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Modeling Dynamic Effects of the Marketing Mix on Market Shares

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Author Info
Fok, D.
Paap, R.
Franses, Ph.H.B.F. (Erasmus Research Institute of Management (ERIM), RSM Erasmus University)

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Abstract

To comprehend the competitive structure of a market, it is important to understand the short-run and long-run effects of the marketing mix on market shares. A useful model to link market shares with marketing-mix variables, like price and promotion, is the market share attraction model. In this paper we put forward a representation of the attraction model, which allows for explicitly disentangling long-run from short-run effects. Our model also contains a second level, in which these dynamic effects are correlated with various brand and product category characteristics. Based on the findings in for example Nijs et al. (2001), we postulate the expected signs of these correlations. We fit our resultant Hierarchical Bayes attraction model to data on seven categories in two geographical areas. This data set spans a total of 50 brands. Our main finding is that, in absolute sense, the short-run price elasticity usually exceeds the long-run effect. Moreover, we find that the longrun price effects are strongly correlated with relative price and coupon intensity of a brand.

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Paper provided by Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam. in its series Research Paper with number ERS-2003-044-MKT Revision_Date: 2009-11-06.

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Date of creation: 15 May 2003
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Handle: RePEc:dgr:eureri:3000342

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Related research
Keywords: market shares; marketing mix; long-term effects; hierarchical bayes;

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This paper has been announced in the following NEP Reports: References listed on IDEAS
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  1. Hendry, David F. & Pagan, Adrian R. & Sargan, J.Denis, 1984. "Dynamic specification," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 2, chapter 18, pages 1023-1100 Elsevier. [Downloadable!] (restricted)
  2. Fok, Dennis & Franses, Philip Hans, 2001. "Forecasting market shares from models for sales," International Journal of Forecasting, Elsevier, vol. 17(1), pages 121-128. [Downloadable!] (restricted)
    Other versions:
    • Fok, D. & Franses, Ph.H.B.F., 2000. "Forecasting Market Shares from Models for Sales," Research Paper ERS-2000-03-MKT Revision_, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni. [Downloadable!]
  3. Srinivasan, S. & Pauwels, K.H. & Hanssens, D.M. & Dekimpe, M.G., 2002. "Do Promotions Benefit Manufacturers, Retailers or Both?," Research Paper ERS-2002-21-MKT Revision_, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni. [Downloadable!]
  4. Richard Paap & Philip Hans Franses, 2000. "A dynamic multinomial probit model for brand choice with different long-run and short-run effects of marketing-mix variables," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 15(6), pages 717-744. [Downloadable!]
  5. Fok, D. & Franses, Ph.H.B.F. & Paap, R., 2001. "Econometric Analysis of the Market Share Attraction Model," Research Paper ERS-2001-25-MKT Revision_, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni. [Downloadable!]
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