This paper explores the consumer value of publicly associating oneself with a brand image. The economic value of such association to the consumer of a brand is coming from its affect on the information exchange between consumers engaged in a search for partnerships with each other. It turns out that the brand use can be valuable to consumers for communication even when they do not have the proper incentives to make simple conversations valuable or informative. In particular, when the correlation of the interests of agents in a partnership is low, conversations are not very informative, while brand use remains informative and valuable. Furthermore, the more widespread the brand use is, the less truthful (and informative) one can expect conversations to be. In addition, the consumer value of a brand image is shown to have an inverse-U shape in the difficulty of searching, as consumers look for conformity when a search is difficult, and conversations become more and more truthful when a search becomes very easy.

Managers have long appreciated having loyal customers, and academic research has explored the benefits of loyal consumers as coming from reduced price competition. This paper extends this research by considering how loyalty affects firms’ decisions to facilitate search for nonloyal consumers. We show that in equilibrium, the store with more loyal customers ends up having lower search costs even if facilitating search is costless. The intuition for this result is that nonloyal consumers expect higher prices at a store with a larger loyal segment, and therefore, this store has to set a lower search cost to counteract the negative effect of this expectation. Given this, it is optimal for the other store to set a higher search cost to avoid intensifying price competition. As a consequence, a larger loyal segment may lead to both higher prices and a higher market share among nonloyal customers. In other words, an advantage in customer loyalty leads to the store becoming the search hub of the nonloyal customers. This, in turn, implies that even a small advantage in customer loyalty may lead to a large increase in profits and may help explain why some managers place such a high value on earning customer loyalty. This paper was accepted by David Simchi-Levi, marketing.

Oftentimes, close competitors carry partially overlapping assortments in seeming contradiction to the principle of maximum differentiation. One of the justifications of such practice is that an overlapping assortment with competitive prices on the common products may prevent further consumer search and therefore could be useful even when profits from the overlapping products do not justify the costs of carrying them. In this paper, we examine the validity of this intuition and show that such strategy may indeed be optimal when consumers are uncertain about prices they might find elsewhere and face shopping costs for discovery of all prices. Specifically, we show that the (larger) assortment with product overlap may signal a “competitive” price of the relatively unique product and prevent further consumer search for a lower price on it. An implication of this finding is that a consumer may rationally behave as if she likes a larger assortment even if the assortment is enlarged by adding products the consumer has no interest in. Furthermore, we show that the optimal pricing strategy may include pricing of common products or products with known costs at a loss, which provides a novel explanation of loss-leader pricing. Data, as supplemental material, are available at http://dx.doi.org/10.1287/mnsc.2015.2384 . This paper was accepted by Pradeep Chintagunta, marketing.