Consumers routinely associate geography with quality—think French wines and German autos—but those location-branding effects can influence trade even within countries and for the sale of everyday items, research suggests.
Chicago Booth’s Pradeep K. Chintagunta and National University of Singapore’s Junhong Chu studied shopping patterns on Taobao.com, China’s massive online marketplace. They find that consumers tend to purchase from sellers in specific provinces when shopping for staples such as diapers, water bottles, and cell phones. Understanding the reasons for geographic preferences could offer insights for merchants, platform operators, and economic-development offices, the researchers write.
One big factor, they find, is trust. Product reviews can offer some comfort to potential customers, but previous researchers have demonstrated that a glut of positive comments dilutes their impact, forcing buyers to look for other assuring signs.
“Like brands, a location serves as a quality cue and reputation mechanism,” Chintagunta and Chu write.
Armed with two years of weekly Taobao sales figures across eight common product categories, the researchers estimated the relative attractiveness of different Chinese provinces. For example, if buyers in Province C buy proportionally more goods from Province B than they do from Province A, for them B is more attractive relative to A.
Comparing specific pairs of provinces could enlighten sellers aiming to hone their marketing strategies, says Chintagunta: “One province might want to advertise more in another province where they aren’t trusted as much.”
Places from which people preferred to order shoes
In a study of more than 400,000 purchases of women’s shoes on Taobao.com over 2011–13, the researchers find that people in different geographic areas tended to prefer buying from sellers in certain places. In the interactive map below, select a province/administrative area and view how its sellers fared among buyers from a selection of other areas across China.
Among 31 provinces represented in the data, seven—including Beijing, Fujian, Guangdong, Jiangsu, Shanghai, Sichuan, and Zhejiang—attracted proportionally more business than the rest, the researchers find. Moreover, those geographic preferences persisted over time and explain 41–47 percent of the differences in trade between all province pairs.
To understand why, Chintagunta and Chu correlated these preferences with a host of underlying factors including distance, trust, demographics, and overall business environment. Together, those elements accounted for 75–90 percent of buyers’ geographic preferences, they find. Trust measurements came from a previous study by Beijing University’s Weiying Zhang and Hong Kong Baptist University’s Rongzhu Ke on the basis of a survey of 5,000 respondents who were asked to identify the “most trustworthy provinces.”
Administrative areas’ preferences for one another’s shoe-sellers
This chart, based on the same Taobao transaction data in the interactive map above, provides an all-in-one view of buyers’ preferences for sellers located across 21 administrative areas in China.
Trust shows a strong correlation with shopping patterns, Chintagunta and Chu observe. While consumers tended to buy from sellers that were closer to home and within their own province, trust between provinces appeared to mitigate those well-established biases.
“A Samsung phone is the same wherever you buy it, yet it seems as if people have trust-related issues with products sold by people from certain provinces,” says Chintagunta. “This is reflected in their purchase behavior, which to us was a surprise.”
Likewise, sellers in provinces with similar demographics, as well as those with commercial-credit regimes, were more attractive to buyers.
In a caveat, the researchers note that their findings may not apply outside of China, citing a 2018 study of geographic trade patterns on eBay, the US-based online auctioneer, by Washington University in St. Louis’s Daniel W. Elfenbein, Boston University’s Raymond J. Fisman, and University of North Carolina’s Brian McManus. While Chinese consumers preferred to buy from provinces that had similar education levels and occupational profiles as their home provinces, US-based consumers were more likely to buy from states that shared like-minded political and religious views.
- Pradeep K. Chintagunta and Junhong Chu, “Geography as Branding: Descriptive Evidence from Taobao,” Quantitative Marketing and Economics, forthcoming.
- Daniel W. Elfenbein, Raymond J. Fisman, and Brian McManus, “The Impact of Socioeconomic and Cultural Differences on Online Trade,” Working paper, July 2018.
- Ali Hortaçsu, F. Asís Martínez-Jerez, and Jason Douglas, “The Geography of Trade in Online Transactions: Evidence from eBay and MercadoLibre,” American Economic Journal: Microeconomics, February 2009.
- Chris Nosko and Steven Tadelis, “The Limits of Reputation in Platform Markets: An Empirical Analysis and Field Experiment,” NBER working paper, January 2015.
- Weiying Zhang and Rongzhu Ke, “Trust in China: A Cross-Regional Analysis,” Economic Research Journal, June 2003.
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