Volatility in the Consumer Packaged Goods Industry: A Simulation Based Study

24 Pages Posted: 12 Feb 2009 Last revised: 16 Mar 2010

See all articles by Abhijit Sengupta

Abhijit Sengupta

Surrey Business School, University of Surrey

Stephen E. Glavin

University College London

Date Written: February 1, 2009

Abstract

The volatility in a CPG market is modeled using a bottom up simulation approach and validated against disaggregated supermarket transactions data. The simulation uses independent agents, each agent representing unique households in the data. A simple behavioral model incorporates household preferences for product attributes and prices. Our validation strategy tests the model predictions at both macro and micro levels and benchmarks the performance in each against a random choice model. The model significantly outperforms the benchmark at both levels. At the macro level, choices made by heterogenous agents accurately captures the volatility in market shares - with the direction of change being more accurately predicted than the magnitude. At the micro level, it achieves a reasonable degree of prediction accuracy of household level SKU choice and a substantially higher accuracy for attribute choice.

Keywords: Social Simulation, Consumer Packaged Goods, Agent Based Modeling, Volatility, Validation

JEL Classification: C63, D12

Suggested Citation

Sengupta, Abhijit and Glavin, Stephen E., Volatility in the Consumer Packaged Goods Industry: A Simulation Based Study (February 1, 2009). Available at SSRN: https://ssrn.com/abstract=1341635 or http://dx.doi.org/10.2139/ssrn.1341635

Abhijit Sengupta (Contact Author)

Surrey Business School, University of Surrey ( email )

Guildford, Surrey GU2 7XH
United Kingdom

Stephen E. Glavin

University College London ( email )

Gower Street
London, WC1E 6BT
United Kingdom

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