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The effect of product variety on purchase probability

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Abstract

Regarding the effect of product variety on purchase probability, there exist findings which demonstrate a positive effect of variety for small assortments and a negative effect of variety for large assortments. Despite these results, little evidence exists about the causal mechanism of this effect. We conduct a field study among German consumer electronics customers to investigate the previously proposed constructs of anticipated product utility, anticipated regret and evaluation costs. The results suggest that anticipated regret and evaluation costs play a powerful role in explaining the negative link between variety and purchase probability for high variety assortments. Anticipated product utility on the other hand serves to explain part of the positive causality for low variety assortments. The results obtained give rise to recommendations for the planning of assortments.

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Notes

  1. We decided to test the inverted U-shaped relation by modeling the data on the individual level. Instead of the probit model, we may have estimated a logit model. To identify probit and logit models the variance of the error term needs to be fixed. In probit an error variance of 1 is assumed, logit models assume a variance of π/3. While this assumption is arbitrary, it does not affect the value of predicted probabilities interpreted below (see Long 1997, 49–50 for a mathematical proof).

  2. The more frequently used maximum likelihood (ML) method for model estimation is not applicable in our case since our depended variable has the two binary values of “purchase” and “no purchase”. In such cases ML would result in inflated χ² fit statistics, biased model parameters and standard errors (Hutchinson and Olmos 1998; Green et al. 1997; Muthén and Kaplan 1992; Babakus et al. 1987). Therefore, we estimate our model based on polychoric correlations instead of variances and covariances (as in ML estimation) (see Flora and Curran 2004 for a more detailed discussion).

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Authors and Affiliations

  1. Research Institute for Business Metrics and Audi Lab for Market Research, University of St Gallen, Gallen, Switzerland

    Mark Heitmann & Andreas Herrmann

  2. Risk Measurement und Management, Credit Suisse Zürich, Zurich, Switzerland

    Christian Kaiser

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  1. Mark Heitmann
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  2. Andreas Herrmann
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  3. Christian Kaiser
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Correspondence to Andreas Herrmann.

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Heitmann, M., Herrmann, A. & Kaiser, C. The effect of product variety on purchase probability. RMS 1, 111–131 (2007). https://doi.org/10.1007/s11846-007-0006-6

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