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A Model for Trade-Up and Change in Considered Brands

  • Greg M. Allenby

    ()

    (Fisher College of Business, Ohio State University, Columbus, Ohio 43210)

  • Mark J. Garratt

    ()

    (In4mation Insights, Needham, Massachusetts 02494)

  • Peter E. Rossi

    ()

    (Booth School of Business, University of Chicago, Chicago, Illinois 60637)

A common theme in marketing literature is the acquisition and retention of customers as they trade up from inexpensive introductory offerings to those of higher quality. We develop a nonhomothetic choice model to accommodate effects of advertising, professional recommendation, and other factors that facilitate the description and management of trade-up. Our model allows advertising to affect the relative superiority or inferiority of products. This allows for a wide variety of trade-up patterns beyond those obtained from a standard random utility formulation of the logit model. Our nonhomothetic model allows for advertising to affect more than just brand intercepts (perceived quality), but also the rate at which consumers are willing to trade up to higher-quality brands. Advertising effects are measured using a randomized treatment and evaluated by considering their direct implications for firm pricing and profits.

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File URL: http://dx.doi.org/10.1287/mksc.1080.0466
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Article provided by INFORMS in its journal Marketing Science.

Volume (Year): 29 (2010)
Issue (Month): 1 (01-02)
Pages: 40-56

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Handle: RePEc:inm:ormksc:v:29:y:2010:i:1:p:40-56
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  1. Dan Horsky & Sanjog Misra & Paul Nelson, 2006. "Observed and Unobserved Preference Heterogeneity in Brand-Choice Models," Marketing Science, INFORMS, vol. 25(4), pages 322-335, 07-08.
  2. Tülin Erdem & Susumu Imai & Michael Keane, 2003. "Brand and Quantity Choice Dynamics Under Price Uncertainty," Quantitative Marketing and Economics, Springer, vol. 1(1), pages 5-64, March.
  3. Pradeep Chintagunta & Tülin Erdem & Peter E. Rossi & Michel Wedel, 2006. "Structural Modeling in Marketing: Review and Assessment," Marketing Science, INFORMS, vol. 25(6), pages 604-616, 11-12.
  4. Nitin Mehta, 2007. "Investigating Consumers' Purchase Incidence and Brand Choice Decisions Across Multiple Product Categories: A Theoretical and Empirical Analysis," Marketing Science, INFORMS, vol. 26(2), pages 196-217, 03-04.
  5. James H. Pedrick & Fred S. Zufryden, 1991. "Evaluating the Impact of Advertising Media Plans: A Model of Consumer Purchase Dynamics Using Single-Source Data," Marketing Science, INFORMS, vol. 10(2), pages 111-130.
  6. Andrew Ainslie & Peter E. Rossi, 1998. "Similarities in Choice Behavior Across Product Categories," Marketing Science, INFORMS, vol. 17(2), pages 91-106.
  7. Kelvin J. Lancaster, 1966. "A New Approach to Consumer Theory," Journal of Political Economy, University of Chicago Press, vol. 74, pages 132.
  8. Greg M. Allenby & Peter E. Rossi, 1991. "Quality Perceptions and Asymmetric Switching Between Brands," Marketing Science, INFORMS, vol. 10(3), pages 185-204.
  9. Steven Berry & Ariel Pakes, 2007. "The Pure Characteristics Demand Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 48(4), pages 1193-1225, November.
  10. Koen Pauwels & Shuba Srinivasan & Philip Hans Franses, 2007. "When Do Price Thresholds Matter in Retail Categories?," Marketing Science, INFORMS, vol. 26(1), pages 83-100, 01-02.
  11. Jie Zhang, 2006. "An Integrated Choice Model Incorporating Alternative Mechanisms for Consumers' Reactions to In-Store Display and Feature Advertising," Marketing Science, INFORMS, vol. 25(3), pages 278-290, 05-06.
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