Modeling Unobserved Consideration Sets for Household Panel Data

49 Pages Posted: 26 Aug 2006

See all articles by Erjen van Nierop

Erjen van Nierop

Carnegie Mellon University - David A. Tepper School of Business; Erasmus Research Institute of Management (ERIM); Tinbergen Institute

Richard Paap

Erasmus University Rotterdam (EUR) - Department of Econometrics; Tinbergen Institute; Erasmus Research Institute of Management (ERIM)

Bart J. Bronnenberg

Tilburg University, CentER

Philip Hans Franses

Erasmus University Rotterdam (EUR) - Department of Econometrics

Michel Wedel

University of Maryland - Robert H. Smith School of Business, Marketing Department; University of Groningen - Faculty of Economics and Business

Date Written: 13 2000, 10

Abstract

We propose a new method to model consumers' consideration and choice processes. We develop a parsimonious probit type model for consideration and a multinomial probit model for choice, given consideration. Unlike earlier models of consideration ours is not prone to the curse of dimensionality, while we allow for very general structures of unobserved dependence in consideration among brands. In addition, our model allows for state dependence and marketing mix effects on consideration.Unique to this study is that we attempt to establish the validity of existing practice to infer consideration sets from observed choices in panel data. To this end, we use data collected in an on-line choice experiment involving interactive supermarket shelves and post-choice questionnaires to measure the choice protocol and stated consideration levels. We show with these experimental data that underlying consideration sets can be successfully retrieved from choice data alone and that there is substantial convergent validity of the stated and inferred consideration sets. We further find that consideration is a function of point-of-purchase marketing actions such as display and shelf space, and of consumer memory for recent choices.Next, we estimate the model on IRI panel data. We have three main results. First, compared with the single-stage probit model, promotion effects are larger and are inferred with smaller variances when they are included in the consideration stage of the two-stage model. Promotion effects are significant only in the two-stage model that includes consideration, whereas they are not in a single-stage choice model. Second, the price response curves of the two models are markedly diferent. The two-stage model offers a nice intuition for why promotional price response is different from regular price response. In addition and consistent with intuition, the two-stage model also implies that merchandizing has more effect on choice among those who did not buy the brand before than among those who already did. It is explained why a single-stage model does not harbor this feature. In fact, the single-stage model implies the opposite for smaller or more expensive brands. Third, we find that the consideration of brands does not covary greatly across brands once we take account of observed effects. Managerial implications and future research are also discussed.

Keywords: Consideration, choice, probit models

JEL Classification: M, M31, C35

Suggested Citation

van Nierop, Erjen and Paap, Richard and Bronnenberg, Bart J. and Franses, Philip Hans and Wedel, Michel, Modeling Unobserved Consideration Sets for Household Panel Data (13 2000, 10). ERIM Report Series Reference No. ERS-2000-42-MKT. Available at SSRN: https://ssrn.com/abstract=370842

Erjen Van Nierop (Contact Author)

Carnegie Mellon University - David A. Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States

Erasmus Research Institute of Management (ERIM)

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Tinbergen Institute ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Richard Paap

Erasmus University Rotterdam (EUR) - Department of Econometrics ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Tinbergen Institute ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Bart J. Bronnenberg

Tilburg University, CentER ( email )

Warandelaan 2
Tilburg, 5037 AB
Netherlands
+31 13 466 8939 (Phone)
+31 13 466 8354 (Fax)

Philip Hans Franses

Erasmus University Rotterdam (EUR) - Department of Econometrics ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands
+31 10 408 1278 (Phone)
+31 10 408 9162 (Fax)

Michel Wedel

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

College Park, MD 20742
United States
301.405.2162 (Phone)
301.405.0146 (Fax)

HOME PAGE: http://www.rhsmith.umd.edu/marketing/faculty/wedel.html

University of Groningen - Faculty of Economics and Business ( email )

Postbus 72
9700 AB Groningen
Netherlands

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