Publisher's Synopsis
Excerpt from When and What to Buy: A Nested Logit Model of Coffee Purchase
In an earlier paper the authors have modeled a customer's choice of product within a category as affected by retail store actions and prior purchasing behavior (guadagni and Little, Principal retailer control variables are price, presence or absence of store promotion, and amount of promotional price cut. Customer behavioral variables are prior loyalty to brand and size. The basic methodology is the multinomial logit, with calibration and testing done on upc scanner panel data for the regular ground coffee category.
In the earlier paper, we take as known that a customer makes a purchase in the category. This restriction is now removed by extending the model to include the decision to buy a product in the category on a particular shopping trip. Whereas the earlier model was driven by purchases, each representing an opportunity to choose a particular brand and size, the new model is driven by shopping trips, each representing an opportunity to buy within the category. Since we are dealing with products that are bought repeatedly, the decision is really whether to buy now or later. The theory used for the extended model is the nested logit as described by ben-akiva and Lerman Calibration is by sequential estimation. The present paper expands and deepens the work initially reported by Guadagni (1983) The importance of modeling the category purchase is two-fold: First, it enhances our understanding of the variables that affect customer decisions. Second, it will permit a more complete calculation of sales response to marketing actions, since marketing often affects category sales as well as brand shares. Figure l, which shows the coffee sales that we plan to model, demonstrates that much often goes on at the total category level.
For motivation and exposition we view purchase as a two stage process: first the category is chosen, then the particular product. We note, however, that the theory does not require this actually to be the process.
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