Modeling Dynamic Effects of the Marketing Mix on Market Shares
Econometric Institute - Erasmus University Rotterdam; Erasmus Research Institute of Management (ERIM); Tinbergen Institute Rotterdam
Erasmus University Rotterdam (EUR) - Department of Econometrics; Tinbergen Institute; Erasmus Research Institute of Management (ERIM)
Philip Hans Franses
Erasmus University Rotterdam (EUR) - Department of Econometrics
15 2003 5,
ERIM Report Series Reference No. ERS-2003-044-MKT
To comprehend the competitive structure of a market, it is important to understand the short-run and long-run effects of the marketing mix on market shares. A useful model to link market shares with marketing-mix variables, like price and promotion, is the market share attraction model. In this paper we put forward a representation of the attraction model, which allows for explicitly disentangling long-run from short-run effects. Our model also contains a second level, in which these dynamic effects are correlated with various brand and product category characteristics.Based on the findings in for example Nijs et al. (2001), we postulate the expected signs of these correlations. We fit our resultant Hierarchical Bayes attraction model to data on seven categories in two geographical areas. This data set spans a total of 50 brands. Our main finding is that, in absolute sense, the short-run price elasticity usually exceeds the long-run effect. Moreover, we find that the longrun price effects are strongly correlated with relative price and coupon intensity of a brand.
Number of Pages in PDF File: 32
Keywords: market shares, marketing mix, long-term effects, hierarchical bayes
JEL Classification: M, M31, C44working papers series
Date posted: August 26, 2006
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