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Estimating Promotion Response When Competitive Promotions Are Unobservable

Journal of Marketing Research, 2007

14 Pages Posted: 12 Feb 2014  

Sangkil Moon

North Carolina State University - College of Management

Wagner A. Kamakura

Rice University

Johannes Ledolter

University of Iowa - Department of Management Sciences

Multiple version iconThere are 2 versions of this paper

Date Written: 2007

Abstract

This study addresses a problem commonly encountered by marketers who attempt to assess the impact of their sales promotions—namely, the lack of data on competitive marketing activity. In most industries, competing firms may have competitive sales data from syndicated services or trade organizations, but they seldom have access to data on competitive promotions at the customer level. Promotion response models in the literature either have ignored competitive promotions, focusing instead on the focal firm’s promotions and sales response, or have considered the ideal situation in which the analyst has access to full information about each firm’s sales and promotion activity. The authors propose a random coefficients hidden Markov promotion response model, which takes the competitor’s unobserved promotion level as a latent variable driven by a Markov process to be estimated simultaneously with the promotion response model. This enables the authors to estimate cross-promotion effects by imputing the level of competitive promotions. The authors test the proposed model on synthetic data through a Monte Carlo experiment. Then, they apply and test the model to actual prescription and sampling data from two main competing pharmaceutical firms in the same therapeutic category. The two tests show that compared with several benchmark models, the proposed random coefficients hidden Markov model successfully imputes unobserved competitive promotions and, accordingly, reduces biases in the own- and cross-promotion parameters. Furthermore, the proposed model provides better predictive validity than the benchmark models.

Suggested Citation

Moon, Sangkil and Kamakura, Wagner A. and Ledolter, Johannes, Estimating Promotion Response When Competitive Promotions Are Unobservable (2007). Journal of Marketing Research, 2007. Available at SSRN: https://ssrn.com/abstract=2392652

Sangkil Moon (Contact Author)

North Carolina State University - College of Management ( email )

College of Management
Raleigh, NC 27695-7229
United States

HOME PAGE: http://www4.ncsu.edu/unity/users/s/smoon2/www/

Wagner A. Kamakura

Rice University ( email )

6100 South Main Street
P.O. Box 1892
Houston, TX 77005-1892
United States
(713) 348-6307 (Phone)

Johannes Ledolter

University of Iowa - Department of Management Sciences ( email )

IA
United States

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