Where to Refuel: Modeling On-the-way Choice of Convenience Outlet

TL;DR

This paper models on-the-way retail outlet choices, especially fuel stations, revealing two consumer decision strategies and demonstrating how the model improves segmentation and competition analysis.

Contribution

It introduces a latent class choice model for on-the-way retail decisions, capturing different consumer strategies and informing spatial competition analysis.

Findings

Consumers adopt immediacy or destination-oriented strategies.

The model fits better than existing models for gas station choices.

Simulations show implications for retail competition.

Abstract

This paper introduces on-the-way choice of retail outlet as a form of convenience shopping. It presents a model of on-the-way choice of retail outlet and applies the model in the context of fuel retailing to explore its implications for segmentation and spatial competition. The model is a latent class random utility choice model. An application to gas station choices observed in a medium-sized Asian city show the model to fit substantially better than existing models. The empirical results indicate consumers may adopt one of two decision strategies. When adopting an immediacy-oriented strategy they behave in accordance with the traditional gravity-based retail models and tend to choose the most spatially convenient outlet. When following a destination-oriented strategy they focus more on maintaining their overall trip efficiency and so will tend to visit outlets located closer to their main destination and are more susceptible to retail agglomeration effects. The paper demonstrates how the model can be used to inform segmentation and local competition analyses that account for variations in these strategies as well as variations in consumer type, origin and time of travel. Simulations of a duopoly setting further demonstrate the implications.