Be Careful with the Use of Mover-Stayer Model at the Disaggregate Level

Abstract

Identifying and targeting the right types of consumers has always been an important task to marketing practitioners. To this end, Columbo and Morrison (1989) introduce the hard-core loyal/potential switcher (HCL/PS) approach to account for consumer heterogeneity and investigate purchasing patterns of two types of consumers, given an assumption that there are hard-core loyals and potential switchers in the market. A key feature of this framework is that consumers in the loyal segment are assigned the probability of making repeat purchase equal to one due to the following characteristic: the hard-core loyals automatically repurchase the same brand. However, this practice is highly likely to mislead practitioners with a set of parameter estimates. To resolve this problem, this paper proposes a revised version of the Mover-Stayer model, which allows the possibility of loyal consumers to consider other brands and includes the HCL/PS approach as a special case. This study provides two important findings: 1) HCL/PS-based brand choice models provide biased parameter estimates and 2) our proposed model is able to recover true values of parameter estimates for consumers' sensitivity to marketing activities and provide important managerial insights to marketing practitioners who design and implement two targeting programs for acquisition and retention strategy.