The Price Consideration Model of Brand Choice

Andrew Ching, Tulin Erdem (terdem@stern.nyu.edu) and Michael Keane (m.keane@unsw.edu.au)

MPRA Paper from University Library of Munich, Germany

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. In this paper, we propose a new model of brand choice, the “price consideration” (PC) model, that allows more flexibility in this relationship. 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 scanner data, 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 (search for similar items in EconPapers)
JEL-codes: C25 C41 M31 (search for similar items in EconPapers)
Date: 2007-08-18
New Economics Papers: this item is included in nep-com and nep-mkt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Related works:
Journal Article: The price consideration model of brand choice (2009)
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