A Multicategory Model of Consumers' Purchase Incidence, Quantity, and Brand Choice Decisions: Methodological Issues and Implications on Promotional Decisions

Abstract

The authors propose a multicategory model of consumers' purchase incidence, quantity, and brand choice decisions. The model specification allows for cross-category promotion effects in both components of the primary demand (incidence and quantity decisions) and uses a flexible functional form of consumer's utility to accurately measure those cross-category effects. To demonstrate the importance of the methodology, the authors investigate two issues of relevance to retailers, namely, how retailers should (1) allocate promotional expenditures across brands in a category and (2) coordinate timing of promotions of brands across categories. The authors estimate the proposed model using consumers' purchases in pasta sauce and pasta categories. The results reveal that using restrictive functional forms of utilities or ignoring cross-category effects in incidence and quantity decisions leads to incorrect assessments on relative allocation of promotional expenditures across brands. Furthermore, retailers are better off contemporaneously promoting brands across the two categories than promoting them in different periods, and ignoring cross-category effects in quantity decisions leads to the opposite inference, namely, that retailers are better off promoting brands across the two categories in different periods.

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