A MODEL OF INERTIA AND VARIETY-SEEKING WITH MARKETING VARIABLES

We introduce a model that accounts for the effects of habit-persistenc e and variety-seeking on consumer choice behavior, while simultaneousl y accounting for the effects of such time-varying marketing variables as price and promotions. While papers in the stochastic choice literat ure modeling higher-order behavior, i.e. habit-persistence and variety -seeking, do not account for the effects of marketing variables, model s in the discrete choice literature account for the effects of marketi ng variables without explicitly modeling inertia and variety-seeking b ehavior. We use the stochastic model proposed by Given (1984) that acc ommodates habit-persistence and variety-seeking, and embellish it by i ncluding marketing variables. These variables influence not only the b rand choice probabilities at any given point in time but can also infl uence the transition probabilities across purchase occasions. The mode l is empirically tested on scanner panel data. The results indicate th at consumers display strongly inertial behavior and are price insensit ive for the product category under study. We also examine the effect o f imposing a specific form of choice dynamics, i.e. either inertia or variety-seeking, on the substantive implications of the model. (C) 199 8 Elsevier Science B.V.