A model of inertia and variety-seeking with marketing variables

Abstract

We introduce a model that accounts for the effects of habit-persistence and variety-seeking on consumer choice behavior, while simultaneously accounting for the effects of such time-varying marketing variables as price and promotions. While papers in the stochastic choice literature modeling higher-order behavior, i.e. habit-persistence and variety-seeking, do not account for the effects of marketing variables, models in the discrete choice literature account for the effects of marketing variables without explicitly modeling inertia and variety-seeking behavior. We use the stochastic model proposed by Givon (1984) that accommodates habit-persistence and variety-seeking, and embellish it by including marketing variables. These variables influence not only the brand choice probabilities at any given point in time but can also influence the transition probabilities across purchase occasions. The model is empirically tested on scanner panel data. The results indicate that consumers display strongly inertial behavior and are price insensitive for the product category under study. We also examine the effect of imposing a specific form of choice dynamics, i.e. either inertia or variety-seeking, on the substantive implications of the model.

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