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Accounting for Heterogeneity and Nonstationarity in a Cross-Sectional Model of Consumer Purchase Behavior
Peter S. Fader and James M. Lattin
Vol. 12, No. 3 (Summer, 1993), pp. 304-317
Published by: INFORMS
Stable URL: http://www.jstor.org/stable/184026
Page Count: 14
You can always find the topics here!Topics: Brand loyalty, Brands, Modeling, Data smoothing, Parametric models, Simulations, Product choice, Marketing mixes, Marketing, Average prices
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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.
Marketing Science © 1993 INFORMS