We propose a new method to model consumers' consideration and choice processes. We develop a parsimonious probit type model for consideration and a multinomial probit model for choice, given consideration. Unlike earlier models of consideration ours is not prone to the curse of dimensionality, while we allow for very general structures of unobserved dependence in consideration among brands. In addition, our model allows for state dependence and marketing mix effects on consideration.
Unique to this study is that we attempt to establish the validity of existing practice to infer consideration sets from observed choices in panel data. To this end, we use data collected in an on-line choice experiment involving interactive supermarket shelves and post-choice questionnaires to measure the choice protocol and stated consideration levels. We show with these experimental data that underlying consideration sets can be successfully retrieved from choice data alone and that there is substantial convergent validity of the stated and inferred consideration sets. We further find that consideration is a function of point-of-purchase marketing actions such as display and shelf space, and of consumer memory for recent choices.
Next, we estimate the model on IRI panel data. We have three main results. First, compared with the single-stage probit model, promotion effects are larger and are inferred with smaller variances when they are included in the consideration stage of the two-stage model. Promotion effects are significant only in the two-stage model that includes consideration, whereas they are not in a single-stage choice model. Second, the price response curves of
