Utility-consistent Brand Demand Systems with Endogenous Category Consumption: Principles and Marketing Applications

This paper introduces the design and implementation of utility-consistent, brand, and category demand systems. It extends formal demand analysis to the area of brand and category demand, which directly concerns marketing researchers and managers. The proposed brand demand system is a set of interrelated demand functions that are derived explicitly from a utility function describing consumer preferences. The model generalizes by the integration of category expenditures, which are determined endogenously. The theoretical plausibility of the proposed demand model is demonstrated first and, subsequently, brand and category level systems are derived. Econometric methods for estimating the systems are also developed and illustrated in empirical data. The results yield empirically determined, quantitative insights into the structure of consumer demand for brands and product categories. The proposed approach has the attractive feature of structuring the interdependencies of consumer decisions and ensuring an explicit role for theory in applied research.

[1]  A. Barten,et al.  Consumer Demand Functions under Conditions of Almost Additive Preferences , 1964 .

[2]  Susan Bardi Kleiser,et al.  Marketing research: A state-of-the-art review and directions for the twenty-first century , 1999 .

[3]  H. Theil.  The Information Approach to Demand Analysis , 1965 .

[4]  Simon P. Anderson,et al.  The CES and the logit: Two related models of heterogeneity☆ , 1988 .

[5]  André de Palma,et al.  Demand for Differentiated Products, Discrete Choice Models, and the Characteristics Approach , 1989 .

[6]  L. Krishnamurthi,et al.  A Model of Brand Choice and Purchase Quantity Price Sensitivities , 1988 .

[7]  Naufel J. Vilcassim.  Note---Extending the Rotterdam Model to Test Hierarchical Market Structures , 1989 .

[8]  Gary J. Russell,et al.  A Probabilistic Choice Model for Market Segmentation and Elasticity Structure , 1989 .

[9]  P. K. Kannan,et al.  Modeling and Testing Structured Markets: A Nested Logit Approach , 1991 .

[10]  Pradeep K. Chintagunta,et al.  Investigating Purchase Incidence, Brand Choice and Purchase Quantity Decisions of Households , 1993 .

[11]  J. Chiang.  A Simultaneous Approach to the Whether, What and How Much to Buy Questions , 1991 .

[12]  Naresh K. Malhotra,et al.  The Use of Linear Logit Models in Marketing Research , 1984 .

[13]  D. McFadden.  The Choice Theory Approach to Market Research , 1986 .

[14]  S. Neslin,et al.  Promotional Elasticities and Category Characteristics , 1996 .

[15]  D. Jorgenson,et al.  Transcendental Logarithmic Utility Functions , 1975 .

[16]  G. Maddala.  Limited-dependent and qualitative variables in econometrics: Introduction , 1983 .

[17]  K. Clements,et al.  The Demand for Beer, Wine, and Spirits: A Systemwide Analysis , 1983 .

[18]  Margaret Irish,et al.  Statistical models for zero expenditures in household budgets , 1984 .

[19]  A. Deaton.  The Analysis of Household Surveys : A Microeconometric Approach to Development Policy , 1997 .

[20]  G Baltas,et al.  A model of consumer choice for national vs private label brands , 1997 .

[21]  Costas Meghir,et al.  BIVARIATE ALTERNATIVES TO THE TOBIT MODEL , 1987 .

[22]  George Baltas,et al.  An Integrated Model of Category Demand and Brand Choice , 1998 .

[23]  J. Muellbauer,et al.  An Almost Ideal Demand System , 1980 .

[24]  G. Foxall.  The substitutability of brands , 1999 .

[25]  D. Heien,et al.  Demand Systems Estimation With Microdata: A Censored Regression Approach , 1990 .

[26]  Michel Wedel,et al.  Marketing and econometrics: Editors' introduction , 1998 .

[27]  W. Hanemann.  Discrete-Continuous Models of Consumer Demand , 1984 .

[28]  C. Jarque.  An application of LDV models to household expenditure analysis in Mexico , 1987 .

[29]  P. Doyle,et al.  Random utility models in marketing research: a survey , 2001 .

[30]  A. Dixit,et al.  Monopolistic competition and optimum product diversity , 1977 .

[31]  Robert A. Moffitt,et al.  The Uses of Tobit Analysis , 1980 .

[32]  W. Kamakura,et al.  Modeling Preference and Structural Heterogeneity in Consumer Choice , 1996 .

[33]  Sunil Gupta.  Impact of Sales Promotions on when, what, and how Much to Buy , 1988 .

[34]  Gary J. Russell,et al.  Perspectives on Multiple Category Choice , 1997 .

[35]  A. Ehrenberg,et al.  Double Jeopardy Revisited , 1990 .

[36]  Naresh K. Malhotra,et al.  An Approach to the Measurement of Consumer Preferences Using Limited Information , 1986 .

[37]  R. Nayga.  A sample selection model for prepared food expenditures , 1998 .

[38]  Stavros A. Drakopoulos,et al.  Hierarchical Choice in Economics , 1994 .