29 Pages Posted: 2 Jun 2004
Date Written: May 2004
The quantity of any good demanded by consumers is dependent on the attributes and benefits of an offering, the rate at which marginal utility of the offering decreases, and the availability of substitutes. Traditional conjoint models focus on attributes and benefits, but have not incorporated satiation or diminishing marginal utility. Moreover, traditional conjoint methods are designed to make market share predictions and are difficult to adapt to modeling volume data. A new demand model is proposed in which product attributes are related to satiation parameters, allowing for volume predictions and identification of product line configurations that maximize profits. Data from a national beverage manufacturer is used to illustrate and compare the proposed model to traditional analyses. The estimated model is used to design an optimal retail product offering.
Keywords: Conjoint, volume data, discrete-continuous, demand models
JEL Classification: M3, C8, C9
Suggested Citation: Suggested Citation
By Aviv Nevo