decomposing promotional effects with a dynamic structural model of flexible consumption abstract in this article the authors offer a methodology to decompose the effects of price promotions into brand switching stockpiling and change in consumption by explicitly allowing for consumer heterogeneity in brand preferences and consumption needs they develop a dynamic structural model of a household that decides when what and how much to buy as well as how much to consume to maximize its expected utility over an infinite horizon by making certain simplifying assumptions the authors reduce the dimensionality of the problem they estimate the proposed model using household purchase data in the canned tuna and paper towels categories the results from the model offer insights into the decomposition of promotional effects into its components this could help managers make inferences about which brand s sales are more responsive to stockpiling or increase in consumption expansion and how temporary price cuts affect future sales contrary to previous literature the authors find that brand swi

the decomposition of promotional response an empirical generalization price promotions are used extensively in marketing for one simple reason consumers respond the sales increase for a brand on promotion could be due to consumers accelerating their purchases i e buying earlier than usual and or buying more than usual and or consumers switching their choice from other brands purchase acceleration and brand switching relate to the primary demand and secondary demand effects of a promotion gupta 1988 captures these effects in a single model and decomposes a brand s total price elasticity into these components he reports for the coffee product category that the main impact of a price promotion is on brand choice 84 and that there is a smaller impact on purchase incidence 14 and stockpiling 2 in other words the majority of the effect of a promotion is at the secondary level 84 and there is a relatively small primary demand effect 16 this paper reports the decomposition of total price elasticity for 173 brands across 13 different product categories on average we find that 25 of the elasticity is due to primary demand expansion i e purchase acceleration and 75 to secondary demand effects or brand switching thus while gupta s finding that the majority of promotional response stems from brand switching is supported the average magnitude of the effect appears to be smaller than first thought more important there is ample evidence that promotions have a significant primary demand effect the relative emphasis on purchase acceleration and brand switching varies systematically across categories and the second goal of the paper is to explain this variation as a function of exogeneous covariates in doing this we recognize that promotional response is the consumer s reaction to a price promotion and therefore develop a framework for understanding variability in promotional response that is based on the consumer s perspective of the benefits from a price promotion these benefits are posited to be a function of i category specific factors ii brand specific factors and iii consumer characteristics the framework is formalized as a generalized least squares meta analysis in which the brand s price elasticity is the dependent variable several interesting results emerge from this analysis category specific factors brand specific factors and consumer demographics explain a significant amount of the variance in promotional response for a brand at both the primary and secondary demand levels category specific factors have greater influence on variability in promotional response and its decomposition than do brand specific factors there are several instances where exogenous variables do not affect total elasticities yet significantly affect individual components of total elasticity in fact the lack of a significant relationship between the variables and total elasticity is often due to offsetting effects within two or more of the three behavioral components of elasticity this is particularly true for brand specific factors which typically have no effect on total elasticity yet have important effects on the individual behaviors there is some evidence to suggest that not all promotion related increases in primary demand are due to forward buying in some cases promotions appear to increase consumption we use these results to illustrate how category and brand specific factors work to drive primary and secondary demand elasticities in different directions in short this paper offers an empirical generalization of a key finding on promotional response how elasticities decompose across brand choice purchase incidence and stockpiling and new insights into factors that explain variance in promotional response these findings are likely to be of interest to researchers who are concerned with theory development and the generalizability of marketing phenomena and to managers who plan promotion campaigns

endogeneity in brand choice models applications of random utility models to scanner data have been widely presented in marketing for the last 20 years one particular problem with these applications is that they have ignored possible correlations between the independent variables in the deterministic component of utility price promotion etc and the stochastic component or error term in fact marketing mix variables such as price not only affect brand purchasing probabilities but are themselves endogenously set by marketing managers this work tests whether these endogeneity problems are important enough to warrant consideration when estimating random utility models with scanner panel data our results show that not accounting for endogeneity may result in a substantial bias in the parameter estimates

is 75 of the sales promotion bump due to brand switching no only 33 is abstract several researchers have decomposed sales promotion elasticities based on household scanner panel data a key result is that the majority of the sales promotion elasticity approximately 74 on average is attributed to secondary demand effects brand switching and the remainder is attributed to primary demand effects timing acceleration and quantity increases the authors demonstrate that this result does not imply that if a brand gains 100 units in sales during a promotion the other brands in the category lose 74 units the authors offer a complementary decomposition measure based on unit sales the measure shows the ratio of the current cross brand unit sales loss to the current own brand unit sales gain during promotion the authors report empirical results for this measure they also derive analytical expressions that transform the elasticity decomposition into a decomposition of unit sales effects these expressions show the nature of the difference between the two decompositions to ga

the dynamic effect of discounting on sales empirical analysis and normative pricing implications baseline sales measure what retail sales would be in the absence of a promotion abraham and lodish 1993 and models that measure baseline sales are widely used by managers to assess the profitability of promotions bucklin and gupta 1999 this issue estimates of baseline sales and promotional response are typically independent of past promotional activity even though there is evidence to suggest that increased discounting reduces off promotion sales and increases the percentage of purchases made on deal e g krishna 1994 as a result models that do not consider dynamic promotional effects can mislead managers to overpromote given the widespread use of static models to evaluate the efficacy of promotions it is particularly desirable to calibrate a dynamic brand sales model and use it to establish an optimal course of action accordingly we develop a descriptive dynamic brand sales model and use it to determine normative price promotion strategies our descriptive approach consists of estimating a varying parameter sales response model letting model parameters vary with past discounting activity accommodates the possibility that market response changes with firms discounting policies in the normative model we use the estimates obtained in the descriptive model to determine optimal retailer and manufacturer prices over time the results of the descriptive model indicate that promotions have positive contemporaneous effects on sales accompanied by negative future effects on baseline sales the results of the normative model suggest that the higher share brands in our data tend to overpromote while the lower share brands do not promote frequently enough we project that the use of our model could improve manufacturers profits by as much as 7 to 31 more generally the normative results indicate that i if deals become more effective in the current period i e if consumers are more price sensitive promotions should be used more frequently and ii as the negative dynamic effect of discounts on sales increases the optimal level of discounting should go down without our approach it would be difficult to make this trade off exact finally we demonstrate that these dynamic effects provide another perspective to the marketing literature regarding the existence of promotions

modeling consumer demand for variety consumers are often observed to purchase more than one variety of a product on a given shopping trip the simultaneous demand for varieties is observed not only for packaged goods such as yogurt or soft drinks but in many other product categories such as movies music compact disks and apparel multinomial mn choice models cannot be applied to data exhibiting the simultaneous choice of more than one variety the random utility interpretation of either the mn logit or probit model uses a linear utility specification that cannot accommodate interior solutions with more than one variety alternative chosen to analyze data with multiple varieties chosen requires a nonstandard utility specification standard demand models in the economics literature exhibit only interior solutions we propose a demand model based on a translated additive utility structure the model nests the linear utility structure while allowing for the possibility of a mixture of corner and interior solutions where more than one but not all varieties are selected we use a random utility specification in which the unobservable portion of marginal utility follows a log normal distribution the distribution of quantity demanded the basis of the likelihood function is derived from these log normal random utility errors the likelihood function for this class of models with mixtures of corner and interior solutions is a mixed distribution with both a continuous density portion and probability mass points for the corners the probability mass points must be calculated by integrals of the log normal errors over rectangular regions we evaluate these high dimensional integrals using the ghk approximation we employ a bayesian hierarchical model allowing household specific utility parameters our utility specification related to the approach of wales and woodland 1983 who employ a translated quadratic utility function wales and woodland were only able to study at the most three varieties because there was no practical way to evaluate the utility function at that time in addition the quadratic utility specification is not a globally valid utility function making welfare computations and policy experiments questionable hendel 1999 and dube 1999 present an alternative approach in the utility function which is constructed by summing up over unobservable consumption occasions while only one variety is consumed on each occasion the marginal utilities of varieties change over the consumption occasions giving rise to a simultaneous purchase of multiple varieties our bayesian inference approach allows us to obtain individual household estimates of utility parameters household utility estimates are used to compute the value of each variety we compute a compensating value for the removal of each flavor that is we compute the monetary equivalent of the household s loss in utility from removal of a flavor these calculations show that households highly value popular flavors and would incur substantial utility losses from removal of these flavors from the yogurt assortment next we consider the implications of our model for retailer assortment and pricing policies given limited shelf space only a subset of the possible varieties can be displayed for purchase at any one time if consumers value variety then a retailer with lower variety must compensate the consumers in some way such as a lower price level we see this trade off between price and variety across different retailing formats discount or warehouse format retailers often have both lower variety and lower prices to measure this trade off we explore the utility loss from reduction in variety and find the reductions in price that will compensate for this utility loss these price reduction calculations must be based on a valid utility structure heterogeneity in tastes is critical in these utility computations and policy experiments we find that a relatively small fraction of households with extreme preferences dominate the compensating value computations that is some households are observed to purchase mostly or exclusively one variety these households must be heavily compensated for the removal of this variety from the assortment in some retailing contexts customization of the assortment is possible at the customer level we show that such customization virtually eliminates any utility loss from reduction in variety

the rational effect of price promotions on sales and consumption we explore the rational effect of price variation on sales and consumption in markets where consumers are uncertain about the future price of goods we first derive an optimal ordering policy which expresses the amount a consumer should purchase and consume in a given period as a function of the observed price of the good the distribution of future prices and the nature of his or her inventory this policy extends previous normative models of inventory control such as those by golabi 1985 and kalymon 1970 to the case where the amount to consume in a given period is an explicit decision variable and prices follow a first order stochastic process we then use this model to explore how changes in the long run frequency and temporal correlations of price promotions should normatively affect the contemporaneous relationship between purchase consumption and price among the predictions which follow from the model are that consumption should rationally increase with the size of existing inventories the short term sensitivity of sales to prices should be greater than that of consumption to price and this discrepancy increases with decreases in the temporal correlation of price deals and the long term relative frequency of price deals

measuring the impact of promotions on brand switching when consumers are forward looking abstract logit choice models have been used extensively to study promotion response this article examines whether brand switching elasticities derived from these models are overestimated as a result of rational consumer adjustment of purchase timing to coincide with promotion schedules and whether a dynamic structural model can address this bias using simulated data the authors first show that if the structural model is correct brand switching elasticities are overestimated by stand alone logit models a nested logit model improves the estimates but not completely second the authors estimate the models on real data the results indicate that the structural model fits better and produces sensible coefficient estimates the authors then observe the same pattern in switching elasticities as they do in the simulation third the authors predict sales assuming a 50 increase in promotion frequency the reduced form models predict much higher sales levels than does the dynamic structural model the autho

the price elasticity of selective demand a meta analysis of econometric models of sales the author describes a meta analysis of econometric studies that estimated the elasticity of selective sales or market share to price the literature review yielded 367 suitable price elasticities

risk and hedging do credit derivatives increase bank risk abstract the objective of this paper is to investigate whether financial innovation of credit derivatives makes banks more exposed to credit risk although credit derivatives are important for hedging and securitizing credit risk and thereby likely to enhance the sharing of such risk some commentators have raised concerns that they may destabilize the banking sector this paper investigates this issue in a simple model driven by costs of financial distress the analysis identifies two effects of credit derivatives innovation they enhance risk sharing as suggested by the hedging argument but they also make further acquisition of risk more attractive the latter effect if dominant can therefore destabilize the banking sector the critical factor is perhaps surprisingly the competitive nature of the existing underlying credit markets as these markets become more elastic the threat of destabilization increases the paper discusses issues related to bank regulation within the context of the model

modeling multiple sources of state dependence in random utility models a distributed lag approach we propose a utility theoretic brand choice model that accounts for four different sources of state dependence 1 effects of lagged choices structural state dependence 2 effects of serially correlated error terms in the random utility function habit persistence type 1 3 effects of serial correlations between utility maximizing alternatives on successive purchase occasions of a household habit persistence type 2 and 4 effects of lagged marketing variables carryover effects our proposed model also allows habit persistence to be a function of lagged marketing variables while accommodating the effects of unobserved heterogeneity in household choice parameters this model is more flexible than existing state dependence models in marketing and labor econometrics using scanner panel data we find structural state dependence to be the most important source of state dependence marketing mix elasticities are systematically understated if state dependence effects are incompletely accounted for the seetharaman and chintagunta 1998 model is shown to recover spurious variety seeking effects while overstating habit persistence effects ignoring habit persistence type 1 leads to an underestimation while ignoring habit persistence type 2 leads to an overestimation of structural state dependence effects we find lagged promotions to have carryover effects on habit persistence ignoring one or more sources of state dependence underestimates the total incremental impact of a sales promotion we draw implications for manufacturer pricing

regional social capital why it matters malecki e j regional social capital why it matters regional studies social capital refers to a culture of interaction among people with productive economic outcomes social capital promotes regional learning both within a region and beyond as it reinforces openness to the ideas of others regional cultures vary in the degree to which people individually and within their organizations trust and interact with one another which is why regional outcomes vary innovation learning and entrepreneurship key processes of regional development take place largely within and among people as members of companies and territorial organizations innovative milieus industrial districts and knowledge economies are among the regions with extraordinary pools of social capital malecki e j

the effect of promotion on consumption buying more and consuming it faster the authors empirically demonstrate the existence of flexible consumption rates in packaged goods products how this phenomenon can be modeled and its importance in assessing the effectiveness of

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

the relationship between market characteristics and promotional price elasticities many empirical studies in marketing and economics have estimated brand price elasticities for specific products in markets their results indicate that price elasticities seem to differ across brands product categories retail outlets and regions however there has been very little research which examines the factors associated with these observed differences this paper focuses on the promotional price elasticities of established major brands in stable categories it identifies some characteristics of markets which may be associated with differences in price elasticities for frequently purchased nondurables a cross sectional model of the effect of these market characteristics on price elasticities is developed and estimated utilizing own price elasticity estimates for brands at twelve stores the results indicate market characteristics such as brand market share couponing activity display activity and feature activity explain a substantial amount of the variation in promotional price elasticities

a top down approach to multiname credit a multiname credit derivative is a security that is tied to an underlying portfolio of corporate bonds and has payoffs that depend on the loss due to default in the portfolio the value of a multiname derivative depends on the distribution of portfolio loss at multiple horizons intensity based models of the loss point process that are specified without reference to the portfolio constituents determine this distribution in terms of few economically meaningful parameters and lead to computationally tractable derivatives valuation problems however these models are silent about the portfolio constituent risks they cannot be used to address applications that are based on the relationship between portfolio and component risks for example constituent risk hedging this paper develops a method that extends these models to the constituents we use random thinning to decompose the portfolio intensity into a sum of constituent intensities we show that a thinning process which allocates the portfolio intensity to constituents uniquely exists and is a probabilistic model for the next to default we derive a formula for the constituent default probability in terms of the thinning process and the portfolio intensity and develop a semi analytical transform approach to evaluate it the formula leads to a calibration scheme for the thinning processes and an estimation scheme for constituent hedge sensitivities an empirical analysis for september 2008 shows that the constituent hedges generated by our method outperform the hedges prescribed by the gaussian copula model which is widely used in practice

a model of brand choice and purchase quantity price sensitivities many consumer decisions involve a discrete choice and a continuous outcome examples of such decisions are whether to own a home or rent one and how much to spend which brand of orange juice to buy and how many ounces to buy in cases like these the choice decision is typically modeled separately say using a logit model and the continuous outcomes modeled separately using regression analysis however the continuous outcomes may not be independent of the discrete choice and vice versa and modeling the two decisions independently can lead to inefficient choice parameter estimates and biased and inconsistent regression parameter estimates in this paper we present a methodology from the limited dependent variable literature to model the dependence between the choice and quantity decisions our substantive interest is in the role of price in the choice and quantity decisions when choosing among alternatives we argue that consumers consider prices of all the competitive brands in the quantity decision on the other hand only the price of the chosen alternative is expected to impact how much of the alternative is purchased the analysis of three brands using disaggregate level panel data strongly supports our hypothesis about the role of competitive prices in the choice and quantity decisions

rational shopping behavior and the option value of variable pricing when a product s price fluctuates at a store how should rational cost minimizing shoppers shop for it specifically how frequently should they visit the store and how much of the product should they buy when they get there would this rational shopping behavior differ across every day low price edlp and promotional pricing hilo stores if shoppers are rational which retail price format is more profitable edlp or hilo to answer these questions we develop a normative model that shows how rational customers should shop when the price of the product is random we derive a closed form expression for the optimal purchasing policy and show that the optimal quantity to purchase under a given price scenario is linearly decreasing in the difference between the price under that scenario and the average price this purchase flexibility due to price variability has a direct impact on shopping frequency indeed the benefit of this purchase flexibility can be captured via an option value that implicitly reduces the fixed cost associated with each shopping trip consequently rational shoppers should shop more often and buy fewer units per trip when they face higher price variability our results suggest that if two stores charge the same average price for a product rational shoppers incur a lower level of expenditure at the store with a higher price variability since stores with different price variabilities coexist in practice we expect stores with higher price variability to charge a higher average price thus given two stores a higher relative mean price for a given item should be indicative of higher price variability and vice versa these model implications are tested using multicategory scanner panel data from 513 households and pricing data for three stores two edlp stores and one hilo store and 33 product categories over a two year period we find strong empirical support for the model implications

an empirical analysis of the relationship between brand loyalty and consumer price elasticity this empirical paper explores the relationship between consumer brand preference or loyalty and price elasticity in purchase behavior this behavior is conceptualized as resulting from two distinct but related decisions namely a brand choice decision and a purchase quantity decision we argue that loyal consumers will be less price sensitive in the choice decision than nonloyal consumers however this direction is expected to be reversed in the quantity decision with loyal consumers expected to be more price sensitive than nonloyal consumers we model the choice and quantity decisions jointly using the limited dependent variable framework described in krishnamurthi and raj the data used are diary panel data on a frequently purchased product class from burke and caffeinated ground coffee scanner data from iri we show that loyals are less price sensitive than nonloyals in the choice decision but more price sensitive in the quantity decision managerial implications of the differing elasticities are disc

estimating a continuous hedonic choice model with an application to demand for soft drinks using micro level scanner data i study empirically the consumer demand for soft drinks which is characterized by multiple product multiple unit purchasing behavior i develop a continuous hedonic choice model to investigate how consumers choose the best basket of products to satisfy various needs my model s embedded characteristics approach both helps to reduce the dimensionality problem in model estimation and generates flexible substitution patterns hence the model is useful in application to data with many product choices that are correlated with each other at the individual level the estimation results show that interesting substitutability and even a form of complementarity exist among soft drinks

the theory of the knowledge creating firm subjectivity objectivity and synthesis the theory of the knowledge creating firm explains the differences among firms not as a result of market failure but as a result of the firm s visions of the future and strategy this paper proposes a framework to capture the dynamic process of knowledge creation in which knowledge is created through the dynamic interaction between subjectivity and objectivity knowledge is created through the synthesis of thinking and actions of individuals who interact with each other within and beyond the organizational boundaries

hedging structured credit products during the credit crisis a horse race of 10 models abstract pricing and hedging structured credit products poses major challenges to financial institutions this paper puts several valuation approaches through a crucial test how did these models perform in one of the worst periods of economic history september 2008 when lehman brothers went under did they produce reasonable hedging strategies we study several bottom up and top down credit portfolio models and compute the resulting delta hedging strategies using either index contracts or a portfolio of single name cds contracts as hedging instruments we compute the profit and loss profiles and assess the performances of these hedging strategies among all 10 pricing models that we consider the student t copula model performs best the dynamical generalized poisson loss model is the best top down model but this model class has in general problems to hedge equity tranches our major finding is however that single name and index cds contracts are not appropriate instruments to hedge cdo tranches

decomposing the sales promotion bump with store data sales promotions generate substantial short term sales increases to determine whether the sales promotion bump is truly beneficial from a managerial perspective we propose a system of store level regression models that decomposes the sales promotion bump into three parts cross brand effects secondary demand cross period effects primary demand borrowed from other time periods and category expansion effects remaining primary demand across four store level scanner datasets we find that each of these three parts contribute about one third on average one extension we propose is the separation of the category expansion effect into cross store and market expansion effects another one is to split the cross item effect total across all other items into cannibalization and between brand effects we also allow for a flexible decomposition by allowing all effects to depend on the feature display support condition and on the magnitude of the price discount the latter dependence is achieved by local polynomial regression we find that feature supported price discounts are strongly associated with cross period effects while display only supported price discounts have especially strong category expansion effects while the role of the category expansion effect tends to increase with higher price discounts the roles of cross brand and cross period effects both tend to decrease

empirical generalizations and marketing science a personal view marketing has matured to the point where it seems desirable to take stock of where we are what we have learned and fruitful directions for extending the knowledge base that has developed science is a process involving the interaction between empirical generalizations and theory an empirical generalization is a pattern or regularity that repeats over different circumstances and that can be described simply by mathematical graphic or symbolic methods one of the purposes of the empirical generalizations conference held at wharton on february 16 18 1994 was to develop a list of examples of such empirical generalizations in marketing empirical generalization can precede a theory to explain it or it can be predicted by a theory science is the process of interaction between theory and data that leads to higher level theories examples are provided here of empirical generalizations in marketing and their theoretical counterparts one example is provided of a higher level theory

a simultaneous approach to the whether what and how much to buy questions consumer s purchase decisions of whether to buy what to buy and how much to buy are examined simultaneously based on a consumer utility maximization problem an unobservable threshold price about which a consumer pivots from nonpurchase to purchase can be deduced with any model specification the interrelationships between purchase decisions can be explicitly derived the model is applied to coffee purchasing data in addition by suppressing the nonpurchase options the model is compared with an alternative approach appearing in the marketing literature

investigating purchase incidence brand choice and purchase quantity decisions of households we develop a comprehensive utility maximizing framework to study the impact of marketing variables on the category purchase brand choice and purchase quantity decisions of households for frequently purchased packaged goods the model allows for dependence among the three decisions while ensuring that these decisions provide in combination the greatest possible utility to the household by accounting for variations in reservation prices and intrinsic brand preferences across households the modeling framework explicitly captures the effects of unobserved heterogeneity on all three purchase decisions the principal empirical finding from analyzing the a c nielsen data for the yogurt product category is that the substantive implications for the effects of marketing variables are sensitive to whether these effects are determined conditional or unconditional on a product category purchase our results show that reservation prices and intrinsic brand preferences vary across households and not accounting for these variations in the estimation could lead to biased estimates for the coefficients of the marketing variables a comparison of our results to those obtained from a nested logit model of purchase incidence and brand choice reveals that our proposed model performs better using both a formal statistical test as well as the criterion of predictive validity in a holdout sample of panelists further the purchase quantity model compares favorably with two alternative models of quantity choice in the validation sample

a structural decomposition analysis of technological opportunity corporate survival and leadership this article considers corporate technological leadership and survival in the face of changing technological opportunities over the period 1930 1990 for firms selected from three broad industrial groups by using us patent data in a novel application of structural decomposition analysis it considers the extent to which selected firms positions of technological leadership benefited from a favorable change in the structure of their technological environment relative to changes caused through firm level choices copyright 2007 oxford university press

measuring consumer and competitive impact with elasticity decompositions abstract marketing investments are designed to change consumer behavior in ways that help goods compete in the marketplace previous research has focused on using elasticity decompositions to measure how these investments affect either consumer decision making or competing goods on the one hand decision based decompositions attribute the growth in own good demand to changes in the consumers decision making processes on the other hand unit based and share based decompositions attribute the same growth to either rivalrous or nonrivalrous sources the objective of this article is to provide a clear and accurate method that simultaneously attributes the growth in own good demand to changes in 1 consumers decisions 2 competitive demand and 3 competitive market share the author accomplishes this by settling some confusion about what the decision and share based decompositions mean by discussing how each of the decompositions are related to the others and by discussing the research questions th

price competition under stockpiling and flexible consumption abstract conventional wisdom suggests that the main effect of price promotion is on brand switching i e secondary demand however some recent studies demonstrate that the primary demand expansion effect can be considerably larger than previously believed a significant driver of this primary demand effect is consumer stockpiling in response to price promotions indeed experimental studies have shown that additional inventory on hand can lead to an endogenous increase in consumption the authors develop a model of price competition between firms in response to the stockpiling and subsequent consumption dynamics of consumers in this setting the flexible consumption effect causes more intense price competition deeper promotions and an increase in the frequency of promotions the authors use two years of scanner panel data from eight product categories and 4313 stockkeeping units to test three implications of the theoretical model they find strong support for each

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

promotion effect on endogenous consumption over the years researchers have found that promotion makes consumers switch brands and purchase earlier or more however it is unclear how promotion affects consumption especially for product categories that are perceived to be versatile and substitutable in this paper we propose a dynamic structural model with endogenous consumption under promotion uncertainty to analyze the promotion effect on consumption this model recognizes consumers as rational decision makers who form promotion expectations and plan their purchase and consumption decisions in light of promotion schedule applying the proposed model to packaged tuna and yogurt we find that endogenous consumption responds to promotion as a result of forward looking and stockpiling behavior this is the first empirical paper that recognizes consumption as an endogenous decision variable and proposes a structural model to offer behavioral explanations on whether how and why promotion encourages consumption for product categories with flexible consumption