, Volvo for safety, and Toyota for reliability,” the researchers remind us. Even competing brands may share attributes, they add. “Electric cars produced by BMW and Mercedes originate in the same country and have similar engine technologies.”

Unsurprisingly, many consumers find it difficult to judge the value of products with both common and idiosyncratic attributes. As a result, say the researchers, they often “spend considerable time gathering, processing, and understanding information about products before making decisions.” In many shopping scenarios, the authors note, a customer’s view of one product may be influenced by information on similar products. This can lead to the effect of “informational complementarity.”

In particular, “lowering the price of one alternative can increase the demand for others that have common attributes.” Consider a consumer who wishes to buy an electric car from BMW or Mercedes. As electric cars are technologically similar, the consumer first researches the features shared by the two brands. This makes her even more keen to buy one. If she sees a very affordable car of either brand, she will be likely to look more favorably on electric cars in general. She may even be more willing to purchase an expensive one. The authors call this the “informational complementarity effect.”

To explore how this complementarity effect operates in theory, the authors developed and tested a detailed mathematical model, applicable “to a variety of decision scenarios, including negative information correlation, exogenous search order, repeated purchases, nondecomposable attributes, and more than two products.” Their rigorous approach allowed them to “fully characterize the conditions under which the informational complementarity effect can arise.”

The findings have important practical implications for how firms should advertise and price their products. A key observation is that positive information on one product often hints at negative aspects of another. “For example,” the researchers say, “when searching for information on electric cars, consumers may find reviews of disadvantages of traditional gasoline cars.” Yet the manufacturer in question may sell both electric and petrol cars. This is an important insight for brands that sell products with both idiosyncratic and similar attributes.

Information complementarity may also imply that competing firms may not end up fierce price competition because a lower price can turn out benefiting the competitors. Furthermore, “if competing firms can collusively manipulate the information correlation between their products,” suggest the researchers, “they can make them complements rather than substitutes.” Competition can thus be transformed into cooperation through strategic advertising and pricing.

In a world in which ever more information is available at our fingertips, this study offers urgently needed insights into the mechanisms of consumer search and choice. The authors’ innovative theoretical model will help future researchers to explore these mechanisms in diverse real-world settings—from commerce and manufacturing to the property and job markets.

林松

Associate Professor
Marketing