The price consideration model of brand choice

Andrew Ching, Tülin Erdem, Michael Keane

Research output: Contribution to journalArticle

Abstract

The workhorse brand choice models in marketing are the multinomial logit (MNL) and nested multinomial logit (NMNL). These models place strong restrictions on how brand share and purchase incidence price elasticities are related. In this paper, we propose a new model of brand choice, the "price consideration" (PC) model, that allows more flexibility in this relationship. In the PC model, consumers do not observe prices in each period. Every week, a consumer decides whether to consider a category. Only then does he/she look at prices and decide whether and what to buy. Using scanner data, we show the PC model fits much better than MNL or NMNL. Simulations reveal the reason: the PC model provides a vastly superior fit to inter-purchase spells.

Original languageEnglish (US)
Pages (from-to)393-420
Number of pages28
JournalJournal of Applied Econometrics
Volume24
Issue number3
DOIs
StatePublished - Apr 1 2009
Externally publishedYes

Fingerprint

purchase
price elasticity
Brand choice
incidence
flexibility
marketing
Multinomial logit
simulation
Brand choice models
Purchase incidence
Purchase
Simulation
Price elasticity
Marketing
Scanner data

ASJC Scopus subject areas

  • Social Sciences (miscellaneous)
  • Economics and Econometrics

Cite this

The price consideration model of brand choice. / Ching, Andrew; Erdem, Tülin; Keane, Michael.

In: Journal of Applied Econometrics, Vol. 24, No. 3, 01.04.2009, p. 393-420.

Research output: Contribution to journalArticle

Ching, Andrew ; Erdem, Tülin ; Keane, Michael. / The price consideration model of brand choice. In: Journal of Applied Econometrics. 2009 ; Vol. 24, No. 3. pp. 393-420.
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