The Impact of Necessity on Consumer Behavior

Abstract

I find that a bad reputation is not necessarily bad for business. I argue that a bad corporate reputation is less likely to hurt sales of tangible goods than intangible services, because assessing quality for the latter is inherently difficult and customers often rely on seller reputation to choose providers. I also argue that a necessary product is less likely to be adversely impacted than a discretionary one because in many cases the customers cannot avoid purchase of the product. I find that product necessity strongly affects consumer opinions and behavior. I argue that consumers “like” firms that offer products they want more than firms that offer products they need but that these opinions do not necessarily drive purchase behavior. I partition firms included in a well-established, corporate reputational survey into those that offer basic needs, perceived necessities and discretionary products. I find that consumers rate firms that offer discretionary products higher than firms that offer necessary products. Despite this tendency, firms that offer discretionary products and necessary products have similar profitability. Lastly, while consumers dislike price increases, they are more likely to repurchase basic needs than perceived necessities or discretionary products, arguably because they have no choice for the former.