A Note on the Use of Markov Chains in Forecasting Store Choice

Management Science, Vol. 16, No. 4, December 1969

5 Pages Posted: 9 Feb 2005 Last revised: 31 Dec 2011

See all articles by J. Scott Armstrong

J. Scott Armstrong

University of Pennsylvania - Marketing Department

John U. Farley

Independent

Abstract

The Markov model showed only slight predictive advantage over the no-change model for short-term forecasting of supermarket choices for a sample of 45 families. While this does not imply a blanket rejection of the Markov technique for forecasting, it is important to recall that this case held to a minimum many of the problems facing Markovian analysis-aggregation of dissimilar units, relatively low purchase rates, and requirement of such long sample periods to build up an adequate sample of events that the critical Markovian assumption of stable probabilities is almost certainly violated. Under these circumstances, the simpler model which says that nothing changes, performs almost as well as the more refined Markov formulation. It is possible, of course, that the slight advantage of the Markov model will outweigh the increased cost of using such a model, but the no-change model has advantages both with regard to simplicity and to applying control - chart types of procedures to track series for stability over time. The usual qualifications about representativeness of geographic areas, panels, samples of panel members and time periods, of course, apply to this analysis.

Keywords: Markov chains, forecasting, marketing, supermarket, forecasting

Suggested Citation

Armstrong, J. Scott and Farley, John U., A Note on the Use of Markov Chains in Forecasting Store Choice. Management Science, Vol. 16, No. 4, December 1969. Available at SSRN: https://ssrn.com/abstract=664165

J. Scott Armstrong (Contact Author)

University of Pennsylvania - Marketing Department ( email )

700 Jon M. Huntsman Hall
3730 Walnut Street
Philadelphia, PA 19104-6340
United States
215-898-5087 (Phone)
215-898-2534 (Fax)

HOME PAGE: http://marketing.wharton.upenn.edu/people/faculty/armstrong.cfm

John U. Farley

Independent ( email )

No Address Available

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