Accounting for Heterogeneity and Nonstationarity in a Cross-Sectional Model of Consumer Purchase Behavior

Peter S. Fader and James M. Lattin
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Peter S. Fader: University of Pennsylvania
James M. Lattin: Stanford University

Marketing Science, 1993, vol. 12, issue 3, 304-317

Abstract: When calibrating a brand choice model cross-sectionally, a measure of brand loyalty is often introduced into the utility function to account for differences in utility across households and over time. One of the most widely used measures of brand loyalty, proposed by Guadagni and Little (1983), is an exponential smoothing model of past choice behavior by the household. In this study, we argue that the exponential smoothing model of brand loyalty cannot properly distinguish between sources of variation in utility due to heterogeneity (across households) and sources of variation due to nonstationarity (within household over time). We introduce a new measure of brand loyalty, derived from a nonstationary Dirichlet-multinomial choice model, in which heterogeneity and nonstationarity are handled distinctly.

Keywords: choice models; brand loyalty; heterogeneity; nonstationarity (search for similar items in EconPapers)
Date: 1993
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Citations: View citations in EconPapers (17)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormksc:v:12:y:1993:i:3:p:304-317

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