INVESTIGATING PURCHASE INCIDENCE, BRAND CHOICE AND PURCHASE QUANTITY DECISIONS OF HOUSEHOLDS

We develop a comprehensive utility maximizing framework to study the i mpact of marketing variables on the category purchase, brand choice an d purchase quantity decisions of households for frequently purchased p ackaged goods. The model allows for dependence among the three decisio ns while ensuring that these decisions provide, in combination, the gr eatest possible utility to the household. By accounting for variations in reservation prices and intrinsic brand preferences across househol ds, the modeling framework explicitly captures the effects of unobserv ed heterogeneity on all three purchase decisions. The principal empiri cal finding from analyzing the A. C. Nielsen data for the yogurt produ ct category is that the substantive implications for the effects of ma rketing variables are sensitive to whether these effects are determine d conditional or unconditional on a product category purchase. Our res ults show that reservation prices and intrinsic brand preferences vary across households, and not accounting for these variations in the est imation could lead to biased estimates for the coefficients of the mar keting variables. A comparison of our results to those obtained from a nested logit model of purchase incidence and brand choice reveals tha t our proposed model performs better using both a formal statistical t est as well as the criterion of predictive validity in a holdout sampl e of panelists. Further, the purchase quantity model compares favorabl y with two alternative models of quantity choice in the validation sam ple.