When and what to buy: a nested logit model of coffee purchase

Abstract

On a shopping trip to a supermarket a customer may purchase a product in a given category and, if so, buys a particular brand. Guadagni and Little (1983) model the brand choice part of this process. A multinomial logit model describes the selection of brand and size given that the customer makes a category purchase. Explanatory variables include store actions, such as price and promotion, and customer characteristics, such as brand and size loyalty. The present paper extends the formulation to include the decision to make a purchase in the category on a shopping trip. This additional step not only provides a more complete description of the buying process but also makes possible a better calculation of sales response by including the effect of marketing actions on category sales as well as brand share. The methodology employed is a generalization of the multinomial logit, the nested logit. The shopper's decision includes two components, the selection of the category and the choice of the brand‐size combination. The model of brand‐size choice is essentially that of Guadagni and Little (1983). The category choice introduces further variables including household inventory, category price, and the attractiveness of purchasing a product now as opposed to later. Calibration of the nested logit is done by sequential estimation. The model, applied to regular ground coffee data collected from a scanner panel, tracks sales well in a hold‐out sample, both at the aggregate and individual levels. Use of the model to calculate short term market response to store promotion demonstrates the increase in sales due to category expansion as well as share gain. © 1998 John Wiley & Sons, Ltd.

Market effects of new product introduction: Evidence from the brew‐at‐home coffee market

“…The package size, measured by the net mass weight of the package, has a statistically significant positive marginal utility for the average consumer. This result is similar to findings in Guadagni and Little (1998) and Ansari et al (1995). Prendergast and Marr (1997) argue that larger packaged consumer goods normally reflect better value to average consumers, and consumers tend to choose larger packaged products as they are more likely to stand out on the shelf.…”

“…Last, the variables capturing the promotional activities (e.g., featured by frequent shopper programs or advantageously displayed at the end of an aisle) both have a positive and statistically significant coefficient estimate, suggesting that these promotional activities for a given coffee product serve to increase consumers' demand for the product. This finding is consistent with results in previous studies such as Guadagni and Little (1998), Gupta (1988), Lattin and Bucklin (1989), Grover and Srinivasan (1992), Boatwright et al (2004), Ansari et al (1995). 28…”

Consumer logistics: a systematic literature review

“…Kano (2018) showed that daily consumption depends on inventory. For Neslin and Stone (1996), household stocks did not play a particularly important role in later purchase decisions, but Guadagni and Little (1998) showed the opposite.…”

Detecting Free Riders in Collective Brands through a Hierarchical Choice Process

“…In fact, according to Train (2009), it plays an analogous role to the "inclusive value" of McFadden (1981) or "category attractiveness" of Guadagni and Little (1998) of NL models. In the context of collective brands, this coefficient indicates the utility that the tourist receives no matter which alternative individual brand they choose in the nest;…”

“…A further interpretation can be given to this common random parameter, as it represents the attractiveness of the nest. In fact, according to Train (2009), it plays an analogous role to the inclusive value of McFadden (1981) or category attractiveness of Guadagni and Little (1998) of NL models. In the context of collective brands, this coefficient indicates the utility that the tourist receives no matter which alternative individual brand they choose in the nest; and it represents a measure of the value of the collective brand to the consumer (Kamakura and Russell 1993).…”