The Cross Attributes Flexible Substitution Logit: Uncovering Category Expansion and Share Impacts of Marketing Instruments

Liu, Q., Steenburgh, T. J., and Gupta, S. (2015). The Cross Attributes Flexible Substitution Logit: Uncovering Category Expansion and Share Impacts of Marketing Instruments. Marketing Science, vol. 34 (1), 144-159.

Darden Business School Working Paper No. 1923329

Harvard Business School Marketing Unit Working Paper No. 12-012

44 Pages Posted: 6 Sep 2011 Last revised: 30 Nov 2015

See all articles by Qiang Liu

Qiang Liu

Purdue University - Krannert School of Management

Thomas J. Steenburgh

University of Virginia - Darden Graduate School of Business

Sachin Gupta

Cornell University - Samuel Curtis Johnson Graduate School of Management

Date Written: August 25, 2014

Abstract

Different objectives such as category demand expansion or market share stealing warrant the use of different marketing instruments. To help brand managers make informed decisions, it is essential that marketing mix models appropriately measure their effects. Random Utility Models (RUM) that have been applied to this problem might not be adequate because they do not allow the effects of marketing instruments of one brand to spillover to preference for competing alternatives. Additionally, they possess the Invariant Proportion of Substitution (IPS) property, which in some situations imposes counter-intuitive restrictions on individual choice behavior. With the recognition that effects of marketing instruments can spillover across brands in a category, we then propose an alternative choice model that relaxes the IPS property – the “cross attributes flexible substitution logit” (CAFSL) model. We apply the model in two very different empirical settings: consumer choices of brands of refrigerated yogurt, and prescription-writing choices of physicians in the hyperlipidemia category. In both settings the proposed model provides consistent evidence that certain marketing instruments produce sales gains primarily from growing the category pie, while others produce gains from stealing share. By contrast, the random coefficient (RC) logit and generalized nested logit (GNL) models both predict that gains from all marketing instruments would have similar sources.

Keywords: Choice Models, Invariant Proportion of Substitution, Random Coefficient Logit, Generalized Extreme Value, Spillover

JEL Classification: C01, C25

Suggested Citation

Liu, Qiang and Steenburgh, Thomas J. and Gupta, Sachin, The Cross Attributes Flexible Substitution Logit: Uncovering Category Expansion and Share Impacts of Marketing Instruments (August 25, 2014). Liu, Q., Steenburgh, T. J., and Gupta, S. (2015). The Cross Attributes Flexible Substitution Logit: Uncovering Category Expansion and Share Impacts of Marketing Instruments. Marketing Science, vol. 34 (1), 144-159. ; Darden Business School Working Paper No. 1923329; Harvard Business School Marketing Unit Working Paper No. 12-012. Available at SSRN: https://ssrn.com/abstract=1923329 or http://dx.doi.org/10.2139/ssrn.1923329

Qiang Liu

Purdue University - Krannert School of Management ( email )

1310 Krannert Building
West Lafayette, IN 47907-1310
United States

Thomas J. Steenburgh (Contact Author)

University of Virginia - Darden Graduate School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States

Sachin Gupta

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States

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