35.3 Cross-Category and Store Choice Models

  • Models: Restricted Boltzman Machine Learning Models

How would you name the topic for this week?

Store Choice Model -> Category Choice Model -> Brand choice -> Quantity

35.3.1 Background

(Seetharaman et al. 2005)

  • Typically outcome variables of interest:

    • store choice (Which store visited?)

    • Incidence (whether the product category was purchased)

    • brand choice (which brand)

    • quantity (how many?)

Incidence Outcomes in Multiple Categories

  1. Multi-category “whether to Buy” models
  • Base Model:

    • (Manchanda, Ansari, and Gupta 1999): assumed joint distribution (not independent normal dist from the binary probit model) of two products (underestimate cross-category correlation and overestimates the effectiveness of the marketing mix as compared to (Chib, Seetharaman, and Strijnev 2002))

    • (Chib, Seetharaman, and Strijnev 2002): 12 products category, and find that accounting the effects of unobserved heterogeneity across households can recover the overestimated cross-category correlation and underestimated effectiveness of marketing mix.

    • (Ma, Seetharaman, and Narasimhan 2012) (publish 5 years later) address the spurious correlation due to 0 outcome (i.e., no purchase) by the multivariate logit model.

  1. Multi-category “When to to Buy” models
  • Multivariate Hazard model

    • (P. K. Chintagunta and Haldar 1998): bivariate hazard model with only positive correlation between two timing outcomes

    • Ma and Seetharaman (2004) used Multivariate Proportional Hazard Model to account for both positive and negative pair-wise correlations in the outcomes.

  1. Bundle Choice Models
  • whether or not to buy a bundle

    • (Chung and Rao 2003) uses nested logit with error terms follow a joint Gumbel distribution, assumes:

      • Degree of comparability among product categories

        • Fully comparable attributes (e..g, brand reliability)

        • Partially comparable attributes

        • Non-comparable attributes

      • Two types of attributes:

        • Non-balancing attributes

        • balancing attributes

    • (Jedidi, Jagpal, and Manchanda 2003): consumer’s (random) utility = sum of reservation price + random component

      • Multinomial probit

Brand choice outcome models in multiple categories

  1. Correlated marketing mix sensitivities across categories
  1. Correlated Brand Preferences across categories

(Russell and Kamakura 1997): Poisson model for brand’s purchase volume, they found Inter-category correlation in purchase volume

(Tulin Erdem 1998) (Tülin Erdem and Winer 1998):using multinational logit brand choice model: signaling theory of umbrella branding explains correlated quality perceptions among product categories

Other papers: (V. P. Singh, Hansen, and Gupta 2005) (Hansen, Singh, and Chintagunta 2006)

Models of Multiple Outcomes in Multiple Categories

  1. Incidence and Brand Choice

    1. Incidence as an alternative in a multiple choice model:

      1. Deepak et al. (2002): used Multivariate Probit (MVP) of incidence and brand choice outcomes.

      2. (Manchanda, Ansari, and Gupta 1999) found cross-category correlations in marketing mix sensitivities of household

      3. Ma, Seetharaman and Narasimhan (2005): used Multivariate Logit Model to model incidence and brand choice outcome.

    2. Incidence and Brand choice as 2 decision stages:

      1. (Mehta 2007): Simultaneous model of incidence and brand choice

      2. Chib et al. (2005): Brand choice within each product category

  2. Incidence and Quantity

    1. (Niraj, Padmanabhan, and Seetharaman 2008) Two-stage bivariate logit model
  3. Incidence, brand choice and quantity

    1. (Song and Chintagunta 2007): simultaneous model: cross-category effects come from the incidence and brand choice outcomes, not from the quantity outcomes

Estimation: Bayesian framework is a better fit for this type of models. (see (Albert and Chib 1993))

Store Choice Outcomes:

35.3.2 Examples

35.3.2.1 (Bucklin, Siddarth, and Silva-Risso 2008)

  • Changes in the intensity of mature distribution networks (by car make) influence consumer choice.

  • Three measures for intensity level (for each make)

    • Dealer accessibility (buyer’s distance to the nearest outlet): prefer closer

    • Dealer concentration (i.e.,the distance required to encircle a given number of same make dealers around a given buyer) (number of dealers near a buyer): prefer more dealers

    • Dealer spread (dispersion of the multiple dealers relative to the buyer’s locations): prefer skewed toward the buyer (think of the circle). Using Gini coefficient from the Lorenz curve).

  • Used logit choice model to model the correlation of the three measure with new car choices.

  • found significant correlation between measures and car choice.

  • Motivations:

    • Want to infer causation between distribution coverage/ intensity and sales

      • It’s hard. It might depend on product categories (e..g, convenience, shopping or specialty goods).
  • Focus: relationship between distribution intensity and buyer choice in consumer durables market

  • Leveraging slow changes in the distribution channel, the authors probe the effect of distribution intensity on choice.

  • But because it was cross sectional, need to include constant heterogeneity in preferences and other marketing mix effects to avoid confounds.

  • Data: individual-level purchase record by Power Information Network (PIN), under J. Power and Associates from 1997 to 2004 in Cali.

  • Different from previous literature: instead of store choice, brand choice was modeled as a function of outlet locations.

Utility:

\[ U_{it}^h = \alpha_i^h + \Sigma_j \beta_j^h X^h_{ijt} \]

where

  • \(U_{it}^h\) = buyer \(h\)’s utility for \(i\) at time \(t\)

  • \(X_{ijt}^h\) = attribute \(j\)’s value at time \(t\) by buyer \(h\)

  • \(\alpha_i^h\) = product-specific constant (vary by household) (i.e., brand preference)

Heterogeneity is modeled at the zip-code level (buyers in the same zip code share \(\alpha, \beta\)

Endogeneity:

  1. Measurement Level: individual data, less measurement error.

  2. Simultaneity: Not much changes in distribution network (with empirical evidence). Hence, unlikely

  3. Sample selection: large and representative sample of Cali market.

  4. Omitted variable bias:

    1. Include heterogeneity at the dis aggregate level (capture unobserved geographical effects)

    2. Since model at the make level, we have less correlation with the unobserved model-level factors

    3. Individual makes have less correlation with manufacturer unobserved variables.

Logit choice probability

\[ P_{it}^h = \frac{\exp(U^h_{it})}{\sum_k\exp(U_{kt}^h)} \]

Using Hierarchical Bayes

Choice probability buyer \(h\) in zip code \(z\) pick make \(i\) at time \(t\)

\[ \text{Prob}_t^h(i | \mathbf{\beta}^z, X_{it}^h) = \frac{\exp(\mathbf{\beta}^{\mathbf{Z}}X^h_{it})}{\sum_j\exp(\mathbf{\beta}^{\mathbf{Z}}\mathbf{X}^h_{jt})} \]

where

  • \(\mathbf{\beta}^{\mathbf{Z}}\) = a zip-code-specific parameter vector (\(\mathbf{\beta}^{\mathbf{Z}} \sim MVN (\mathbf{\mu}, \mathbf{\Sigma})\)

    • \(\mathbf{\mu} \sim MVN (\mathbf{\eta}, \mathbf{C})\)

    • \(\mathbf{\Sigma}^{-1} \sim \text{Wishart}[(\rho R)^{-1}, \rho]\)

(Ngwe 2017)

  • Structural model:

    • Demand: sensitivity to travel distance and taste for new product

    • Supply: responses to changes in store locations.

  • Outlets focus on lower-value consumers with lower desire for newness (correlation between travel sensitivity and taste for new products).

  • Outlets help regular store introduce more new products (possibly improve quality).

35.3.2.2 (Donnelly et al. 2021)

  • Model for estimating single product choice from alternatives:

    • Heterogeneity in Individual preferences for product attributes and price sensitivity (across products).

    • Account for time-varying product attributes, and out-of-stock.

  • Improvement from traditional model due to:

    • estimate heterogeneity in individual preferences.

    • estimate preferences of infrequent (purchase) custeomers

35.3.2.3 (Gabel and Timoshenko 2021)

  • Deep network model accounts for

    • cross-product relationships,

    • time-series filters to capture purchase dynamics for product with varying inter-purchase times

References

Ainslie, Andrew, and Peter E. Rossi. 1998. “Similarities in Choice Behavior Across Product Categories.” Marketing Science 17 (2): 91–106. https://doi.org/10.1287/mksc.17.2.91.
Albert, James H., and Siddhartha Chib. 1993. “Bayesian Analysis of Binary and Polychotomous Response Data.” Journal of the American Statistical Association 88 (422): 669–79. https://doi.org/10.1080/01621459.1993.10476321.
Bell, David R., Teck-Hua Ho, and Christopher S. Tang. 1998. “Determining Where to Shop: Fixed and Variable Costs of Shopping.” Journal of Marketing Research 35 (3): 352. https://doi.org/10.2307/3152033.
Bell, David R., and James M. Lattin. 1998. “Shopping Behavior and Consumer Preference for Store Price Format: Why Large Basket Shoppers Prefer EDLP.” Marketing Science 17 (1): 66–88. https://doi.org/10.1287/mksc.17.1.66.
Bucklin, Randolph E., S. Siddarth, and Jorge M. Silva-Risso. 2008. “Distribution Intensity and New Car Choice.” Journal of Marketing Research 45 (4): 473–86. https://doi.org/10.1509/jmkr.45.4.473.
Chib, Siddhartha, P. B. Seetharaman, and Andrei Strijnev. 2002. “Analysis of Multi-Category Purchase Incidence Decisions Using IRI Market Basket Data.” In, 57–92. Emerald (MCB UP ). https://doi.org/10.1016/s0731-9053(02)16004-x.
Chintagunta, Pradeep K., and Sudeep Haldar. 1998. “Investigating Purchase Timing Behavior in Two Related Product Categories.” Journal of Marketing Research 35 (1): 43. https://doi.org/10.2307/3151929.
Chung, Jaihak, and Vithala R. Rao. 2003. “A General Choice Model for Bundles with Multiple-Category Products: Application to Market Segmentation and Optimal Pricing for Bundles.” Journal of Marketing Research 40 (2): 115–30. https://doi.org/10.1509/jmkr.40.2.115.19230.
Donnelly, Robert, Francisco J. R. Ruiz, David Blei, and Susan Athey. 2021. “Counterfactual Inference for Consumer Choice Across Many Product Categories.” Quantitative Marketing and Economics 19 (3-4): 369–407. https://doi.org/10.1007/s11129-021-09241-2.
Erdem, Tulin. 1998. “An Empirical Analysis of Umbrella Branding.” Journal of Marketing Research 35 (3): 339. https://doi.org/10.2307/3152032.
Erdem, Tülin, and Russell S. Winer. 1998. “Econometric Modeling of Competition: A Multi-Category Choice-Based Mapping Approach.” Journal of Econometrics 89 (1-2): 159–75. https://doi.org/10.1016/s0304-4076(98)00059-1.
Gabel, Sebastian, and Artem Timoshenko. 2021. “Product Choice with Large Assortments: A Scalable Deep-Learning Model.” Management Science, April. https://doi.org/10.1287/mnsc.2021.3969.
Hansen, Karsten, Vishal Singh, and Pradeep Chintagunta. 2006. “Understanding Store-Brand Purchase Behavior Across Categories.” Marketing Science 25 (1): 75–90. https://doi.org/10.1287/mksc.1050.0151.
Iyengar, Raghuram, Asim Ansari, and Sunil Gupta. 2003. “Leveraging Information Across Categories.” Quantitative Marketing and Economics 1 (4): 425–65. https://doi.org/10.1023/b:qmec.0000004845.25649.6c.
Jedidi, Kamel, Sharan Jagpal, and Puneet Manchanda. 2003. “Measuring Heterogeneous Reservation Prices for Product Bundles.” Marketing Science 22 (1): 107–30. https://doi.org/10.1287/mksc.22.1.107.12850.
Ma, Yu, P. B. Seetharaman, and Chakravarthi Narasimhan. 2012. “Modeling Dependencies in Brand Choice Outcomes Across Complementary Categories.” Journal of Retailing 88 (1): 47–62. https://doi.org/10.1016/j.jretai.2011.04.003.
Manchanda, Puneet, Asim Ansari, and Sunil Gupta. 1999. “The Shopping Basket: A Model for Multicategory Purchase Incidence Decisions.” Marketing Science 18 (2): 95–114. https://doi.org/10.1287/mksc.18.2.95.
Mehta, Nitin. 2007. “Investigating Consumers Purchase Incidence and Brand Choice Decisions Across Multiple Product Categories: A Theoretical and Empirical Analysis.” Marketing Science 26 (2): 196–217. https://doi.org/10.1287/mksc.1060.0214.
Ngwe, Donald. 2017. “Why Outlet Stores Exist: Averting Cannibalization in Product Line Extensions.” Marketing Science 36 (4): 523–41. https://doi.org/10.1287/mksc.2017.1031.
Niraj, Rakesh, V. Padmanabhan, and P. B. Seetharaman. 2008. “Research NoteA Cross-Category Model of Households’ Incidence and Quantity Decisions.” Marketing Science 27 (2): 225–35. https://doi.org/10.1287/mksc.1070.0299.
Russell, Gary J, and Wagner A Kamakura. 1997. “Modeling Multiple Category Brand Preference with Household Basket Data.” Journal of Retailing 73 (4): 439–61. https://doi.org/10.1016/s0022-4359(97)90029-4.
Seetharaman, P. B., Andrew Ainslie, and Pradeep K. Chintagunta. 1999. “Investigating Household State Dependence Effects Across Categories.” Journal of Marketing Research 36 (4): 488. https://doi.org/10.2307/3152002.
Seetharaman, P. B., Siddhartha Chib, Andrew Ainslie, Peter Boatwright, Tat Chan, Sachin Gupta, Nitin Mehta, Vithala Rao, and Andrei Strijnev. 2005. “Models of Multi-Category Choice Behavior.” Marketing Letters 16 (3-4): 239–54. https://doi.org/10.1007/s11002-005-5888-y.
Singh, Vishal P., Karsten T. Hansen, and Sachin Gupta. 2005. “Modeling Preferences for Common Attributes in Multicategory Brand Choice.” Journal of Marketing Research 42 (2): 195–209. https://doi.org/10.1509/jmkr.42.2.195.62282.
———. 2007. “A DiscreteContinuous Model for Multicategory Purchase Behavior of Households.” Journal of Marketing Research 44 (4): 595–612. https://doi.org/10.1509/jmkr.44.4.595.