Brand Choice, Purchase Incidence, and Segmentation: An Integrated Modeling Approach

Abstract

The authors develop an approach to market segmentation based on consumer response to marketing variables in both brand choice and category purchase incidence. The approach reveals segmentation as well as the nature of choice and incidence response for each segment. Brand choice and purchase incidence decisions are modeled at the segment level with the disaggregate multinomial logit and nested logit models; segment sizes are estimated simultaneously with the choice and incidence probabilities. Households are assigned to segments by using their posterior probabilities of segment membership based on their purchase histories. The procedure thereby permits an analysis of the demographic, purchase behavior, and brand preference characteristics of each response segment. The authors illustrate their approach with scanner panel data on the liquid laundry detergent category and find segmentation in price and promotion sensitivity for both brand choice and category purchase incidence. The results suggest that many households that switch brands on the basis of price and promotion do not also accelerate their category purchases and that households that accelerate purchases do not necessarily switch brands.