Understanding Large-Scale Dynamic Purchase Behavior

45 Pages Posted: 14 Oct 2020

See all articles by Bruno Jacobs

Bruno Jacobs

University of Maryland - Robert H. Smith School of Business

D. Fok

Econometric Institute - Erasmus University Rotterdam; Erasmus Research Institute of Management (ERIM); Tinbergen Institute Rotterdam

Bas Donkers

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE); Erasmus Research Institute of Management (ERIM); Tinbergen Institute

Date Written: August 25, 2020

Abstract

In modern retail contexts, retailers sell products from vast product assortments to a large and heterogeneous customer base. Understanding purchase behavior in such a context is very important. Standard models cannot be used due to the high dimensionality of the data. We propose a new model that creates an efficient dimension reduction through the idea of purchase motivations. We only require customer-level purchase history data, which is ubiquitous in modern retailing. The model handles large-scale data and even works in settings with shopping trips consisting of few purchases. As scalability of the model is essential for practical applicability, we develop a fast, custom-made inference algorithm based on variational inference. Essential features of our model are that it accounts for the product, customer and time dimensions present in purchase history data; relates the relevance of motivations to customer- and shopping-trip characteristics; captures interdependencies between motivations; and achieves superior predictive performance. Estimation results from this comprehensive model provide deep insights into purchase behavior. Such insights can be used by managers to create more intuitive, better informed, and more effective marketing actions. We illustrate the model using purchase history data from a Fortune 500 retailer involving more than 4,000 unique products.

Keywords: dynamic purchase behavior, large-scale assortment, purchase history data, topic model, machine learning, variational inference

Suggested Citation

Jacobs, Bruno and Fok, Dennis and Donkers, Bas, Understanding Large-Scale Dynamic Purchase Behavior (August 25, 2020). Available at SSRN: https://ssrn.com/abstract=3680678 or http://dx.doi.org/10.2139/ssrn.3680678

Bruno Jacobs

University of Maryland - Robert H. Smith School of Business ( email )

MD
United States

Dennis Fok

Econometric Institute - Erasmus University Rotterdam ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands
+31 10 408 1333 (Phone)
+31 10 408 9162 (Fax)

Tinbergen Institute Rotterdam ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Bas Donkers (Contact Author)

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
Rotterdam, NL 3000 DR
Netherlands
+31 10 408 2411 (Phone)
+31 10 408 9169 (Fax)

HOME PAGE: http://https://www.eur.nl/en/people/bas-donkers

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands
+31 10 408 2411 (Phone)
+31 10 408 9169 (Fax)

HOME PAGE: http://https://www.eur.nl/en/people/bas-donkers

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

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