utility covariances and context effects in conjoint mnp models experimental conjoint choice analysis is among the most frequently used methods for measuring and analyzing consumer preferences the data from such experiments have been typically analyzed with the multinomial logit mnl model however there are several problems associated with the standard mnl model because it is based on the assumption that the error terms of the underlying random utilities are independent across alternatives choice sets and subjects the multinomial probit model mnp is well known to alleviate this assumption of independence of the error terms accounting for covariances in utilities in modeling choice experiments with the mnp is important because variation of the coefficients in the choice model may occur due to context effects previous research has shown that subjects utilities for alternatives depend on the choice context that is the particular set of alternatives evaluated simonson and tversky s tradeoff contrast principle describes the effect of the choice context on attribute importance and patterns of choice they distinguish local contrast effects which are caused by the alternatives in the offered set only and background contrast effects which are due to the influence of alternatives previously considered in choice experiments these effects are hypothesized to cause correlations in the utilities of alternatives within and across choice sets respectively the purpose of this study is to develop an mnp model for conjoint choice experiments this model is important for a more detailed study of choice patterns in those experiments in developing the mnp model for conjoint choice experiments several hurdles need to be taken related to the identification of the model and to the prediction of holdout profiles to overcome those problems we propose a random coefficients rc model that assumes a multivariate normal distribution of the regression coefficients with a rank one factor structure on the covariance matrix of these regression coefficients the parameters in this covariance matrix can be used to identify which attributes and levels of attributes are potentional sources of dependencies between the alternatives and choice sets in a conjoint choice experiment we present several versions of this model moreover for each of these models we allow utilities to be either correlated or independent across choice sets the independent probit ip model is used as a benchmark given the dimensionality of the integrations involved in computing the choice probabilities the models are estimated with simulated likelihood where simulations are used to approximate the integrals involved in the choice probabilities we apply and compare the models in two conjoint choice experiments in both applications the random coefficients mnp model that allows choices in different choice sets to be correlated rc displays superior fit and predictive validity compared with all other models we hypothesize that the difference in fit occurs because the rc model accommodates correlations among choice sets that are caused by background contrast effects whereas the model that treats choice sets as independent irc accounts for local contrast effects only the irc model shows superior model fit compared with the ip model but its predictions are worse than those of the ip model we find differences in the importance of local and background contrast effects for choice sets containing different numbers of alternatives the background contrast effect may be stronger for smaller choice sets whereas the local contrast effect may be stronger for bigger choice sets we illustrate the differences in simulated market shares that are obtained from the rc irc and ip models in three hypothetical situations product modification product line extension and the introduction of a me too brand in all of those situations substantially different market shares are predicted by the three models which illustrates the extent to which erroneous predictions may be obtained from the misspecified irc and ip models

demand for money in open economies abstract the demand for real cash balances deduced from an underlying portfolio model of the financial market is shown to depend upon domestic variables and foreign monetary developments the model is estimated using quarterly postwar data for canada germany uk and us there is clear evidence that demand for money is affected not only by changes in domestic variables such as permanent income domestic interest rate and price expectations but also by fluctuations in exchange rate expectations and foreign interest rates the conclusion that domestic monetary policy is fairly ineffective and domestic financial markets are highly vulnerable to changes in foreign financial and monetary developments need to be modified in light of the results presented in this paper

gatt and the economics of food safety abstract food safety is of increasing importance in higher income countries where consumers demand higher quality and safer food they will do so through the market when information makes it possible they will demand better assurances of safety through government regulations where externalities and health risks prevail the microeconomics of this demand for increased food safety is discussed in terms of how it can lead to non tariff barriers to trade that might ultimately be regulated by the gatt the public goods nature of food safety is explored along a continuum of food quality characteristics for the purpose of identifying when government regulations are needed

investigating the effects of store brand introduction on retailer demand and pricing behavior researchers have recently been interested in studying the drivers of store brand success as well as factors that motivate retailers to introduce store brands in this paper we study the effects of the introduction of a store brand into a particular product category specifically we are interested in the effect of store brand introduction on the demand as well as on the supply side on the demand side we investigate the changes in preferences for the national brands and price elasticities in the category on the supply side we study the effects of the new entrant on the interactions between the national brand manufacturers and the retailer introducing the store brand including how these interactions influence the retailer s pricing behavior in doing so we are also able to test whether the observed data are consistent with some of the commonly used assumptions regarding retailer pricing behavior for the demand specification we use a random coefficients logit model that allows for consumer heterogeneity the model parameters are estimated using aggregate data while explicitly accounting for endogeneity in retail prices our empirical results obtained from the oats product category based on store level data from a multistore retail chain indicate that the store brand introduction generates notable changes within the category the store brand introduction coincides with an increase in the retailer s margins for the national brand we find that the preferences for the national brand are relatively unaffected by the introduction of the store brand while consumers are in general more price sensitive in terms of elasticities than they were prior to store brand introduction a statistical test of the differences inmean price elasticities across stores and between the two regimes fails to reject the hypothesis of no change in these elasticities elasticities in specific stores however do increase after the store brand is introduced we also find that there is considerable heterogeneity in the preferences for the store brand on the supply side we test several forms of manufacturer retailer interactions to identify retailer pricing behavior most consistent with the data our results indicate that the data reject several commonly imposed forms of interactions in examining the nature of manufacturer interactions with the retailer we find that the manufacturer of the national brand appears to take a softer stance in its interactions with the retailer subsequent to store brand entry this finding is consistent with academic research and with articles in the popular press which suggest that the store brand enhances the retailer s bargaining ability vis a vis the manufacturers of the national brands we also provide results from a second product category frozen pasta that are largely consistent with those found in the oats category

a factor analytic probit model for representing the market structure in panel data internal market structure analysis infers both brand attributes and consumer preferences for those attributes from preference or choice data the authors exploit a new method for estimating probit models from panel data to infer market structures that can be displayed in few dimensions even though the model can represent every possible vector of purchase probabilities

competitive maps the structure underlying asymmetric cross elasticities a special case of three mode factor analysis is used to portray the systematic structure underlying asymmetric cross elasticities for a broad class of market share attraction models analysis of the variation over retail outlets and weeks reveals competitive patterns corresponding to sales for the major brands in the market as well as patterns reflecting shelf price competition analysis of the brand domain results in a joint space one set of brand positions portrays how brands exert influence over the competition the other set of points portrays how brands are influenced by others the interset distances angles provide direct measures of competitive pressures maps are formed as spatial representations of each of the competitive patterns discovered

a probabilistic choice model for market segmentation and elasticity structure marketing scholars commonly characterize market structure by studying the patterns of substitution implied by brand switching though the approach is useful it typically ignores the destabilizing

inflation interest rate policy and currency substitutions in developing economies a discussion of some major issues abstract this paper deals with the management of interest rates in an open economy under rapid inflation and reviews the links between interest and exchange rate policies to prevent current substitution the rate of interest paid to lenders must equal the equivalent rate after adjusting for differential taxation and intermediation costs this would probably induce capital inflows and consequent monetary growth exchange risks are also considered in this context the paper concludes that under inflationary conditions it is difficult to use only interest rates to achieve both proper resource allocation and prevention of currency substitution some policy measures to cope with this problem are discussed

capital controls the case of argentina abstract in this paper the effects of capital controls on the observed nominal interest rate differential adjusted for exchange rate changes between argentina and the united states are examined a simple model of portfolio behavior is used which is based on dooley and isard s 1980 work the model separates the component of the observed nominal interest rate differential adjusted for exchange rate changes between the argentinian rate and the dollar rate which was due to political and exchange risk premia associated with prospective controls from the component of the differential due to the existing controls the empirical analysis shows that both the existing and prospective contrls combined explain about 83 per cent of the nominal interest rate differential

money demand in open economies a currency substitution model for venezuela abstract this paper investigates the extent to which domestic money balances in venezuela are influenced by foreign exchange considerations to this end individuals are assumed to choose the levels of foreign and domestic money that minimize the borrowing costs associated with a given level of monetary services the solution to this optimization problem yields a closed form demand function for domestic money that allows for foreign exchange considerations this specification is estimated and the results point to an elasticity of currency substitution in excess of one conditioned on these estimates the paper estimates the risk premium for the period 1981 82 prior to the collapse of the exchange rate system in 1983

incorporating demographic variables in brand choice models an indivisible alternatives framework incorporating demographic variables in brand choice models is conceptually appealing and has numerous managerial benefits retailers and brand managers can assess geodemographic variations in demand and marketing mix response in order to implement micromarketing strategies for example a retailer planning to locate a new outlet can get some sense of the differences in demand patterns and price and promotion sensitivities in the new trading area in order to make initial stocking inventory pricing and promotion decisions for existing outlets retailers can fine tune the assortment and merchandising activities in a category to match local market conditions similarly a packaged goods manufacturers would benefit from getting a sense of whether they should stress promotional activity for one part of a brand s product line in some retail trading areas and other parts of the brand s line in other retail trading areas unfortunately a general finding across existing studies is that the impact of demographic variables on brand choice is neither strong nor consistent these findings are puzzling given that one would expect certain demographic variables such as income to have some influence on brand choice behavior moreover hoch et al hoch s j b d kim a j montgomery p e rossi 1995 determinants of store level price elasticity j marketing res 32february 17 29 using store level data find that a relatively small set of demographic variables is much more influential than competitive variables in explaining differences in price sensitivity across retail trading areas in light of such contradictory findings there is a need for a better conceptualization of the role of income and other demographic variables in household purchasing and this is the primary objective of this study this paper presents a microeconomic based framework called the indivisible alternatives ida framework to model household brand choice a key aspect of the ida framework is that it explicitly models alternatives in the market as being indivisible while past work has either explicitly or implicitly assumed perfect divisibility indivisibilities force a household s selection of a brand size and its level of category expenditure into a single joint decision hence demographic variables that influence category expenditure e g income also influence the choice of a brand size in addition since alternatives in the category come in several discrete sizes indivisibilities introduce differences in holding costs in the choice of a brand size combination consequently demographic factors that influence holding costs through consumption rate differences e g household size impact the choice of a brand size in a product category in this manner indivisibilities in market offerings naturally lead to differences in choice behavior across households that can be linked to demographic factors in a logical fashion in empirical applications to two different scanner panel data sets ketchup and ground coffee the proposed framework compares favorably with two benchmark specifications in terms of both goodness of fit and predictive validity the results from these product categories indicate that a household s price sensitivity is inversely related to its income level and that factors such as household size and seasonality which are likely to influence consumption rates make households more or less willing to buy larger package sizes income elasticity estimates from the model confirm that ceteris paribus households with lower incomes will have a higher propensity to purchase private labels and generic brands and a lower propensity to purchase national brands compared with households with higher incomes the micromarketing potential of the ida framework is explored in market simulations conducted for two different zip codes within a metropolitan area that vary with respect to income levels and other demographic factors the results indicate that for the product categories studied there are substantial differences across market areas in their response to the retail promotion of very large and very small package sizes within the same brand s product line the differences in response suggest that it may be beneficial to customize promotional programs to market areas based on their underlying demographic composition finally our findings suggest a link between household income and deal proneness that is conditional on other demographic variables and the expenditure required for the brand size in question specifically we find that smaller households with lower income levels are more likely to respond to promotions for smaller less expensive items within a category while larger households with higher incomes are more likely to respond to promotions for larger more expensive items within a category

decision making under uncertainty capturing dynamic brand choice processes in turbulent consumer goods markets we construct two models of the behavior of consumers in an environment where there is uncertainty about brand attributes in our models both usage experience and advertising exposure give consumers noisy signals about brand attributes consumers use these signals to update their expectations of brand attributes in a bayesian manner the two models are 1 a dynamic model with immediate utility maximization and 2 a dynamic forward looking model in which consumers maximize the expected present value of utility over a planning horizon given this theoretical framework we derive from the bayesian learning framework how brand choice probabilities depend on past usage experience and advertising exposures we then form likelihood functions for the models and estimate them on nielsen scanner data for detergent we find that the functional forms for experience and advertising effects that we derive from the bayesian learning framework fit the data very well relative to flexible ad hoc functional forms such as exponential smoothing and also perform better at out of sample prediction another finding is that in the context of consumer learning of product attributes although the forward looking model fits the data statistically better at conventional significance levels both models produce similar parameter estimates and policy implications our estimates indicate that consumers are risk averse with respect to variation in brand attributes which discourages them from buying unfamiliar brands using the estimated behavioral models we perform various scenario evaluations to find how changes in marketing strategy affect brand choice both in the short and long run a key finding obtained from the policy experiments is that advertising intensity has only weak short run effects but a strong cumulative effect in the long run the substantive content of the paper is potentially of interest to academics in marketing economics and decision sciences as well as product managers marketing research managers and analysts interested in studying the effectiveness of marketing mix strategies our paper will be of particular interest to those interested in the long run effects of advertising note that our estimation strategy requires us to specify explicit behavioral models of consumer choice behavior derive the implied relationships among choice probabilities past purchases and marketing mix variables and then estimate the behavioral parameters of each model such an estimation strategy is referred to as structural estimation and econometric models that are based explicitly on the consumer s maximization problem and whose parameters are parameters of the consumers utility functions or of their constraints are referred to as structural models a key benefit of the structural approach is its potential usefulness for policy evaluation the parameters of structural models are invariant to policy that is they do not change due to a change in the policy in contrast the parameters of reduced form brand choice models are in general functions of marketing strategy variables e g consumer response to price may depend on pricing policy as a result the predictions of reduced form models for the outcomes of policy experiments may be unreliable because in making the prediction one must assume that the model parameters are unaffected by the policy change since the agents in our models choose among many alternative brands their choice probabilities take the form of higher order integrals we employ monte carlo methods to approximate these integrals and estimate our models using simulated maximum likelihood estimation of the dynamic forward looking model also requires that a dynamic programming problem be solved in order to form the likelihood function for this we use a new approximation method based on simulation and interpolation techniques these estimation techniques may be of interest to researchers and policy makers in many fields where dynamic choice among discrete alternatives is important such as marketing decision sciences labor and health economics and industrial organization

a direct utility model for asymmetric complements a symmetric complements refer to goods where one good is more dependent on the other yet consumers receive enhanced utility from consuming both examples include garden hoses and sprinklers chips and dip and routine versus personalized services where the former has a broader base for utility generation and the latter is more dependent on the other s presence measuring asymmetric effects is difficult when all that is observed are the purchase quantities present in a consumer s market basket we propose a direct utility model with a latent decision sequence for measuring asymmetric effects that allows us to capture differential responses to cross category purchases and inventories scanner panel data of milk and cereal purchases are used to investigate the presence of asymmetric complementarity and implications are explored through counterfactual analyses involving cross price elasticities and spillover effects of merchandising variables

currency substitution the recent experience of bolivia abstract one of the more puzzling aspects of bolivia s economic performance since 1986 has been the rapid increase in the share of foreign currency deposits in the domestic banking system that has occurred notwithstanding low inflation rates and a high degree of external stability an analysis of the determinants of currency substitution in bolivia shows that economic variables are statistically significant but have a fairly low explanatory power compared to variables that measure the degree of inertia in the currency substitution process hence conventional fiscal and monetary measures may not be sufficient to reverse the process of currency substitution this points toward an interesting asymmetry where currency substitution increases rapidly with macroeconomic instability but is difficult to reverse even after years of macroeconomic stability

currency substitution inflation and welfare abstract currency substitution affects the mapping between social welfare and inflation by altering the underlying money demand function and influencing interest rates in order to explore the essence of this effect i build a model with working capital under which foreign currency is substituted with the less liquid components of domestic money the framework closely mimics the actual pattern of currency substitution across varying rates of inflation and enables the study of an additional channel that works through the impact of currency substitution on interest rates it is found that there is a threshold inflation rate which turns out to be 44 under baseline calibration below which currency substitution decreases welfare and vice versa a practical implication is that at inflation rates lower greater than the threshold the potential welfare gains from disinflation to a near zero inflation rate are higher lower if there is currency substitution than otherwise

inertia and variety seeking in a model of brand purchase timing previous research on state dependence indicates that a brand s purchase probabilities vary over time and depend on the levels of inertia and variety seeking and on the identity of the previously purchased brand brand choice probabilities obtained from models such as the logit and the probit are however fixed over time conditional on the previous brand purchased and on the levels of marketing variables consequently state dependence has largely been studied as a time invariant phenomenon in brand choice models with the levels of inertia and variety seeking assumed to be constant over time to account for the time varying nature of state dependence would require a model in which brand switching probabilities depend upon interpurchase times one modeling framework that can account for this dependence is based on the hazard function approach the proposed approach works as follows all other factors being equal an inertial household purchasing a brand on a particular occasion is most likely to repurchase that brand on the next occasion if the household switches it will be to a brand located perceptually close in attribute space to the previously purchased brand in other words an inertial household has the highest switching hazard for the same origin and destination brands with a progressively lower hazard rate for brands perceptually located farther and farther away from the origin brand the amount by which the hazard is lowered depends upon the perceptual distance and the inertia level of the household on the other hand if the household is variety seeking the most likely brand purchased would be a brand located farthest away from the previously purchased brand in attribute space in other words the hazard rate of repurchase is the lowest with the rate increasing with the distance of the destination brand from the origin brand and the level of that household s variety seeking tendency the effects of inertia and variety seeking are therefore incorporated at the attribute level into a brand purchase timing model in doing so we attempt to provide greater insight into the nature of state dependence in models of purchase timing our model and estimation procedure will enable us to distinguish between households that are inertial and those that are variety prone in addition to accounting for state dependence the model also accounts for the effects of unobserved heterogeneity among households in their brand preferences and in their sensitivities to marketing activities a majority of studies in marketing using the hazard function approach to investigate purchase timing have not accounted for heterogeneity in marketing mix effects the study integrates recent methods that incorporate the effects of inertia and variety seeking in brand choice models with a semi markov model of purchase timing and brand switching the proposed model enables us to 1 infer market structure via a perceptual map for the sample households and 2 investigate implications for the introduction of a line extension we provide empirical applications of the proposed method using three different household level scanner panel data sets we find that differing levels of inertia and variety seeking characterize the three data sets the findings are consistent with prior beliefs regarding these categories in addition our results indicate that the nature of interbrand purchase timing behavior depends upon the extent of inertia or variety seeking in the data we are also able to characterize the structure of the three product markets studied this provides implications for interbrand rivalry in the market further we demonstrate how the model and results can be used to predict the location of a line extension in the perceptual space of households finally we obtain implications for the timing of brand promotions

choice map inferring a product market map from panel data this paper describes choice map a model that infers a product market map from panel data choice map is a stochastic brand choice model a random utility quantal choice model and a multidimensional scaling procedure choice map combines the parsimony of stochastic choice models the rationale of random utility models and the ability of multidimensional scaling procedures to simultaneously infer both brand positions and consumer preferences from preference choice data choice map assumes that consumers have stationary purchase probabilities for the observational period which makes the model best suited to frequently bought mature product categories neither experimental nor survey data are required traditional mapping methods that scale such data may not yield the same structure for low involvement products as will a procedure like choice map that scales behavioral data choice map s descriptive and predictive validity exceeds that of an alternative stochastic brand choice model the dirichlet multinomial for a test data set

income and wealth effects on private label demand evidence from the great recession we measure the causal effects of income and wealth on the demand for private label products prior research suggests that these effects are large and in particular that private label demand rises during recessions our empirical analysis is based on a comprehensive household level transactions database matched with price information from store level scanner data and wealth data based on local house value indices the great recession provides a key source of the variation in our data showing a large and geographically diverse impact on household incomes over time we estimate income and wealth effects using within variation of income at the household level and wealth at the zip code level our estimates can be interpreted as income and wealth effects consistent with a consumer demand model based on utility maximization we establish a precisely measured negative effect of income on private label shares the effect of wealth is negative but not precisely measured however the estimated effect sizes

a unified approach to identifying estimating and testing demand structures with aggregate scanner data a one to one map between a specific demand structure and a restricted cross elasticity matrix is developed and tested using a random utility model the resulting demand structure can be used to evaluate a firm s ability to differentiate its products and can help determine if demand is characterized by factors that are easy to change similar brands are assumed to share common attributes that are stochastically evaluated by the consumer resulting in a random utility model with correlated errors the map results in more precise cross elasticity estimates and can be used to both identify and test possible structures

estimation of latent class models with heterogeneous choice probabilities an application to market structuring recently grover and srinivasan developed a latent class based approach to analyze market structure by using brand switching data the authors provide an iterative maximum likelihood procedure for

discrete choice models with multiple unobserved choice characteristics since the pioneering work by daniel mcfadden utility maximization based multinomial response models have become important tools of empirical researchers various generalizations of these models have been developed to allow for unobserved heterogeneity in taste parameters and choice characteristics here we investigate how rich a specification of the unobserved components is needed to rationalize arbitrary choice patterns in settings with many individual decision makers multiple markets and large choice sets we find that if one restricts the utility function to be monotone in the unobserved choice characteristics then up to two unobserved choice characteristics may be needed to rationalize the choices

government finance with currency substitution abstract we analyze seigniorage in an overlapping generations model where a friction induces a precautionary demand for a weaker currency the friction which is modeled as a transactions cost is viewed as an inverse measure of currency substitutability governments finance spending with costly income taxation or seigniorage we show that if governments act independently money growth is suboptimally low if currencies are sufficiently substitutable and too high otherwise if money growth is suboptimally low increasing substitutability lowers it further however since greater substitutability is associated with smaller real costs of exchanging money welfare need not fall

an empirical investigation of private label supply by national label producers private labels pls are ubiquitous in several categories including groceries apparel and appliances however existing empirical work has not examined the differential impact of various upstream supply arrangements for pl products or the strategic motives for pl supply to do so requires one to model the interaction between private and national label nl products both upstream and downstream while accounting for strategic behavior on the part of manufacturers and retailers and retaining essential differences between nl and pl products we build a model that satisfies these requirements and lets us answer our two research questions first can an nl firm profit from being an outsourced pl supplier second what are the upstream and downstream impacts of different pl supply arrangements we answer these questions by modeling private labels as homogenous products at wholesale but as differentiated products at retail in contrast national label products are differentiated at both wholesale and retail levels using structural model estimates for fluid milk in a major metropolitan area we conduct three counterfactual experiments we find that both nl producers and retailers profit from adding private labels we also find that a vertically integrated supply of pl leads to lower prices for end consumers

estimating a multinomial probit model of brand choice using the method of simulated moments the multinomial probit model of brand choice is theoretically appealing for marketing applications as it is free from the independence of irrelevant alternatives property of the multinomial logit model however difficulties in estimation have restricted its widespread use in marketing this paper presents an application of the method of simulated moments a new methodology that enables easy estimation of probit models with a large number of alternatives in the choice set we describe the theoretical development of the technique and using pseudo simulated data conduct numerical experiments to compare the method with existing techniques for estimating probit models using the scanner panel data on the purchases of catsup we provide an empirical application of the method of simulated moments to the estimation of the parameters of a multinomial probit model estimating the covariance structure associated with the underlying latent variable probit model enables us to identify broad patterns of similarities across alternatives it also enables us to derive a pairwise similarity matrix across choice alternatives which when input into a multi dimensional scaling routine provides us with a graphical representation of competitive structure in the catsup market for completeness we compare the substantive implications for the effects of marketing variables obtained from the multinomial probit model with those obtained from models in the extant marketing literature

price induced patterns of competition this research focuses on how price changes influence the observed pattern of brand competition the paper begins with a basic utility model formulation and examines the implications of three major classes of preference distributions on the expected patterns of competition a price tier model is proposed to operationalize the theory and to allow predictive testing the price tier model is estimated on 28 brands across four product categories the results show a specific asymmetric pattern of price competition higher price higher quality brands steal share from other brands in the same price quality tier as well as from brands in the tier below however lower price lower quality brands take sales from their own tier and the tier below brands but do not steal significant share from the tiers above the results are consistent with a bimodal preference distribution with the regular price indifference point being located toward the lower quality end of the preference distribution for the categories analyzed

food safety issues trade and wto rules a developing country perspective the sps agreement and the related wto dispute settlement mechanism are an important first step in strengthening the global trade architecture bringing in greater transparency and orderly conditions to world food trade however implementation of the new trade rules has turned out to be a more complex task than the traditional market access issues handled by the wto several factors including inadequate financial and technical resources have constrained devel oping countries from becoming effective participants in the implementation process and there is widespread suspicion that sps regulations are being used as hidden protectionist devices by developed countries however despite all the problems some developing countries have been quite successful in penetrating developed country food markets they have done so by accepting the consumer preferences and standards in quality sensitive high income markets and implementing domestic supply side measures while making full use of available international assistance initiatives developing countries should view the task of complying with sps standards not just as a barrier but also as an opportunity to upgrade quality standards and market sophistication in the food export sector

practice prize paper category optimizer a dynamic assortment new product introduction mix optimization and demand planning system the purpose of this paper is to describe the implementation of a category management tool known as category optimizer at foster s wine estates americas for one of its brands the beringer california collection foster s was facing a common management problem harnessing its portfolio of beringer california collection wines to increase profitability improve its competitive position and defend against a disruptive new entrant in the u s wine market called yellow tail category optimizer combines the parsimony of an internal market structure with the advances that have been made in assortment planning in operations research assortment and stock keeping unit level modeling mixed logits and the marketing literature on the perceptions of variety of assortment to develop and estimate a model on readily available store scanner data the model subsequently uses these results to inform strategic and tactical decision making this approach led to recommendations that initially seemed counterintuitive the normal response would be for foster s to consider lowering prices to maintain share and volume a strategy not inconsistent with many of the recommendations of past models however considering the additional degrees of freedom that a product range offered for defense we demonstrated that a combination of price increases together with the introduction of a volume flanker product in a new channel would improve profits increase revenue and protect and enhance market share these were successfully implemented in early 2008 earning rich dividends for the company increasing profitability by 70 revenue by 3 and earnings before interest and taxes by 8 5 and having a positive impact on its brand ranking in fact in 2008 it debuted as sixth among the international wine brands it also managed to play an important role in deposing yellow tail the market share leader from its dominant position we conclude the paper by providing examples of other companies where this approach has also been successfully implemented and by discussing some avenues for future research

practice prize reports the practice prize reports consist of one article with two parts as follows sinha ashish j jeffrey inman yantao wang joonwook park attribute drivers a factor analytic choice map approach for understanding choices among skus and tellis gerard j rajesh k chandy deborah macinnis pattana thaivanich modeling the microeffects of television advertising which ad works when where for how long and why

the shopping basket a model for multicategory purchase incidence decisions consumers make multicategory decisions in a variety of contexts such as choice of multiple categories during a shopping trip or mail order purchasing the choice of one category may affect the selection of another category due to the complementary nature e g cake mix and cake frosting of the two categories alternatively two categories may co occur in a shopping basket not because they are complementary but because of similar purchase cycles e g beer and diapers or because of a host of other unobserved factors while complementarity gives managers some control over consumers buying behavior e g a change in the price of cake mix could change the purchase probability of cake frosting co occurrence or co incidence is less controllable other factors that may affect multi category choice may be unobserved household preferences or observed household demographics we also argue that not accounting for these three factors simultaneously could lead to erroneous inferences we then develop a conceptual framework that incorporates complementarity co incidence and heterogeneity both observed and unobserved as the factors that could lead to multi category choice we then translate this framework into a model of multi category choice our model is based on random utility theory and allows for simultaneous interdependent choice of many items this model the multivariate probit model is implemented in a hierarchical bayes framework the hierarchy consists of three levels the first level captures the choice of items for the shopping basket during a shopping trip the second level captures differences across households and the third level specifies the priors for the unknown parameters we generalize some recent advances in markov chain monte carlo methods in order to estimate the model specifically we use a substitution sampler which incorporates techniques such as the metropolis hit and run algorithm and the gibbs sampler the model is estimated on four categories cake mix cake frosting fabric detergent and fabric softener using multicategory panel data the results disentangle the complementarity and co incidence effects the complementarity results show that pricing and promotional changes in one category affect purchase incidence in related product categories in general the cross price and cross promotion effects are smaller than the own price and own promotions effects the cross effects are also asymmetric across pairs of categories i e related category pairs may be characterized as having a primary and a secondary category thus these results provide a more complete description of the effects of promotional changes by examining them both within and across categories the co incidence results show the extent of the relationship between categories that arises from uncontrollable and unobserved factors these results are useful since they provide insights into a general structure of dependence relationships across categories the heterogeneity results show that observed demographic factors such as family size influence the intrinsic category preference of households larger family sizes also tend to make households more price sensitive for both the primary and secondary categories we find that price sensitivities across categories are not highly correlated at the household level we also find some evidence that intrinsic preferences for cake mix and cake frosting are more closely related than preferences for fabric detergent and fabric softener we compare our model with a series of null models using both estimation and holdout samples we show that both complementarity and co incidence play a significant role inpredicting multicategory choice we also show how many single category models used in conjunction may not be good predictors of joint choice our results are likely to be of interest to retailers and manufacturers trying to optimize pricing and promotion strategies across many categories as well as in designing micromarketing strategies we illustrate some of these benefits by carrying out an analysis which shows that the true impact of complementarity and co incidence on profitability is significant in a retail setting our model can also be applied to other domains the combination of item interdependence and individual household level estimates may be of particular interest to database marketers in building customized cross selling strategies in the direct mail and financial service industries

understanding store brand purchase behavior across categories this paper investigates whether the tendency to buy store brand is category specific or an enduring consumer trait we develop a multicategory brand choice model with a factor analytic structure on the covariance matrix of the coefficients the methodology allows us to elicit the basic latent tendency for a household to buy store brands while controlling for other causes such as price sensitivity the model is applied to a set of ten food and nonfood product categories we find strong evidence of correlations in household preferences for store brands across categories using a two dimensional factor structure we find that one of the factors explains a substantial amount of variation in store brand preference while the other factor explains price sensitivity consistently across categories the presence of these factors in all categories indicates that there are unobservable household level traits that are non category specific i e stable across product categories using data from five holdout categories we find that household estimates of these latent factors are very useful in predicting demand for store brands in new categories other potential applications for store managers are discussed

learning from experience simply there is substantial academic interest in modeling consumer experiential learning however approximately optimal solutions to forward looking experiential learning problems are complex limiting their behavioral plausibility and empirical feasibility we propose that consumers use cognitively simple heuristic strategies we explore one viable heuristic index strategies and demonstrate that they are intuitive tractable and plausible index strategies are much simpler for consumers to use but provide close to optimal utility they also avoid exponential growth in computational complexity enabling researchers to study learning models in more complex situations well defined index strategies depend on a structural property called indexability we prove the indexability of a canonical forward looking experiential learning model in which consumers learn brand quality while facing random utility shocks following an index strategy consumers develop an index for each brand separately and choose the brand with the highest index using synthetic data we demonstrate that an index strategy achieves nearly optimal utility at substantially lower computational costs using iri data for diapers we find that an index strategy performs as well as an approximately optimal solution and better than myopic learning we extend the analysis to incorporate risk aversion other cognitively simple heuristics heterogeneous foresight and an alternative specification of brands

modeling heterogeneity and state dependence in consumer choice behavior in frequently purchased consumer goods markets consumer brand choices exhibit substantial persistence across purchase occasions in this article i estimate a choice model that admits of both heterogeneity in preferences and true state dependence as sources of this persistence using nielsen scanner data on ketchup i find evidence for true state dependence in the choice process even after controlling for a rich heterogeneity structure simulation of the model indicates that the long term effect of a promotion induced purchase on future purchase probabilities is positive but small

demand for money in bangladesh a cointegration analysis the aim of this study is to estimate the demand for real broad m2 money in bangladesh using the most recently developed autoregressive distributed lag approach to cointegration analyses the empirical results show that there is a unique cointegrated and stable long run relationship among real per capita broad money demand real per capita income domestic interest rates and unofficial exchange rate um premiums which act as a surrogate for foreign interest rates with money as the dependent variable the results show that the income and interest elasticities are positive while the um premium elasticity is negative these results suggest that distortions in the financial and foreign exchange markets should be reduced in order to increase financial saving or monetary accumulation our results also reveal that the demand for money in bangladesh is stable despite the changes in financial and exchange rate policies between 1975 and 1995

national and international aspects of financial policies in ldcs a prologue after a period of animated controversy between keynesians advocating policies of low interest rates and monetary expansion and monetarists who insisted on the importance of the distinction between nominal and real interest rates economists have now almost reached a consensus on the role of money in the development process this consensus has arisen because it was increasingly felt that what was called for was not new concepts so much as new ways of looking at them in ldcs money s role need be neither denigrated nor exaggerated money s traditional functions as a medium of exchange and a store of value remain important in ldcs but its function as a conduit of resources from savers to investors is more central to an inderstanding of its contributions to development coats and khatkhate 1980 p 3 the body of the consensus derives from the framework set up by mckinnon and shaw fleshed out by the earlier work of goldsmith and patrick goldsmith 1969 patrick 1966 and extended by the theoretical and empirical output of a large number of younger economists fry 1981 this analysis attached central importance to financial policies of higher real interest rates which were supposed to encourage the build up of real money balances increased financial intermediation and unification of financial markets eventually such a policy would lead to the efficient utilization of resources and particularly of scarce capital this new paradigm has contributed to an improved understanding and perception of the economies of ldcs their problems and how these problems are accentuated by distortions arising from interventionist policies for a while it was believed that the programme contained the secret of how to reconcile stabilization objectives with those of development roe 1982 however the accumulation of empirical evidence on several developing countries where the prescribed set of policies was adopted has raised doubts about the validity of this conclusion in the presence of distortions in the financial markets it is no doubt a sensible policy to raise real interest rates the problematic issue is how far to go raising real interest rates without any regard for the rates of return on investment may run counter to the requirements of development to argue that once funds are generated through the accumulation of real balances investment can take care of itself ignores the very dynamics of development thus the hiatus between stabilization and development has not really been bridged this is evident from the recent concern with supply side policies rather than demand management policies a dichotomy which parallels the distinction between the stabilization and development problems it is this dual distinction which provides the theme of this special issue of world development

quality perceptions and asymmetric switching between brands rotating indifference curves are used to induce an income effect that favors superior brands at the expense of inferior brands in a discrete choice model when calibrated on scanner panel data the model yields an objective measure of brand quality which is related to the rate of rotation the model also leads to asymmetric responses to price promotions where switching up to high quality brands is more likely than switching down the model is capable of nesting the standard logit model and is similar to a nested logit model when there exists clusters of brands of like quality the model is used to explore a product line pricing decision where profits are maximized subject to the constraint that consumer utility is maintained

similarities in choice behavior across product categories differences between consumers in sensitivity to marketing mix variables have been extensively documented in the scanner panel data all studies of consumer heterogeneity focus on a specific category of products and ignore the fact that the purchase behavior of panel households is often observed simultaneously in multiple categories if sensitivity to marketing mix variables is a common consumer trait then one should expect to see similarities in sensitivity across multiple categories the goal in this paper is to measure the covariance of both observed linked to measured characteristics of households and unobserved heterogeneity in marketing mix sensitivity across multiple categories measurement of correlation in sensitivities across categories will serve to guide the interpretation of the literature on household heterogeneity if there is a large correlation one can be more confident that sensitivity to marketing variables is a fundamental household pr operty and not simply a category specific anomaly detection of correlation in sensitivities across categories requires an appropriate methodology that can handle the high dimensional covariance structures and properly account for uncertainty in estimatio n for example a simple approach might be to fit a brand choice model to each of the available categories in turn ignoring the data in the other categories for each category household parameter estimates could be obtained for the parameters corresponding to price display and feature sensitivity these parameter estimates could be viewed as data and the correlations across categories could be computed such a procedure could induce a downward bias in the estimation of correlation dueto the independent sampling errors which are present in each parameter estimate we develop a hierarchical model structure that introduces an explicit correlation structure across categories and utilizes the data in multiple categories at the same time to reduce the size of the covariance matrix we use a variance components approach we introduce household specific demographic variables to decompose the correlation across categories into that which can be ascribed to observable and unobservable sources shopping behavior variables such as shopping frequency and market basket size as well as intensity of shopping in a category are also included in the model using data on five categories we find substantial and statistically important correlations ranging from 32 for price sensitivities to 58 for feature sensitivity these correlations are much larger than the correlations obtained with the state of the art techniques available prior to our work we attribute our ability to detect substantial correlations to our method which involves the joint use of multiple category data in a parsimonious and efficient manner unlike previous studies with panel data household demographic variables are found to be strongly related to price sensitivity higher income households are less price sensitive and large families are more price sensitive shopping behavior variables are also important in explaining price sensitivity households that visit the store often are more price sensitive households with larger market baskets are less price sensitive confirming the view of bell and lattin 1998 heavy user households tend to be both less price sensitive and less display sensitive the evidence presented here of substantial correlations validates in part the notion that sensitivity to marketing mix variables is a consumer trait and is not unique to specific product categories it also opens the possibility of using information across categories in making inferences about consumer brand preference and marketing mix sensitivity providing a richer source of information for target marketing

assessing the competitive interaction between private labels and national brands in this article we employ the linear approximate almost ideal demand system la aids and specify price reaction equations derived under the la aids specification we perform intracategory analyses using data on six individual categories as well as a pooled analysis on a sample of 125 categories and 59 geographic markets we find that consumer response to price and promotion decisions demand and firm pricing behavior supply jointly determine observed market prices and market shares further estimates of residual demand elasticities suggest that examination of partial demand elasticities alone may provide an incomplete picture of the ability of brands to raise price copyright 2000 by university of chicago press

the value of purchase history data in target marketing an important aspect of marketing practice is the targeting of consumer segments for differential promotional activity the premise of this activity is that there exist distinct segments of homogeneous consumers who can be identified by readily available demographic information the increased availability of individual consumer panel data open the possibility of direct targeting of individual households the goal of this paper is to assess the information content of various information sets available for direct marketing purposes information on the consumer is obtained from the current and past purchase history as well as demographic characteristics we consider the situation in which the marketer may have access to a reasonably long purchase history which includes both the products purchased and information on the causal environment short of this complete purchase history we also consider more limited information sets which consist of only the current purchase occasion or only information on past product choice without causal variables proper evaluation of this information requires a flexible model of heterogeneity which can accommodate observable and unobservable heterogeneity as well as produce household level inferences for targeting purposes we develop new econometric methods to implement a random coefficient choice model in which the heterogeneity distribution is related to observable demographics we couple this approach to modeling heterogeneity with a target couponing problem in which coupons are customized to specific households on the basis of various information sets the couponing problem allows us to place a monetary value on the information sets our results indicate there exists a tremendous potential for improving the profitability of direct marketing efforts by more fully utilizing household purchase histories even rather short purchase histories can produce a net gain in revenue from target couponing which is 2 5 times the gain from blanket couponing the most popular current electronic couponing trigger strategy uses only one observation to customize the delivery of coupons surprisingly even the information contained in observing one purchase occasion boasts net couponing revenue by 50 more than that which would be gained by the blanket strategy this result coupled with increased competitive pressures will force targeted marketing strategies to become much more prevalent in the future than they are today

the extent of nontariff barriers to industrial countries imports this paper examines the extent of non tariff barriers to sixteen industrial countries visible imports using three alternative measures it shows that governmental commodity specific border measures affect over 27 of all imports and over 34 of imports from developing countries it also shows that during the period 1981 83 ntbs became significantly more extensive detailed statistics reveal considerable variations in ntb coverage by commodity type of barrier importer and exporter the data on which these conclusions are based are compiled from official information at the finest level of disaggregation they are described in the paper

research note a cross category model of households incidence and quantity decisions this paper advances the literature on multicategory demand models by simultaneously handling more than one purchase decision of the household we propose a two stage bivariate logit model of incidence and quantity outcomes in multiple categories our results show that cross category promotional spillovers are asymmetric between the two product categories of bacon and eggs the total retail profit responds more to bacon price than to egg price promoting bacon is found to have a bigger impact on egg profit than the impact of egg promotion on bacon profit we decompose 1 the total retail profits as well as 2 the cross category profit impact of a price promotion into its two components and find that 1 23 67 of the total retail profit impact of a promotion on bacon eggs arises on account of quantity effects and 2 40 33 of the increase in egg bacon profit from promoting bacon eggs is on account of quantity effects

moderating factors of immediate gross and net cross brand effects of price promotions this article examines cross price promotional effects in a dynamic context among other things we investigate whether previously established findings hold when consumer and competitive dynamics are taken into account five main influential effects asymmetric price effect neighborhood price effect asymmetric share effect neighborhood share effect and private label versus national brand asymmetry appear jointly in the second layer of a pooled hb vec varx model together with brand and category specific variables this study tests the relative importance of these key factors across three scenarios with no market dynamics when only consumer dynamics are considered and when competitive reactions are also taken into account the results confirm all five influential effects even if they are jointly estimated and consumer and competitive dynamics are taken into account national brand private label asymmetry has the strongest influence on the cross price promotional effects and becomes significantly stronger when consumer and competitive dynamics are taken into account dynamic consumer responses and competitive reactions both affect cross brand price elasticities and contrary to expectations competitive reactions accumulate rather than diminish cross price elasticities preemptive switching does occur i e a brand s promotion in period t hurts a competitor s sales in subsequent periods our findings are based on an extensive data set to attain generalizable results we analyze 33 categories in five stores that is 165 store category combinations

understanding reference price shoppers a within and cross category analysis abstract the authors attempt to draw profiles of reference price shoppers specifically the authors study how selected factors that affect brand choice are correlated with consumer sensitivity to gains and losses with respect to internal reference prices they also study the interaction between sociodemographics and gain and loss sensitivity furthermore the authors analyze cross category correlations in gain and loss sensitivity to shed light on their individual and category specific characters in three categories the results show significant heterogeneity in loss sensitivity among consumers and indicate that loss sensitivity is greater and more heterogeneous than gain sensitivity across categories the results show that loss sensitive shoppers are less influenced by past brand use and that both loss and gain sensitive shoppers more sensitive to price display and feature than the average consumer loss sensitive households tend to be larger and their heads are less likely to be fully employed

capping the cap implementation of the uruguay round agreement by the european union abstract this paper considers the detailed implementation of the uruguay round agreement on agriculture by the european union eu and its likely impact on the cap the agreement sets three constraints to agricultural support in developed countries the commitment to reduce domestic support by 20 per cent will have no effect tariffication and the new access provisions will only marginally improve the competitiveness of imports into the eu in the short run but do set the scene for more meaningful tariff cuts in the next round it is the constraints on subsidized exports which will most limit the cap and impact on world markets although even here the effects could easily be exaggerated the export constraints will bite deeper in the longer run particularly in the context of an enlargement of the eu to embrace several states from central and eastern europe which could trigger a more fundamental cap reform despite its limited impact the agreement should be judged a success in that it does impose limits on the cap and sets the scene for the next round of negotiations proposed to begin in 1999