A within-attribute model of variety-seeking behavior

Existing models view variety seeking as the result of differences in the level of attribute satiation across attributes. An alternative within-attribute variety-seeking (WAVS) model is proposed. The model posits that variety seeking occurs among the nested features, or meaningful value ranges, of an underlying dimension. The resulting pattern of consumption is represented as an oscillation about a consumer's ideal point on the dimension. An empirical study that illustrates different oscillation patterns is reported.Peer Reviewedhttp://deepblue.lib.umich.edu/bitstream/2027.42/47181/1/11002_2004_Article_BF00995114.pd

Brand Choice Inertia as One Aspect of the Notion of Brand Loyalty

A very parsimonious first-order multibrand model of the individual consumer for frequently purchased consumer goods is developed, generalizing the zero-order multinomial model. The model incorporates the notion of brand choice inertia, which is a form of short-term loyalty. Besides the equilibrium marginal choice probabilities of the multinomial model, a single additional parameter of choice inertia is defined. A maximum likelihood estimation procedure is derived and used on individual data from a subsample of the Secodip Consumer Panel, France: 2,401 purchases of cooking oil from eighty-nine of the consumers who were in the panel for the entire 1971-1972 period are used. Through the likelihood ratio test procedure, the model is shown to significantly improve on the multinomial model. An aggregate version of the model is also developed and estimated by a minimum chi-square procedure on four independent data sets. It is compared with the linear learning model which has been preferred over other probabilistic models of brand choice in most empirical studies in the past fifteen years. On the criterion of the p-level corresponding to the chi-square procedure, the model is superior for data set one, basically equivalent for data set two and its special case of the multinomial model being best for data sets three and four. The model operationalizes in a simple way the notion of carryover effect of marketing actions: a short-term perturbation from equilibrium--due to marketing mix actions, for example--has some residual effect on future purchase occasions. Moreover, in the context of new product modeling, the inertia model is in accord with the empirical observation by Parfitt and Collins of leveling-off of repeat-buying.marketing: buyer behavior, statistics: estimation, philosophy of modeling

The Interaction Effect of Preference and Availability on Brand Switching and Market Share

Observed purchase behavior is the result of the combined effect of preference and availability. A multibrand choice model of a frequently purchased consumer good is developed. The model allows for the heterogeneity of the population with respect to brand preference. It also considers that all brands are not identically distributed and are thus not equally available to the potential buyers of the product class. The model uses the brand switching matrix in order to parcel out the effect of preference and availability. It is compared with the Hendry System which also uses the brand switching matrix for the purpose of measuring brand substitution or competition. The Hendry System being a special case of the model presented in this paper, the likelihood ratio test is employed to test the more general model against Hendry. The estimation and testing procedure uses cooking oil data from 1,961 households who remained in the Secodip Consumer Panel, France, for the entire 1971-1972 period. The variable of availability is found to account for an additional significant portion of the variance of the switching flows. The model should prove to be a useful tool to interpret correctly the popular quantitative summary of multibrand markets, namely the switching matrix. More efficient use of panel data by marketing decision makers should result.marketing: buyer behavior, statistics: estimation, philosophy of modeling

The Impact of Competitive Entry in a Developing Market Upon Dynamic Pricing Strategies

This paper analyzes dynamic pricing strategies for new durable goods in a two-period context. The first period is characterized as a monopoly market structure for a new product having dynamic demand. The second period begins when a new firm enters the market, and thereby changes the market structure to a duopolistic one. We begin by analyzing the pricing strategies of three types of monopolists: nonmyopic, myopic and “surprised.” A nonmyopic monopolist is a first entrant who perfectly predicts the competitive entry. A myopic monopolist totally discounts the duopolistic period, and a “surprised” monopolist is a first entrant who has the longer time horizon of the nonmyopic monopolist, but who does not foresee the competitive entry. Our results indicate that the nature of these pricing strategies may be quite different. It is optimal for the nonmyopic firm to price its product at a higher level than the myopic monopolist. Additional results indicate under what circumstances the “surprised” monopolist will price too high during the monopoly period. The intuition behind these results is the fact that the myopic monopolist competition while the surprised monopolist it. We also characterize the nature of the dynamic equilibrium prices that will prevail during the competitive period. For example, we show that products having higher prices (because of differences) will exhibit a more rapid rate of price decline. Moreover, a in the first entrant's pricing strategy, as a response to a second entry—which is often observed in the market place—is also captured by our model. Because these analyses are limited to situations where the time of second entry is predictable, a scenario that fits our model better would be the health-care equipment industry where a specified period of government observation and/or testing is required. Immediate extensions of our model should include a discount factor and learning effects on both costs and demand.new product competition, market saturation, entry deterrence, dynamic pricing

Commentary—Managing Channel Profits

Channel coordination and, more generally, coordination of activities between interdependent economic agents is even more important today than when the paper was published more than 20 years ago. One reason is the trend toward globalization and outsourcing caused, in part, by the development of increasingly complex products and services that integrate many different competencies. Coordination today involves all the aspects of the marketing mix: product design coordination, price and service coordination (the focus of “Managing Channel Profits”), coordination of availability in highly hybrid distribution systems to better reach an increasingly complex and fragmented market, and coordination of communication with the target market. “Managing Channel Profits” argues a tendency toward a lack of coordination without explicit institutional arrangements and coordination mechanisms such as quantity discounts and contracts to solve the problem. The price and service coordination ideas of “Managing Channel Profits” have been successfully applied for 25 years of developments in marketing of revenue- and cost-sharing arrangements between increasingly interdependent market participants.coordination, cost sharing, revenue sharing, distribution channels, supply chain management, pricing, channel strategy

Managing Channel Profits

A channel of distribution consists of different channel members each having his own decision variables. However, each channel member's decisions do affect the other channel members' profits and, as a consequence, actions. A lack of coordination of these decisions can lead to undesirable consequences. For example, in the simple manufacturer-retailer-consumer channel, uncoordinated and independent channel members' decisions over margins result in a higher price paid by the consumer than if those decisions were coordinated. In addition, the ensuing suboptimal volume leads to lower profits for both the manufacturer and the retailer. This paper explores the problems inherent in channel coordination. We address the following questions. —What is the effect of channel coordination? —What causes a lack of coordination in the channel? —How difficult is it to achieve channel coordination? —What mechanisms exist which can achieve channel coordination? —What are the strengths and weaknesses of these mechanism? —What is the role of nonprice variables (e.g., manufacturer advertising, retailer shelf-space) in coordination? —Does the lack of coordination affect normative implications from in-store experimentation? —Can quantity discounts be a coordination mechanism? —Are some marketing practices actually disguised quantity discounts? We review the literature and present a simple formulation illustrating the roots of the coordination problem. We then derive the form of the quantity discount schedule that results in optimum channel profits.distribution, profitability, margins, coordination

A Micromodeling Approach to Investigate the Advertising-Sales Relationship

The purpose of this paper is to derive a model of advertising effects on the firm's sales. A micromodel is postulated and aggregated across individuals and over time to produce a macromodel of the aggregate sales-advertising relationship for a single product. The micromodel postulated is very simple. It incorporates two factors: reach of the ads and rate of decay of their effectiveness over time. This approach to modeling advertising effects is shown to be fruitful in several respects: (1) the coefficients of the aggregate equation are easily interpretable---in terms of the reach and decay parameters; (2) the model derived is nonlinear yet estimable; (3) a special case of the model is very similar to lag models that have been in use; (4) the model can be used whatever the unit of time is; (5) the carryover effect of advertising (as commonly defined) is not constant, but depends upon the previous spending levels; and (6) the model helps illustrate that the duration of advertising may be greatly overstated if aggregate lagged dependent variable models are simplistically interpreted.marketing, marketing: advertising/promotion

Note—Channel of Distribution Profits When Channel Members Form Conjectures

It is well known that lower channel profits are achieved in the bilateral (manufacturer-reseller) monopoly if manufacturer and reseller independently optimize their respective profits: They take each other's decisions as given i.e., adopt decision rules that ignore their influence on the other channel member. Higher profits are achieved if they coordinate their profit maximizing decisions. Consequently, there is an economic justification for (1) vertical integration that by definition prevents conflicting profit objectives or (2) contracts that change channel members' incentives to the compatible objectives of shares of total channel profits. . The reason for this contention is the casual observation that channel members are often acutely aware of the interdependencies between channel participants. We might thus expect that they will form about other channel members' reactions to their own actions. We show that rational conjectures lead profit maximizing channel members to adopt modified decisions rules. ? In other words, can channel members deviate from the Nash equilibrium and thus achieve greater profits? .margins, reactions, channel equilibrium, channel demand

Reply To: Managing Channel Profits: Comment

We welcome Moorthy's Comment (Moorthy, K. S. 1987. Managing channel profits: Comment. (Fall) 375–379.). It provides an opportunity to clarify several issues raised in our 1983 paper. That paper was motivated by one concern—channel coordination. We believed that channel members benefit from coordination and that many institutional arrangements, such as quantity discounts, are actually coordinating mechanisms. We developed a simple model to demonstrate our belief. For historical accuracy, McGuire and Staelin (cited by Moorthy) had already independently developed a useful model of duopolistic channel competition. Being unaware of their working paper, our model not surprisingly differed from theirs. Both papers provide important but different insights into channel management.