Identifying and Estimating Brand Satiation Using Purchase Data: A Structural Hidden Markov Modeling Approach

Wang, Xiaoyuan; Shankar, Venkatesh

doi:10.2139/ssrn.3056736

Cited by 1 publication

(1 citation statement)

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“…Using experimental and survey approaches, consumer behaviour studies document clear evidence that consumers switch in search of variety [39][40][41][42]. In a recent working paper, Wang and Shankar [43] also show that some realized brand switches cannot be explained by the changes in product characteristics and marketing strategies in transaction datasets. The variety seeking effect is simply a negative form of structural state-dependence [4].…”

Section: State-dependence and Heterogeneitymentioning

confidence: 99%

Explaining Consumer Heterogeneity in Structural State-Dependence

Wang

Liu

2020

Sustainability

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Consumers are heterogeneous in their inertial responses to previous consumptions. Information on consumers’ structural state-dependence is valuable for evaluating consumers’ habit-forming strength and thus can be used for encouraging more sustainable consumption. Conventional methods of estimating such effects are complex and require repeated purchase data, which is difficult to obtain when consumers are inexperienced in buying sustainable products. In this paper, we utilize consumers’ previous switch behaviour data and investigate whether it can explain heterogeneous state-dependence effects. We demonstrate this in consumer-packaged goods markets using scanner datasets. Consumers’ normalized brand switches in a different product category several years ago are used to measure inter-temporal preference variations that are stable and are independent of products and markets. Accounting for household characteristics, we find that some variation in switch behaviour is highly stable: it explains a significant portion of consumers’ structural state-dependence in the market under investigation. Therefore, consumers’ switch tendencies can be structural to their preference. The finding suggests that incorporating consumers’ switch behaviour from other choice domains can be a simple and effective method of understanding the heterogeneous effects behind habit formation. Our constructed measure has broad implications in shifting consumer behaviour to be more sustainable.

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