A Partial-Order-Based Model to Estimate Individual Preferences using Panel Data
Forthcoming, Management Science
55 Pages Posted: 7 Feb 2015 Last revised: 7 Oct 2016
Date Written: July 1, 2016
In retail operations, customer choices may be affected by stockout and promotion events. Given panel data with the transaction history of customers, and product availability and promotion data, our goal is to predict future individual purchases.
We use a general nonparametric framework in which we represent customers by partial orders of preferences. In each store visit, each customer samples a full preference list of the products consistent with her partial order, forms a consideration set, and then chooses to purchase the most preferred product among the considered ones. Our approach involves: (a)~defining behavioral models to build consideration sets as subsets of the products on offer, (b)~proposing a clustering algorithm for determining customer segments, and (c)~deriving marginal distributions for partial preferences under the multinomial logit (MNL) model. Numerical experiments on real-world panel data show that our approach allows more accurate, fine-grained predictions for individual purchase behavior compared to state-of-the-art alternative methods.
Keywords: nonparametric choice models, inertia in choice, brand loyalty, panel data, personalized predictions
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