Consumer spending patterns across firms and categories: Application to the size- and share-of-wallet

Sungha Jang, Ashutosh Prasad and Brian T. Ratchford

International Journal of Research in Marketing, 2016, vol. 33, issue 1, 123-139

Abstract: Predicting share-of-wallet and size-of-wallet (i.e., category expenditure) of customers requires a firm to have, in addition to its own sales, an estimate of customer spending at competing firms. Given data on competitive spending from a sample of customers, this study considers the problem of predicting consumer expenditures at competing firms when data is unavailable. The proposed methodology, designed for multi-category firms, is a simultaneous equations Tobit model with latent classes which can handle three complicating factors: (i) heterogeneity in spending patterns; (ii) interrelationship of expenditures across firms and categories, called simultaneity; and (iii) data censoring, which occurs when consumers have zero expenditure in a category. The model is estimated on credit card data using Bayesian estimation. Two segments are revealed. One comprises 76% of consumers and is characterized by habitual spending patterns. The other 24% of consumers spend based on income allocation. Segments show different interrelationship of expenditures across firms and categories. Thus, this paper contributes a methodological tool for more accurate prediction of size-of-wallet and share-of-wallet and better targeting of customers when expenditures at competing firms are unavailable. This is accomplished by considering consumer heterogeneity and asymmetric complementary and substitute interactions between expenditures.

Keywords: Customer spending; Share-of-wallet; Simultaneous equations Tobit; Multiple discreteness; Bayesian estimation (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ijrema:v:33:y:2016:i:1:p:123-139

DOI: 10.1016/j.ijresmar.2015.06.008

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