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Accounting for Heterogeneity and Nonstationarity in a Cross-Sectional Model of Consumer Purchase Behavior

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  • Peter S. Fader

    (University of Pennsylvania)

  • James M. Lattin

    (Stanford University)

Abstract

When calibrating a brand choice model cross-sectionally, a measure of brand loyalty is often introduced into the utility function to account for differences in utility across households and over time. One of the most widely used measures of brand loyalty, proposed by Guadagni and Little (1983), is an exponential smoothing model of past choice behavior by the household. In this study, we argue that the exponential smoothing model of brand loyalty cannot properly distinguish between sources of variation in utility due to heterogeneity (across households) and sources of variation due to nonstationarity (within household over time). We introduce a new measure of brand loyalty, derived from a nonstationary Dirichlet-multinomial choice model, in which heterogeneity and nonstationarity are handled distinctly.

Suggested Citation

  • Peter S. Fader & James M. Lattin, 1993. "Accounting for Heterogeneity and Nonstationarity in a Cross-Sectional Model of Consumer Purchase Behavior," Marketing Science, INFORMS, vol. 12(3), pages 304-317.
    • Handle: RePEc:inm:ormksc:v:12:y:1993:i:3:p:304-317
    DOI: 10.1287/mksc.12.3.304
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    Citations

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    Cited by:

    1. Zhiqiang (Eric) Zheng & Peter Fader & Balaji Padmanabhan, 2012. "From Business Intelligence to Competitive Intelligence: Inferring Competitive Measures Using Augmented Site-Centric Data," Information Systems Research, INFORMS, vol. 23(3-part-1), pages 698-720, September.
    2. Netzer, Oded & Lattin, James M. & Srinivasan, V. Seenu, 2007. "A Hidden Markov Model of Customer Relationship Dynamics," Research Papers 1904r, Stanford University, Graduate School of Business.
    3. Jose A. Guajardo & Morris A. Cohen, 2018. "Service Differentiation and Operating Segments: A Framework and an Application to After-Sales Services," Manufacturing & Service Operations Management, INFORMS, vol. 20(3), pages 440-454, July.
    4. Roozbeh Irani-Kermani & Edward C. Jaenicke & Ardalan Mirshani, 2023. "Accommodating heterogeneity in brand loyalty estimation: application to the U.S. beer retail market," Journal of Marketing Analytics, Palgrave Macmillan, vol. 11(4), pages 820-835, December.
    5. 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.
    6. Little, John D. C. & Anderson, Eric T., 1994. "A product choice model with marketing, filtering and purchase feedback," Working papers 3670-94., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    7. J. Miguel Villas-Boas, 2004. "Consumer Learning, Brand Loyalty, and Competition," Marketing Science, INFORMS, vol. 23(1), pages 134-145, December.
    8. Irani-Kermani, Roozbeh & Jaenicke, Edward C., 2018. "Generalizing Variety Seeking Measurement from Brand Space to Product Attribute Space," 2018 Annual Meeting, August 5-7, Washington, D.C. 273818, Agricultural and Applied Economics Association.
    9. Oded Netzer & James M. Lattin & V. Srinivasan, 2008. "A Hidden Markov Model of Customer Relationship Dynamics," Marketing Science, INFORMS, vol. 27(2), pages 185-204, 03-04.
    10. C. Derrick Huang & Jahyun Goo & Ravi S. Behara & Ankur Agarwal, 2020. "Clinical Decision Support System for Managing COPD-Related Readmission Risk," Information Systems Frontiers, Springer, vol. 22(3), pages 735-747, June.
    11. Jan R. Landwehr & Aparna A. Labroo & Andreas Herrmann, 2011. "Gut Liking for the Ordinary: Incorporating Design Fluency Improves Automobile Sales Forecasts," Marketing Science, INFORMS, vol. 30(3), pages 416-429, 05-06.
    12. Nickolay V. Moshkin & Ron Shachar, 2002. "The Asymmetric Information Model of State Dependence," Marketing Science, INFORMS, vol. 21(4), pages 435-454, August.
    13. Z. John Zhang & Aradhna Krishna & Sanjay K. Dhar, 2000. "The Optimal Choice of Promotional Vehicles: Front-Loaded or Rear-Loaded Incentives?," Management Science, INFORMS, vol. 46(3), pages 348-362, March.
    14. Chen, Bo & Saghaian, Sayed, 2017. "Does Consumers’ Preference for Organic Foods Affect Their Store Format Choices?," 2017 Annual Meeting, February 4-7, 2017, Mobile, Alabama 252827, Southern Agricultural Economics Association.
    15. Irani-Kermani, Roozbeh & Jaenicke, Edward C., 2017. "Accommodating Heterogeneity in Brand Loyalty Estimation: Application to the U.S. Beer Retail," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 258203, Agricultural and Applied Economics Association.
    16. Andrews, Rick L. & Manrai, Ajay K., 1998. "Feature-based elimination: Model and empirical comparison," European Journal of Operational Research, Elsevier, vol. 111(2), pages 248-267, December.
    17. Sanjay K. Dhar & Jagmohan S. Raju, 1998. "The Effects of Cross-Ruff Coupons on Sales and Profits," Management Science, INFORMS, vol. 44(11-Part-1), pages 1501-1516, November.

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