Consumer Learning and Brand Valuation: An Application on Over-the-Counter Drugs

Akçura, Mevlüt; Gönül, Füsun F.; Petrova, Elina

doi:10.1287/mksc.1030.0028

Cited by 61 publications

(30 citation statements)

References 19 publications

(13 reference statements)

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“…In order to obtain estimates of this unobserved brand equity for each period, we use the Kalman filter algorithm, which has been used extensively in control engineering and has been recently applied in the marketing literature (for example, Xie, Sirbu, and Wang 1997;Putsis 1998;Naik, Mantrala, and Sawyer 1998;Akcura, Gonul, and Petrova 2004). The Kalman filter is a recursive algorithm that is used to obtain efficient estimates of an unobserved state variable (which happens to be brand equity in our case) in each period based on the information observed in that period.…”

Section: Note That In Equation 6bmentioning

confidence: 99%

Optimal Advertising and Promotion Budgets in Dynamic Markets with Brand Equity as a Mediating Variable

Subramaniam

Kalwani

2007

Management Science

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We study the optimal levels of advertising and promotion budgets in dynamic markets with brand equity as a mediating variable. To this end, we develop and estimate a state-space model based on the Kalman filter that captures the dynamics of brand equity as influenced by its drivers that include a brand's advertising and sales promotion expenditures. By integrating the Kalman filter with the random coefficients logit demand model, our estimation allows us to capture the dynamics of brand equity as well as model consumer heterogeneity using store-level data. Using these demand model estimates, we determine the Markov Perfect Equilibrium advertising and promotion strategies. Our empirical analysis is based on store-level scanner data in the orange juice category, which comprises two major brandsTropicana and Minute Maid. The calibration of the demand model reveals that sales promotions have a significant positive effect on consumers' utility and induce consumers to switch to the promoted brand. However, there is also a negative effect of promotions on brand equity that carries over from period to period. Overall, we find that while sales promotions have a net positive impact both in the short-term and in the long-term, the implied total elasticity including the long-term effect is smaller than the short-term elasticity. Correspondingly, we expect myopic decision-makers to allocate higher than optimal expenditures to sales promotions. Our results from the supply side analysis reveal that the equilibrium forward-looking promotion levels are higher for Minute Maid, the brand for which the adverse long-term effect of promotions is lower. However, the observed promotion levels are higher for Tropicana compared to Minute Maid, a result consistent only with the myopic case. Further, our results reveal that the actual promotion levels for both brands are higher than the optimal budgets for the forward-looking as well as the two-year planning horizon scenarios. Hence, it may be profitable for both brands to reduce their promotion levels. The equilibrium forward-looking advertising levels are higher for Tropicana, the brand that has a higher responsiveness to advertising. Further, the optimal forward-looking advertising levels are higher than the optimal budgets for the myopic as well as the two-year planning horizon scenarios. However, these levels are higher than the actual advertising expenditures for both brands. Hence, it may be optimal for both brands to reduce their advertising levels.

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Section: Note That In Equation 6bmentioning

confidence: 99%

Optimal Advertising and Promotion Budgets in Dynamic Markets with Brand Equity as a Mediating Variable

Subramaniam

Kalwani

2007

Management Science

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“…Other papers that have modeled dynamics using the Kalman filter includeNaik et al (1998),Akcura et al (2004), andNaik et al (2005).2 Although the presence of holidays may not be brand specific, we use the brand subscript for the environmental factors for the sake of generalizability.Downloaded from informs.org by [129.115.103.99] on 23 August 2015, at 22:01 . For personal use only, all rights reserved.…”

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confidence: 99%

Effects of Brand Preference, Product Attributes, and Marketing Mix Variables in Technology Product Markets

2006

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We develop a demand model for technology products that captures the effect of changes in the portfolio of models offered by a brand as well as the influence of the dynamics in its intrinsic preference on that brand's performance. To account for the potential correlation in the preferences of models offered by a particular brand, we use a nested logit model with the brand (e.g., Sony) at the upper level and its various models (e.g., Mavica, FD, DSC, etc.) at the lower level of the nest. Relative model preferences are captured via their attributes and prices. We allow for heterogeneity across consumers in their preferences for these attributes and in their price sensitivities in addition to heterogeneity in consumers' intrinsic brand preferences. Together with the nested logit assumption, this allows for a flexible substitution pattern across models at the aggregate level. The attractiveness of a brand's product line changes over time with entry and exit of new models and with changes in attribute and price levels. To allow for time-varying intrinsic brand preferences, we use a state-space model based on the Kalman filter, which captures the influence of marketing actions such as brand-level advertising on the dynamics of intrinsic brand preferences. Hence, the proposed model accounts for the effects of brand preferences, model attributes and marketing mix variables on consumer choice. First, we carry out a simulation study to ensure that our estimation procedure is able to recover the true parameters generating the data. Then, we estimate our model parameters on data for the U.S. digital camera market. Overall, we find that the effect of dynamics in the intrinsic brand preference is greater than the corresponding effect of the dynamics in the brand's product line attractiveness. Assuming plausible profit margins, we evaluate the effect of increasing the advertising expenditures for the largest and the smallest brands in this category and find that these brands can increase their profitability by increasing their advertising expenditures. We also analyze the impact of modifying a camera model's attributes on its profits. Such an analysis could potentially be used to evaluate if product development efforts would be profitable.econometric models, hi-tech marketing, advertising, product line attractiveness, product development, nested logit models, Kalman filter

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“…Here 01   , and  is the carryover coefficient, which is assumed to be identical across varieties (Akcura et al, 2004). (3) ij  are coefficients.…”

Section: The Dynamic Multiple-variety Choice (Dmc) Modelmentioning

confidence: 99%

A dynamic multiple-variety choice adaption model

Song

Tso

et al. 2014

Communications in Statistics - Simulation and Computation

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The choice of a product on one purchase occasion by one consumer could be multiple varieties and influenced by past usage experience of this product. To mimic the real situation, this paper proposes a new dynamic multiple-variety choice (DMC) model which incorporates quantitative and qualitative dynamics into an additive utility function. This model exhibits three major features of consumer purchase behavior: more than one variety purchased, learning behavior from use experience, and forgetting with the passage of time. All these are achieved by combining a simultaneous demand model with Bayesian learning theory embedded in an exponential function. The model is tested and validated using Hong Kong television viewing data. Empirical results show that including Bayesian learning in a multiple-choice model significantly improves model performance and prediction accuracy, and consideration of the effect of forgetting when studying learning behavior renders the Bayesian learning model much more accurate in practical application.

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Consumer Learning and Brand Valuation: An Application on Over-the-Counter Drugs

Cited by 61 publications

References 19 publications

Optimal Advertising and Promotion Budgets in Dynamic Markets with Brand Equity as a Mediating Variable

Optimal Advertising and Promotion Budgets in Dynamic Markets with Brand Equity as a Mediating Variable

Effects of Brand Preference, Product Attributes, and Marketing Mix Variables in Technology Product Markets

A dynamic multiple-variety choice adaption model

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