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Semiparametric analysis to estimate the deal effect curve

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  • Heerde, Harald J. van
  • Leeflang, Peter S.H.
  • Wittink, Dick R.

    (Groningen University)

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    Abstract

    The marketing literature suggests several phenomena that may contribute to the shape of the relationship between sales and price discounts. These phenomena can produce severe nonlinearities and interactions in the curves, and we argue that those are best captured with a flexible approach. Since a fully nonparametric regression model suffers from the curse of dimensionality, we propose a semiparametric regression model. Store-level sales over time is modeled as a nonparametric function of own-and cross-item price discounts, and a parametric function of other predictors (all indicator variables). We compare the predictive validity of the semiparametric model with that of two parametric benchmark models and obtain better performance on average. The results for three product categories indicate a.o. threshold- and saturation effects for both own- and cross-item temporary price cuts. We also show how the own-item curve depends on other items’ price discounts (flexible interaction effects). In a separate analysis, we show how the shape of the deal effect curve depends on own-item promotion signals. Our results indicate that prevailing methods for the estimation of deal effects on sales are inadequate.

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    File URL: http://irs.ub.rug.nl/ppn/188209867
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    Bibliographic Info

    Paper provided by University of Groningen, Research Institute SOM (Systems, Organisations and Management) in its series Research Report with number 99B35.

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    Date of creation: 1999
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    Handle: RePEc:dgr:rugsom:99b35

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    1. Wolfgang HÄRDLE & O. LINTON, 1995. "Nonparametric Regression," SFB 373 Discussion Papers 1995,29, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
    2. Oliver LINTON, . "Applied nonparametric methods," Statistic und Oekonometrie, Humboldt Universitaet Berlin 9312, Humboldt Universitaet Berlin.
    3. Hardle, W., 1992. "Applied Nonparametric Methods," Discussion Paper, Tilburg University, Center for Economic Research 1992-6, Tilburg University, Center for Economic Research.
    4. Härdle,Wolfgang, 1992. "Applied Nonparametric Regression," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521429504.
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