Showing papers in "Marketing Science in 1991"
TL;DR: In this article, the authors studied three noncooperative games of different power structures between the two manufacturers and the retailer, i.e., two Stackelberg and one Nash games, and showed that an exclusive dealer channel provides higher profits to all than a common retailer channel given a power structure.
Abstract: In recent studies of channel competition, it has been found that channel intermediaries reduce the intensity of direct competition between manufacturers. The underlying channel structure in most studies consists of two manufacturers and two retailers each of whom sells only one manufacturer's product exclusively. This paper adds to this growing literature of channel competition by analyzing a channel structure with two competing manufacturers and one intermediary a common retailer that sells both manufacturers' products. Unlike some exclusive dealers or retail outlets of a manufacturer, however, a common retailer is often a powerful player in the market. This paper studies three noncooperative games of different power structures between the two manufacturers and the retailer, i.e., two Stackelberg and one Nash games. It is shown that some of the results depend critically on the form of the demand function. With a linear demand function, a manufacturer is better off by maintaining exclusive dealers while a retailer has an incentive to deal with several producers. All channel members as well as consumers are better off when no one dominates the market. The common retailer benefits more than the manufacturers do from a symmetric decrease in the manufacturing cost. As products are less differentiated, all channel members' prices and profits increase: a counterintuitive result. When the demand function is nonlinear, however, an exclusive dealer channel provides higher profits to all than a common retailer channel given a power structure. As products are more differentiated, a manufacturer's profit decreases when a common retailer is used, but increases when an exclusive dealer is used. These results underscore the importance of choosing a correct demand function for a channel decision.
977 citations
TL;DR: The authors explored the relationship between consumer preference or loyalty and price elasticity in purchase behavior and found that loyal consumers are less price sensitive than non-loyals in the choice decision but more price sensitive in the quantity decision.
Abstract: This empirical paper explores the relationship between consumer brand preference or loyalty and price elasticity in purchase behavior This behavior is conceptualized as resulting from two distinct but related decisions, namely a brand choice decision and a purchase quantity decision We argue that loyal consumers will be less price sensitive in the choice decision than nonloyal consumers However, this direction is expected to be reversed in the quantity decision with loyal consumers expected to be more price sensitive than nonloyal consumers We model the choice and quantity decisions jointly using the limited dependent variable framework described in Krishnamurthi and Raj The data used are diary panel data on a frequently purchased product class from BURKE and caffeinated ground coffee scanner data from IRI We show that loyals are less price sensitive than nonloyals in the choice decision but more price sensitive in the quantity decision Managerial implications of the differing elasticities are disc
451 citations
TL;DR: In this paper, a probabilistic model of purchase incidence and brand choice for frequently purchased consumer products was developed and tested on IRI scanner purchase records for saltine crackers.
Abstract: The authors develop and test a probabilistic model of purchase incidence and brand choice for frequently purchased consumer products. The model incorporates two ways of shopping in a category. Shoppers who have planned their purchasing made a decision before entering the store do not process in-store information and show no response to point-of-purchase promotions. Consumers who have not planned their purchasing in a category deciding at the point of purchase may process in-store information and may be strongly influenced by promotions. The two modes of information processing are called decision states and are labelled planned and opportunistic, respectively. The two-state model is calibrated on IRI scanner purchase records for saltine crackers. The model yields a significantly better fit than a one-state nested logit model and provides new insights into the relationship between shopping behavior and consumer purchase response.
320 citations
TL;DR: In this article, Rotating indifference curves are used to induce an income effect that favors superior brands at the expense of inferior brands in a discrete choice model, and the model is used to explore a product line pricing decision where profits are maximized subject to the constraint that consumer utility is maintained.
Abstract: Rotating indifference curves are used to induce an income effect that favors superior brands at the expense of inferior brands in a discrete choice model. When calibrated on scanner panel data, the model yields an objective measure of brand quality which is related to the rate of rotation. The model also leads to asymmetric responses to price promotions where switching up to high quality brands is more likely than switching down. The model is capable of nesting the standard logit model, and is similar to a nested logit model when there exists clusters of brands of like quality. The model is used to explore a product line pricing decision where profits are maximized subject to the constraint that consumer utility is maintained.
314 citations
TL;DR: This article used a generalized version of Cox's proportional hazard model to test among competing probability distributions for the interpurchase times while incorporating effects due to marketing variables, observed household characteristics, and unobserved heterogeneity across households.
Abstract: The purchase timing decision is an important component of the dynamics of a household's purchase behavior. This decision is influenced by marketing and other variables, and the modeling of this dependence has recently received attention in the literature. In this paper, we build on previous studies and develop a comprehensive stochastic model that incorporates the major factors influencing interpurchase times. Specifically, we use a generalized version of Cox's proportional hazard model to test among competing probability distributions for the interpurchase times while incorporating effects due to marketing variables, observed household characteristics, and unobserved heterogeneity across households.
The empirical finding from analyzing the IRI coffee data, suggests that the interpurchase times cannot be adequately described by probability distributions such as exponential, Erlang-2 or Weibull. The effects of unobserved heterogeneity are significant, and they impact the estimates of the effects of the covariates. We also find that a nonparametric procedure for estimating the effects of unobserved heterogeneity provides the best overall fit to the data and yields covariate estimates that are more consistent with prior expectations. Our model is validated by replicating the substantive empirical findings on an additional product category.
297 citations
TL;DR: In this paper, a consumer's purchase decisions of whether to buy, what to buy and how much to buy are examined simultaneously, based on a consumer utility maximization problem, and an unobservable threshold price about which a consumer pivots from non-purchase to purchase can be deduced.
Abstract: Consumer's purchase decisions of whether to buy, what to buy and how much to buy are examined simultaneously. Based on a consumer utility maximization problem, an unobservable threshold price, about which a consumer pivots from nonpurchase to purchase, can be deduced. With any model specification, the interrelationships between purchase decisions can be explicitly derived. The model is applied to coffee purchasing data. In addition, by suppressing the nonpurchase options the model is compared with an alternative approach appearing in the marketing literature.
279 citations
TL;DR: In this article, two concepts of brand loyalty are defined, inertial brand loyalty resulting from time lags in awareness and cost-based brand loyalty due to intertemporal utility effects.
Abstract: Two concepts of brand loyalty are defined, “inertial” brand loyalty resulting from time lags in awareness, and “cost-based” brand loyalty resulting from intertemporal utility effects. Their market level implications are formally derived in a continuous time model. It is found that inertial brand loyalty leads to equilibria with price dispersion, while cost-based brand loyalty also may allow single price equilibria. In all cases, as brand loyalty vanishes, so does the difference between the average trading price and the price which obtains with no brand loyalty. Consistent with empirical results, the theory predicts that the relationship between market share and performance is positive in cross-sectional studies, but flat in time-series studies. The theory is also consistent with the view that market share is an asset in itself. After developing the theory, several strategic implications are drawn. In the end, some questions for further theoretical and empirical research are raised.
202 citations
TL;DR: In this article, a multistage game framework for making promotions decisions is developed, in which regular prices are chosen first, followed by the choice of promotion depths and frequencies, which is used to illustrate the nature of competition between a national brand and private label.
Abstract: This paper develops a modeling framework for making promotions decisions. In contrast to some of the prior research, the framework explicitly models promotions. Its central feature is the view of promotions competition as a multistage game in which regular prices are chosen first, followed by the choice of promotion depths and frequencies. It is used to illustrate the nature of competition between a national brand and private label. In equilibrium, the national brand promotes to ensure that the private label does not try to attract consumers away from the national brand. Moreover, the private label does not promote. This equilibrium is also contrasted with Varian's framework, used by other researchers, in which mixed strategy equilibrium prices are interpreted as promotions.
182 citations
TL;DR: The authors used a case study and a simple mathematical model to study the link between the incumbency and incentives to innovate and introduce drastically new products, identifying the conditions under which fears of self-cannibalization are particularly likely to lead incumbents to soft-pedal such innovations.
Abstract: This paper uses a case study and a simple mathematical model to study the link between the incumbency and incentives to innovate and introduce drastically new products. It identifies the conditions under which fears of self-cannibalization are particularly likely to lead incumbents to soft-pedal such innovations.
179 citations
TL;DR: In this paper, a parsimonious diffusion model that integrates the demand side dynamics with the supply side restrictions is proposed to evaluate the impact of supply restrictions on the growth of a new product in the market place.
Abstract: Innovation diffusion models are developed to represent the spread of a new product from its manufacturers to its ultimate users. In the marketplace, however, the growth of a new product can be retarded by supply restrictions such as the unavailability of the product due to limitations on the production capacity or difficulties encountered in setting up distribution systems. In the presence of supply restrictions, diffusion models must be developed to capture the dynamics of supply restrictions and to allow management to evaluate the impact of such supply restrictions on the growth of a new product in the market place. Based on the Bass innovation diffusion model, the objective of this paper is to suggest a parsimonious diffusion model that integrates the demand side dynamics with the supply side restrictions. The sensitivity of innovation diffusion patterns in the presence of supply restrictions is examined. An application examining the diffusion of new telephones in Israel is documented to illustrate the usefulness of the proposed model.
157 citations
TL;DR: In this article, a stochastic model is proposed to examine how changes in frequency of price discounts affect brand choice decisions of consumers who exhibit variety-seeking and reinforcement behavior, and it is shown that the effect on choice depends on whether the brand offering discounts is a major or minor brand in the product category.
Abstract: A stochastic model is proposed to examine how changes in frequency of price discounts affect brand choice decisions of consumers who exhibit variety-seeking and reinforcement behavior. It is shown that the effect on choice depends on whether the brand offering discounts is a major or minor brand in the product category. This model extends the existing literature on stochastic models of variety-seeking behavior by explicitly incorporating switching due to promotions along with intrinsic switching due to variety-seeking. The model yields testable hypotheses which are supported in a laboratory experiment and on analyses of the IRI cracker data.
TL;DR: The authors used a nested logit approach to test for the existence of hypothesized multiple structured markets and empirically determined insights on how brands compete within each structured market through the inclusion of marketing mix variables in their model.
Abstract: A structured market for a product category is a pair s, As consisting of a set of consumers s who have the same decision tree, As, which reflects the process by which the consumers in s evaluate product features when making choices. Using a nested logit approach: 1 we present methods to test for the existence of hypothesized multiple structured markets, and 2 we present empirically determined insights on how brands compete within each structured market through the inclusion of marketing mix variables in our model.
A successful empirical application of our methods using a panel data set of coffee purchases obtained from Selling Area Marketing Inc. confirms the existence of at least two distinct structured markets in the ground coffee market. The type-primary market is a segment of "switchers", highly responsive to changes in market mix variables whereas the brand-primary market is a "loyal" segment, relatively unresponsive to marketing programs.
TL;DR: In this article, the authors proposed a model to analyze the impact of advertising media plans and point-of-purchase marketing variables on a brand's market performance by integrating brand choice, purchase incidence, and exposure behavior within a nonstationary stochastic framework.
Abstract: We propose a model to analyze the impact of advertising media plans and point-of-purchase marketing variables on a brand's market performance. Our model integrates brand choice, purchase incidence, and exposure behavior within a nonstationary stochastic framework. Moreover, it considers various aspects of consumer heterogeneity including individual differences in loyalty levels, purchase rates, and exposure probabilities for a population of consumers. The integrated model provides a relationship of advertising exposures from media plans, and other marketing variables, to measures of a brand's performance that include market share, penetration and depth of repeat patterns over time. In this paper, we focus on a multi-brand model formulation and stress its application to the analysis of advertising media plans. Based on single-source UPC scanner panel data for a frequently purchased product category, we provide an empirical test of the model. In this context, our analyses show that the model provides a good...
TL;DR: In this paper, the authors developed a bidding model to investigate the effect of multiple sourcing on competitive behavior prior to supplier selection, and they showed that multiple sourcing can lead to strategic pre-award price increases that can mitigate the effects of the advantages stressed by most previous analyses of postaward supplier management.
Abstract: Relationships between buying and selling organizations in business markets are varied and complex. One important relationship is procurement, or the type of alliance that buyers form with sellers to fulfill their purchasing needs. Multiple sourcing is often proposed to prevent a variety of procurement problems. We develop a bidding model to investigate the effect of multiple sourcing on competitive behavior prior to supplier selection. The model treats the number of bidders (and the decision to bid) endogenously. This distinctive feature allows us to show that the distribution of the number of bids is not independent of the competition type. Most previous models have not considered this question at all. Although multiple sourcing does increase participation in a bidding competition, we show that it can lead to strategic pre-award price increases that can mitigate the effects of the advantages stressed by most previous analyses of post-award supplier management.
TL;DR: In this paper, a taxonomy of consumer purchase strategies based on household decisions about which brand to purchase, how much, and when to purchase in a promotion intensive environment is proposed.
Abstract: This paper proposes a taxonomy of consumer purchase strategies based on household decisions about which brand to purchase, how much, and when to purchase in a promotion intensive environment. We infer decision rules at the household level from supermarket scanner panel data and then cluster the inferred choice routes in order to discover the major purchasing strategies used in our population of interest. Subsequently, we test for the distribution of these purchase strategies in our customer population. Results add to our knowledge of consumer behavior in response to promotions.
TL;DR: In this article, the authors consider sealed bidding in which bidders may submit two or more bids and after the bids are opened may, perhaps at a cost, withdraw bids that are more aggressive than would be necessary to win.
Abstract: This paper considers sealed bidding in which bidders may submit two or more bids and after the bids are opened may, perhaps at a cost, withdraw bids that are more aggressive than would be necessary to win. Such withdrawal strategies are sometimes followed, but currently are surreptitious. However, legitimization of them would create potentially useful market mechanisms of potential interest to government agencies. These market mechanisms are also of theoretical interest since they are intermediate between first-price and second-price auctions. This paper presents models of such auctions. Both decision-theoretic models applicable to surreptitious use of withdrawal strategies and game theoretic models appropriate for openly withdrawable bid situations are developed. We describe a particular auction in which a winning bid was withdrawn and fit one of our decision theoretic models to data from it.
TL;DR: In this paper, the authors propose a new technique for identifying influential observations and observations containing "gross errors" and discuss situations under which each is likely to significantly alter the results of a factor analysis.
Abstract: At the mathematical level, a factor or principal component of a factor analysis is simply a linear combination of variables under some constraints. Therefore, as in regression analysis, there are conditions under which individual or joint observations can be influential in the sense that their presence or absence significantly influences the obtained values of the estimated factor loadings. The nature of these effects as well as potential effects due to “gross errors” in the data set should be investigated in order to determine which observations, if any, need to be analyzed separately or excluded entirely. The purpose of this paper is (1) to propose a new technique for identifying influential observations and observations containing “gross errors” and (2) to discuss situations under which each is likely to significantly alter the results of a factor analysis.
TL;DR: In this article, the authors use the shape parameter r of the gamma distribution to measure the heterogeneity of consumers' purchase rates and suggest that the number of purchases data is better and easier to use.
Abstract: Consumers are different in their purchase rates and it is important to determine this heterogeneity. If a consumer's purchases follow a Poisson process (hence exponential interpurchase time), and purchase rates are distributed gamma across consumers, then a simple measure of heterogeneity is the shape parameter r of the gamma distribution. Although we can use either the number of purchases or the interpurchase time data to estimate this heterogeneity, we suggest that number of purchases data are better and easier to use. It is also suggested that while method of moments (MOM) gives good parameter estimates for models using number of purchases data (e.g. NBD), it may be very misleading for models using interpurchase time data (e.g. Pareto). We also recommend caution when using maximum likelihood estimation procedure for the interpurchase time data if multiple observations are available for each consumer. This is to ensure that the model captures heterogeneity across consumers and not across observations.
TL;DR: In this paper, the authors provide an improvement to the Novak and Stangor procedure by considering a one-sided multivariate hypothesis, and suggest methods for testing such hypotheses.
Abstract: A recent paper by Novak and Stangor Marketing Science, Winter 1987 on testing competitive market structures involves testing a two-sided hypothesis to determine the nature of the competitive market structure. In this paper we provide an improvement to the Novak and Stangor procedure by considering a one-sided multivariate hypothesis and suggest methods for testing such hypotheses.
TL;DR: In this paper, a formal analysis of the structure underlying distance-based representations of consumer similarity judgments is presented, and four models common in the marketing and psychological literature are examined, including Euclidean and city-block spaces and ultrametric and additive trees.
Abstract: This paper discusses the formal analysis of the structure underlying distance-based representations of consumer similarity judgments. Four models common in the marketing and psychological literature are examined—Euclidean and city-block spaces and ultrametric and additive trees. The analysis uses the distinction between “algebraic” and “geometric” structures as the basis for a unifying framework within which the four representations are compared and contrasted. The framework is then used to understand (1) the conditions under which model structure is theoretically revealing of the cognitive structure behind consumer behavior and (2) the degree to which similarity judgments and the resultant distance patterns are diagnostic of the appropriateness of a particular model. An important implication of the analysis is that there is a basic measurement indeterminacy associated with distance patterns, so that similarity data may not always reveal which is the “true” model in a given application. The consequences a...
Journal Article•
TL;DR: In this paper, the author points out that psychology in marketing is one of the most interdisciplinary fields which penetrates beyond the customer's behaviour research, which includes advertising, marketing management, psychology of marketing activity of an organization, placement of new products on the market, etc.
Abstract: The author points out that psychology in marketing is one of the most interdisciplinary fields which penetrates beyond the customer's behaviour research. Psychology in marketing is a wide and still not enough examined field, which includes research of customer's behaviour as well as other aspects - advertising, psychology of marketing management, psychology of marketing activity of an organization, placement of new products on the market, etc.
Journal Article•
TL;DR: In this article, the authors show the possibility of use same mathematical function in analysis and prognosis lifetime of product and show that validity of compute result depend about value and outstanding of mathematical function - particularly time function.
Abstract: The topic of this article is to show the possibility of use same mathematical function in analysis and prognosis lifetime of product. Validity of compute result depend about value and outstanding of mathematical function - particularly time function.
TL;DR: In this article, an early dismissal policy for unproductive recruiters is proposed based on a bivariate stochastic model for productivity; this model considers both incidence of reporting a positive quantity of sales and the quantity per report.
Abstract: An early dismissal policy for unproductive recruiters is proposed. The policy is based on a bivariate stochastic model for productivity; this model considers both incidence of reporting a positive quantity of sales and the quantity per report. All recruiters are observed for a probational period; those who exceed minimum incidence and quantity requirements are allowed to continue to the end of a fixed maximum tenure while others are replaced with new recruiters after the probational period. We show that those who report less often must report a larger total quantity over the probational period in order to compensate for a larger chance variation. The univariate negative binomial distribution NBD model which considers quantity only is examined with respect to its robustness as an approximation in this context. It is found that the NBD leads to serious errors when the quantity reported is relatively homogeneous and reporting incidence is bimodal. Extensions to more conventional salesforces and to direct mail applications are indicated.