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Modeling dynamic effects of promotion on interpurchase times

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  • Fok, Dennis
  • Paap, Richard
  • Franses, Philip Hans

Abstract

Dynamic effects of marketing-mix variables on interpurchase times can be analyzed in the context of a duration model. Specifically, this can be done by extending the accelerated failure-time model with an autoregressive structure. An important feature of the model is that it allows for different long-run and short-run effects of marketing-mix variables on interpurchase times. The error-correction specification of the model contains parameters which measure the direct effect of a temporary change in a marketing-mix variable on interpurchase times and parameters which measure the long-run (cumulative) effect of a temporary change in a marketing-mix variable on current and future interpurchase times. As marketing efforts usually change during the spells, time-varying covariates are explicitly dealt with. Heterogeneity of individual behavior is allowed for through a mixture approach. An empirical analysis of purchases in three different categories reveals, for some segments of households, that the short-run effects of marketing-mix variables are significantly different from the long-run effects. The decay in the effect of changes in marketing-mix variables over time is larger in categories with large interpurchase times, and price has the largest long-run effect for the perishable product. Finally, ignoring dynamic effects leads to erroneous results about the effectiveness of marketing instruments.

Suggested Citation

  • Fok, Dennis & Paap, Richard & Franses, Philip Hans, 2012. "Modeling dynamic effects of promotion on interpurchase times," Computational Statistics & Data Analysis, Elsevier, vol. 56(11), pages 3055-3069.
    • Handle: RePEc:eee:csdana:v:56:y:2012:i:11:p:3055-3069
    DOI: 10.1016/j.csda.2012.03.022
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    Cited by:

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    2. Epstein, Leonardo D. & Inostroza-Quezada, Ignacio E. & Goodstein, Ronald C. & Choi, S. Chan, 2021. "Dynamic effects of store promotions on purchase conversion: Expanding technology applications with innovative analytics," Journal of Business Research, Elsevier, vol. 128(C), pages 279-289.
    3. Andrew Ching & Tülin Erdem & Michael Keane, 2009. "The price consideration model of brand choice," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 24(3), pages 393-420, April.

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