Which of These Two Shopping Strategies Is Most Effective?

How much does it “cost” you to find that perfect product? While most consumers dismiss the time and mental costs associated with investigating products prior to a purchase, these costs can be substantial, according to research by Professor Pradeep K. Chintagunta.

His study of auto-insurance purchases, with the University of Texas at Dallas’s Elisabeth Honka, who earned her MBA and PhD from Chicago Booth, reveals that there are two methods consumers use to investigate products when shopping and that these methods have implications for both shoppers and retailers. For example, what you buy may come down to the product prices and variables you encounter first during your search; therefore it’s critical for retailers to position themselves as best they can as the first option a consumer finds in a search.

The researchers identified two types of search methods: “sequential” and “simultaneous.” Consumers who conducted a sequential search went through each service option one by one until they came upon one they liked. By contrast, those consumers who conducted a simultaneous search picked a set of products they wanted to investigate and then purchased the best option from this set.

Both methods have drawbacks. For example, looking for products in a simultaneous fashion means that you may find a good deal early on, but you will continue to investigate other products because your search compels you to do so. “A limitation of the simultaneous search strategy is that it does not take into account new information that the consumer might obtain during the search process,” the researchers write.

Searching one at a time using a sequential method means consumers who encounter an acceptable price and product early on win out by not spending more time on the process. But there is a chance that consumers will not find an acceptable option until after a longer sequential search resulting in high time and mental costs—higher than those under a simultaneous search.

When it comes to both search types, “[t]he consumer trades off the costs incurred and benefits accrued from the undertaking, to arrive at a set of options for which he has complete information,” Chintagunta and Honka write.

But they stress that the longer consumers search for the perfect product at an ideal price, the higher the “search cost” consumers incur. Search cost is not only the time involved in the undertaking, but encompasses the psychological tradeoffs of conducting what can be an arduous task (think real-estate shopping, which can take months of negotiations).

How do you know which method will work best for you? When shopping for something like car insurance, assess your priorities before you start, says Chintagunta. If you’re in a hurry to get insured or are prone to traffic accidents, a simultaneous search will get you the best deal while taking some of those parameters into account. But if you’ve got time to spare, doing a sequential search by contacting car insurers one at a time for a quote can help you get the best deal.

Chintagunta and Honka find that an increase in consumers’ search costs affect insurance companies unequally, as shown by its effect on a company’s share in consumer searches and eventual purchases, which the authors call consideration shares and purchase shares, respectively. When search costs are high, a smaller percentage of consumers search for and select some companies, including Allstate and Mercury, while more consumers gravitate toward other companies such as Geico or Travelers.

While the researchers drew their conclusions by studying car insurance, Chintagunta says the findings are applicable for shoppers doing almost any form of shopping, be it for appliances, automobiles, or even real estate.

The findings also have implications for companies that may spend billions of dollars trying to correctly position their products. If a company understands how customers find its products, it could make those products better accessible to new customers, for example.

In general, bigger companies with brand recognition are better able to entice consumers to find and choose them right away, but smaller companies fare better when consumers cast a wider net. “We find that the largest insurance companies are better off when consumers search sequentially, while smaller companies profit from consumers searching simultaneously,” Chintagunta writes.