Modeling whether,what and how much to buy the right way: an empirical analysis with implications for model building |
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Authors: | Christine Ebling Daniel Klapper |
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Institution: | 1.School of Marketing,University of Technology,Sydney,Australia;2.Faculty of Economics and Business Administration Campus Westend,Goethe-University Frankfurt,Frankfurt,Germany |
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Abstract: | Whether, what and how much to buy are central decisions in consumer goods markets. Marketing research commonly uses a sequential
approach where quantity decision is conditional on purchase incidence and brand choice (e.g., Ailawadi et al. in J Mark Res
44:450–467, 2007). This approach assumes separability between decisions and suffers from selectivity bias. The bias can be
overcome by explicitly controlling for it (e.g., Zhang et al. in Rev Mark Sci 3(1), 2005) or by using one unifying utility
function, a method considered “state of the art in analyzing purchase behavior in a single product category” (e.g., Song and
Chintagunta in J Mark Res 44(4):595–612, 2007). However, this latter method puts restrictive assumptions on the influence
of prices on choices, which may affect managerial implications derived from the model results. This study investigates the
effect of selectivity bias by comparing the sequential approach—with and without explicitly controlling for endogeneity bias—to
the unifying utility function approach. Based on household panel data from three categories, we illustrate the extent to which
managerial implications from these frameworks differ. We show that the superiority of one framework versus the other depends
on the specific category and its characteristics. The managerial implications of using the “wrong” framework are demonstrated
by conducting two simulation studies; these show that price elasticities substantially deviate across frameworks. |
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