Non-parametric Estimation of Habitual Brand Loyalty

66 Pages Posted: 8 Apr 2022 Last revised: 22 Apr 2022

See all articles by Xinyao Kong

Xinyao Kong

University of Chicago - Booth School of Business

Jean-Pierre Dubé

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); Marketing Science Institute (MSI)

Øystein Daljord

University of Chicago, Booth School of Business

Date Written: March 30, 2022

Abstract

Testing for and measuring habitual brand loyalty (HBL) is one of the classic questions in quantitative marketing. We propose a nonparametric test for HBL using a ``dynamic potential outcomes'' model that resolves the classic identification challenge of decoupling state dependence and unobserved heterogeneity. We then propose a semi-parametric test for forward-looking behavior to assess whether consumers rationally plan their HBL. Case studies of several large consumer packaged goods categories reveal a non-trivial extent of HBL in consumers’ brand choices. Semi-parametric evidence for forward-looking consumer behavior strongly rejects the myopic discrete-choice model in favor of the dynamic discrete-choice model with a freely-varying discount factor. However, consumers are found to be considerably more impatient than would be implied by the real rate of interest. Nevertheless, the long-run price elasticities from a dynamic discrete-choice model are found to be larger in magnitude than those from a model with myopic choices.

Keywords: brand loyalty, state dependence, demand estimation, discount factor, dynamic

JEL Classification: D11, D12, L66, M3

Suggested Citation

Kong, Xinyao and Dube, Jean-Pierre H. and Daljord, Øystein, Non-parametric Estimation of Habitual Brand Loyalty (March 30, 2022). Available at SSRN: https://ssrn.com/abstract=4070747 or http://dx.doi.org/10.2139/ssrn.4070747

Xinyao Kong

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Jean-Pierre H. Dube (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 South Woodlawn Avenue
Chicago, IL 60637
United States

HOME PAGE: http://gsb.uchicago.edu/fac/jean-pierre.dube

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Marketing Science Institute (MSI) ( email )

1000 Massachusetts Ave.
Cambridge, MA 02138-5396
United States

Øystein Daljord

University of Chicago, Booth School of Business ( email )

Chicago, IL 60637
United States
7738342146 (Phone)

HOME PAGE: http://faculty.chicagobooth.edu/oystein.daljord/index.html

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