Multiple Discreteness and Product Differentiation: Demand for Carbonated Soft Drinks

Abstract

For several of the largest supermarket product categories, such as carbonated soft drinks, canned soups, ready-to-eat cereals, and cookies, consumers regularly purchase assortments of products. Within the category, consumers often purchase multiple products and multiple units of each alternative selected on a given trip. This multiple discreteness violates the single-unit purchase assumption of multinomial logit and probit models. The misspecification of such demand models in categories exhibiting multiple discreteness would produce incorrect measures of consumer response to marketing mix variables. In studying product strategy, these models would lead to misleading managerial conclusions. We use an alternative microeconomic model of demand for categories that exhibit the multiple discreteness problem. Recognizing the separation between the time of purchase and the time of consumption, we model consumers purchasing bundles of goods in anticipation of a stream of consumption occasions before the next trip. We apply the model to a panel of household purchases for carbonated soft drinks.multiple discreteness, structural modeling, customer behavior, brand choice

Product Differentiation and Mergers in the Carbonated Soft Drink Industry

“…The econometric procedure also corrects for the remaining within-panel unobserved serial dependence. The point- 4 In Dubé (2000), I present comparable evidence for other di¤erentiated products industries such as ready-to-eat cereals, canned soups and cookies. 5 One needs to estimate at least as many parameters as the square of the number of merged products.…”

“…Hendel (1999) refers to this form of decisionmaking as the multiple discreteness problem. 15 Hendel (1999) proposes a static random pro…t model to predict …rms' cross-sectional di¤erences in computer holdings. He explains this variety of computer holdings by unobserved (to the econometrician) di¤erences in …rms' computing tasks.…”

“…This property suggests that increasing the price of Sprite lowers Coke demand. 15 For product categories in which households typically purchase a single brand on a given trip, a separate line of research has examined the quantity purchase decision using the Hanneman (1984) random utility model (Chiang 1991 andChintagunta 1993). These models do not account for purchases of multiple brands on the same trip.…”

“…The mean tastes for attributes have no baring on estimated price elasticities. In Dubé(2000), I project the product …xed-e¤ects onto the physical attribute space to estimate the mean tastes. I then use these mean tastes to provide intuition for substitution patterns and to experiment with shifts in product-positioning in the attribute space.…”

The Effect of Product Assortment Changes on Customer Retention

“…Promotions such as coupons would be effective at boosting category-specific sales, and these promotions could be tailored to individuals in online environments (Zhang and Krishnamurthi 2004). In addition, further experimentation involving varying degrees of assortment could be used to map out sales response as a function of assortment levels, allowing managers to optimize store profits by adjusting category assortments more precisely (for related work, see Allenby et al 2004, Dubé 2004, Pauwels and Srinivasan 2004. 9 At the time of the experiment, there were two delivery cost options available to customers.…”