Incorporating Responsiveness to Marketing Efforts When Modeling Brand Choice
Econometric Institute - Erasmus University Rotterdam; Erasmus Research Institute of Management (ERIM); Tinbergen Institute Rotterdam
Philip Hans Franses
Erasmus University Rotterdam (EUR) - Department of Econometrics
Erasmus University Rotterdam (EUR) - Department of Econometrics; Tinbergen Institute; Erasmus Research Institute of Management (ERIM)
15 2001 8,
ERIM Report Series Reference No. ERS-2001-47-MKT
In this paper we put forward a brand choice model which incorporates responsiveness to marketing efforts as a form of structural heterogeneity. We introduce two latent segments of households. The households in the first segment are assumed to respond to marketing efforts while households in the second segment do not do so. Whether a specific household is a member of the first or the second segment at a specific purchase occasion is described by household-specific characteristics and characteristics concerning buying behavior. Households may switch between responsiveness states over time.We compare the in- and out-of-sample performance of our model with various versions of the MNL model. We conclude that, while using the smallest amount of parameters, our model outperforms all MNL variants on forecasting. This, together with the face validity of our parameter results, leads us to believe that incorporating responsiveness seems to be a worthwhile exercise.
Number of Pages in PDF File: 28
Keywords: Marketing-instrument effectiveness, structural heterogeneity, state dependence, multinomial logit, mixtures
JEL Classification: M, M31, C44
Date posted: February 21, 2003
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