Incorporating Responsiveness to Marketing Efforts When Modeling Brand Choice

Dennis Fok, Philip Hans Franses and Richard Paap

ERIM Report Series Research in Management from Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam

Abstract: In this paper we put forward a brand choice model which incorporates responsiveness to marketing efforts as a form of structural heterogeneity. We introduce two latent segments of households. The households in the first segment are assumed to respond to marketing efforts while households in the second segment do not do so. Whether a specific household is a member of the first or the second segment at a specific purchase occasion is described by household-specific characteristics and characteristics concerning buying behavior. Households may switch between responsiveness states over time. We compare the in- and out-of-sample performance of our model with various versions of the MNL model. We conclude that, while using the smallest amount of parameters, our model outperforms all MNL variants on forecasting. This, together with the face validity of our parameter results, leads us to believe that incorporating responsiveness seems to be a worthwhile exercise.

Keywords: Marketing-instrument effectiveness; mixtures; multinomial logit; state dependence; structural heterogeneity (search for similar items in EconPapers)
JEL-codes: C44 M M31 (search for similar items in EconPapers)
Date: 2001-08-15
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Persistent link: https://EconPapers.repec.org/RePEc:ems:eureri:110

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