Modelling household purchasing behaviour to analyse beneficial marketing strategies

Price promotion and generic advertising are two common strategies to increase consumer demand for food products. Which one is preferred over the other depends largely, on the relative importance of state dependence and heterogeneity in household purchase decision and behaviour on desired commodity over time. In this article, this issue is investigated for household purchases of fluid milk products using a panel data dynamic Tobit model. The proposed econometric model accounts not only for state dependence and heterogeneity of the purchasing process, but also for the censoring or sample selectivity encountered when using household survey data. Empirical findings show that state dependence is negative and household heterogeneity over milk persists over time implying that advertising efforts aimed at increasing milk consumption would be more effective than short-term price promotions. The results also suggest that advertising efforts should concentrate on attracting new purchasers and increasing purchase frequencies for fluid milk products.