This thesis includes three essays which examine the implications of incorporating parameter
heterogeneity, consideration set heterogeneity, and decision rule heterogeneity,
respectively, in brand choice models.
In the first essay, we identify the conditions under which unaccounted for price response
heterogeneity results in a spurious sticker shock effect. We show, using an analytical
derivation, a simulation study and an empirical application to scanner panel data,
that estimates of the sticker shock effect may be biased if households that are price sensitive
in their brand choice decision are also more likely to respond to category marketing
activity in their purchase timing decision.
The empirical results, from two product categories, show that the sticker shock coefficient
from a Hierarchical Bayes model (which continuously accounts for price response
heterogeneity) is statistically insignificant, providing no evidence of the existence of a
sticker shock effect. In contrast, the corresponding coefficient from the standard model,
which ignores this heterogeneity, is highly significant and supports the existence of a
sticker shock effect. A posterior analysis of household parameters confirms the hypothesized
relationship between price sensitivity in brand choice and responsiveness to promotional
activity in purchase incidence, and is consistent with our explanation of the
underlying cause of the bias in the standard model.
The second essay develops a new consideration set model that can be estimated with
scanner panel data. In contrast to many previous approaches, which require enumeration
of all possible consideration sets, we directly model uncertainty about including a brand
in the consideration set. The resulting inclusion probabilities for brands reflect a "fuzzy" consideration set in the sense that a brand belongs to the consideration set only probabilistically.
The proposed fuzzy set model outperforms several previous consideration set
models in two product categories (yogurt and ketchup).
We then apply the fuzzy set approach to examine the role of the consideration set in
moderating the impact of advertising on price sensitivity. In contrast to the experimental
findings of Mitra and Lynch (1995), we find no positive relationship between consideration
set size and price sensitivity. Further empirical test may be necessary to confirm the
hypothesized relationship.
In the third essay, we investigate the role of decision rule heterogeneity in brand choice
behavior. We develop a flexible model, which allows for the uncertainty in decision
rules used by the consumer. Specifically, we develop a Hierarchical Bayes model of
reference price effects that accommodates both the sticker shock and reference-dependent
formulations. In addition, we also incorporate the possibility that consumers may mix
the two decision rules probabilistically. Therefore, the proposed model allows for three
different decision hierarchies which incorporate sticker shock, reference-dependent and
mixed rules respectively.
The empirical results show that consumers differ not only in their preference and
response but also in their decision rules. On average, half the sample households appear
to show loss aversion, i.e., follow a reference-dependent decision rule, while the remaining
households do not seem to respond to reference prices. The proposed model provides a
richer description of consumer choice processes than the comparison models that allow
for only one model structure and ignore model uncertainty. / Business, Sauder School of / Graduate
| Identifer | oai:union.ndltd.org:UBC/oai:circle.library.ubc.ca:2429/9492 |
| Date | 11 1900 |
| Creators | Chang, Kwangpil |
| Source Sets | University of British Columbia |
| Language | English |
| Detected Language | English |
| Type | Text, Thesis/Dissertation |
| Format | 6078336 bytes, application/pdf |
| Rights | For non-commercial purposes only, such as research, private study and education. Additional conditions apply, see Terms of Use https://open.library.ubc.ca/terms_of_use. |
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