The Price Consideration Model of Brand Choice

Journal of Applied Econometrics, Vol. 24, No. 3, pp. 393-420, April/May 2009

46 Pages Posted: 10 Apr 2006 Last revised: 27 Dec 2009

See all articles by Andrew T. Ching

Andrew T. Ching

Johns Hopkins University - Carey Business School

Tulin Erdem

New York University (NYU) - Leonard N. Stern School of Business; New York University (NYU) - Department of Marketing

Michael P. Keane

Arizona State University (ASU) - Economics Department; University of Technology, Sydney (Visiting July 2006-Present)

Abstract

The workhorse brand choice models in marketing are the multinomial logit (MNL) and nested multinomial logit (NMNL). These models place strong restrictions on how brand share and purchase incidence price elasticities are related. They predict market shares well, but not inter-purchase spell lengths. In this paper, we propose a new model of brand choice, the price consideration (PC) model, that allows more flexibility in the relation between purchase incidence and brand choice elasticities.

In the PC model, consumers do not observe prices in each period. Every week, a consumer decides whether to consider a category. Only then does he/she look at prices and decide whether and what to buy. Using Nielsen scanner data on peanut butter and ketchup, we show the PC model fits much better than MNL or NMNL. Simulations reveal the reason: the PC model provides a vastly superior fit to inter-purchase spells.

Keywords: Brand Choice, Purchase Incidence, Price Elasticity, Inter-purchase Spell

JEL Classification: C25, C41, M31

Suggested Citation

Ching, Andrew T. and Erdem, Tulin and Keane, Michael P., The Price Consideration Model of Brand Choice. Journal of Applied Econometrics, Vol. 24, No. 3, pp. 393-420, April/May 2009, Available at SSRN: https://ssrn.com/abstract=895883

Andrew T. Ching (Contact Author)

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States

Tulin Erdem

New York University (NYU) - Leonard N. Stern School of Business ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States

New York University (NYU) - Department of Marketing ( email )

Henry Kaufman Ctr
44 W 4 St.
New York, NY
United States

Michael P. Keane

Arizona State University (ASU) - Economics Department ( email )

Tempe, AZ 85287-3806
United States

University of Technology, Sydney (Visiting July 2006-Present)

PO Box 123 Broadway
NSW 2007
Australia
480-965-1053 (Phone)
480-965-0748 (Fax)

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