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Modeling and Testing Structured Markets: A Nested Logit Approach

Author

Listed:
  • P. K. Kannan

    (University of Arizona)

  • Gordon P. Wright

    (Purdue University)

Abstract

A structured market for a product category is a pair (, ) consisting of a set of consumers who have the same decision tree, , which reflects the process by which the consumers in evaluate product features when making choices. Using a nested logit approach: (1) we present methods to test for the existence of hypothesized multiple structured markets, and (2) we present empirically determined insights on how brands compete within each structured market through the inclusion of marketing mix variables in our model. A successful empirical application of our methods using a panel data set of coffee purchases obtained from Selling Area Marketing Inc. confirms the existence of at least two distinct structured markets in the ground coffee market. The type-primary market is a segment of “switchers”, highly responsive to changes in market mix variables whereas the brand-primary market is a “loyal” segment, relatively unresponsive to marketing programs.

Suggested Citation

  • P. K. Kannan & Gordon P. Wright, 1991. "Modeling and Testing Structured Markets: A Nested Logit Approach," Marketing Science, INFORMS, vol. 10(1), pages 58-82.
    • Handle: RePEc:inm:ormksc:v:10:y:1991:i:1:p:58-82
    DOI: 10.1287/mksc.10.1.58
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    Citations

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    Cited by:

    1. Kannan, P. K. & Yim, Chi Kin (Bennett), 2001. "An investigation of the impact of promotions on across-submarket competition," Journal of Business Research, Elsevier, vol. 53(3), pages 137-149, September.
    2. Feng, Bo & Mao, Zhaofang & Li, Hui, 2021. "Choices for competing service providers with heterogeneous customers: Traditional versus opaque sales modes," Omega, Elsevier, vol. 98(C).
    3. Krishnamurthi, Lakshman & Raj, S. P. & Sivakumar, K., 1995. "Unique inter-brand effects of price on brand choice," Journal of Business Research, Elsevier, vol. 34(1), pages 47-56, September.
    4. Chintagunta, Pradeep K., 1999. "Measuring the effects of new brand introduction on inter-brand strategic interaction," European Journal of Operational Research, Elsevier, vol. 118(2), pages 315-331, October.
    5. Boztuğ, Yasemin & Hildebrandt, Lutz, 1998. "Nicht- und semiparametrische Markenwahlmodelle im Marketing," SFB 373 Discussion Papers 1998,99, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
    6. Kulkarni, Gauri & Ratchford, Brian T. & Kannan, P.K., 2012. "The Impact of Online and Offline Information Sources on Automobile Choice Behavior," Journal of Interactive Marketing, Elsevier, vol. 26(3), pages 167-175.
    7. Baltas, George & Doyle, Peter, 2001. "Random utility models in marketing research: a survey," Journal of Business Research, Elsevier, vol. 51(2), pages 115-125, February.
    8. Juin-Kuan Chong & Teck-Hua Ho & Christopher S. Tang, 2001. "A Modeling Framework for Category Assortment Planning," Manufacturing & Service Operations Management, INFORMS, vol. 3(3), pages 191-210, January.
    9. Maxim Sinitsyn, 2016. "Managing Price Promotions Within a Product Line," Marketing Science, INFORMS, vol. 35(2), pages 304-318, March.
    10. Hongmin Li & Woonghee Tim Huh, 2011. "Pricing Multiple Products with the Multinomial Logit and Nested Logit Models: Concavity and Implications," Manufacturing & Service Operations Management, INFORMS, vol. 13(4), pages 549-563, October.
    11. Pancras, Joseph, 2011. "The nested consideration model: Investigating dynamic store consideration sets and store competition," European Journal of Operational Research, Elsevier, vol. 214(2), pages 340-347, October.
    12. Schupp, Alvin R. & Dellenbarger, Lynn E., 1993. "The Effectiveness Of State Logos For Farm-Raised Catfish," Journal of Food Distribution Research, Food Distribution Research Society, vol. 24(2), pages 1-12, September.
    13. Robert Kapłon, 2006. "A retrospective review of categorical data analysis – theory and marketing practice," Operations Research and Decisions, Wroclaw University of Science and Technology, Faculty of Management, vol. 16(1), pages 55-72.
    14. Sanjog Misra, 2005. "Generalized Reverse Discrete Choice Models," Quantitative Marketing and Economics (QME), Springer, vol. 3(2), pages 175-200, June.
    15. Park, Sehoon & Jain, Dipak & Krishnamurthi, Lakshman, 1998. "A hierarchical elimination modeling approach for market structure analysis," European Journal of Operational Research, Elsevier, vol. 111(2), pages 328-350, December.
    16. Kannan, P. K., 2004. "Commentary on "Understanding Brand Performance Measures: Using Dirichlet Benchmarks"," Journal of Business Research, Elsevier, vol. 57(12), pages 1326-1328, December.
    17. Kevin Dayaratna & P. Kannan, 2012. "A mathematical reformulation of the reference price," Marketing Letters, Springer, vol. 23(3), pages 839-849, September.
    18. Manrai, Ajay K., 1995. "Mathematical models of brand choice behavior," European Journal of Operational Research, Elsevier, vol. 82(1), pages 1-17, April.
    19. Boztuğ, Yasemin & Hildebrandt, Lutz, 2005. "An empirical test of theories of price valuation using a semiparametric approach, reference prices, and accounting for heterogeneity," SFB 649 Discussion Papers 2005-057, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    20. Rajeev Kohli & Kamel Jedidi, 2007. "Representation and Inference of Lexicographic Preference Models and Their Variants," Marketing Science, INFORMS, vol. 26(3), pages 380-399, 05-06.
    21. Hongmin Li & Scott Webster, 2017. "Optimal Pricing of Correlated Product Options Under the Paired Combinatorial Logit Model," Operations Research, INFORMS, vol. 65(5), pages 1215-1230, October.
    22. A. Gürhan Kök & Yi Xu, 2011. "Optimal and Competitive Assortments with Endogenous Pricing Under Hierarchical Consumer Choice Models," Management Science, INFORMS, vol. 57(9), pages 1546-1563, February.
    23. Woonghee Tim Huh & Hongmin Li, 2015. "Technical Note—Pricing Under the Nested Attraction Model with a Multistage Choice Structure," Operations Research, INFORMS, vol. 63(4), pages 840-850, August.
    24. Sudhir Voleti & Praveen K. Kopalle & Pulak Ghosh, 2015. "An Interproduct Competition Model Incorporating Branding Hierarchy and Product Similarities Using Store-Level Data," Management Science, INFORMS, vol. 61(11), pages 2720-2738, November.
    25. repec:hum:wpaper:sfb649dp2005-057 is not listed on IDEAS

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