Detecting price thresholds in choice models using a semi-parametric approach

Abstract

The semi-parametric methodology, underutilized in marketing, can be applied to distinguish between competing models of price response and to estimate the model that most validly describes consumer response to price. The methodology is robust and flexible, thereby making it applicable to a wide spectrum of models of consumer response. In the specific context of reference prices, we show that the semi-parametric methodology helps the manager develop price promotions that most effectively capitalize on the nature of consumer price response.