The Proportional Hazard Model for Purchase Timing: A Comparison of Alternative Specifications

P B Seetharaman and Pradeep Chintagunta

Journal of Business & Economic Statistics, 2003, vol. 21, issue 3, 368-82

Abstract: We use the proportional hazard model (PHM) to study purchase-timing behavior of households in two product categories: laundry detergents and paper towels. The PHM decomposes a household's instantaneous probability of buying the product at a point of time into two components: the baseline hazard that captures the household's intrinsic purchase pattern over time and the covariate function that captures the effects of marketing variables on the household's purchase timing decision. We compare the continuous-time and discrete-time PHMs, where the latter explicitly accounts for households' shopping trips that do not involve purchase of the product. We find that the discrete-time PHM empirically outperforms the continuous-time PHM in terms of explaining the observed purchase outcomes. We compare five different parametric specifications of the baseline hazard, and find that the three-parameter expo-power specification outperforms the exponential, Erlang-2, Weibull, and log-logistic specifications. We use a cause specific, competing-risks PHM to distinguish between two types of purchase events that differ in terms of whether or not they were preceded by a shopping trip that involved purchase of the product. Such a cause-specific, competing-risks PHM is shown to outperform the traditional discrete-time PHM. We then estimate a nonparametric version of the PHM and find that it does not offer any additional insights compared to the parsimonious parametric PHM. Finally, we accommodate unobserved heterogeneity across households by allowing all of the parameters of the PHM to follow a discrete distribution across households whose locations and supports are nonparametrically estimated from the data. We find evidence for substantial unobserved heterogeneity in the data, both in the parameters of marketing variables and in the baseline hazards. This study will be a useful reference to researchers hoping to use the PHM to study event times.

Date: 2003
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