Modeling dynamic effects of promotion on interpurchase times
Dynamic effects of marketing-mix variables on interpurchase times can be analyzed in the context of a duration model. Specifically, this can be done by extending the accelerated failure-time model with an autoregressive structure. An important feature of the model is that it allows for different long-run and short-run effects of marketing-mix variables on interpurchase times. The error-correction specification of the model contains parameters which measure the direct effect of a temporary change in a marketing-mix variable on interpurchase times and parameters which measure the long-run (cumulative) effect of a temporary change in a marketing-mix variable on current and future interpurchase times. As marketing efforts usually change during the spells, time-varying covariates are explicitly dealt with. Heterogeneity of individual behavior is allowed for through a mixture approach. An empirical analysis of purchases in three different categories reveals, for some segments of households, that the short-run effects of marketing-mix variables are significantly different from the long-run effects. The decay in the effect of changes in marketing-mix variables over time is larger in categories with large interpurchase times, and price has the largest long-run effect for the perishable product. Finally, ignoring dynamic effects leads to erroneous results about the effectiveness of marketing instruments.
|Keywords||Dynamic duration model, Error-correction model, Time-varying covariates, Unobserved heterogeneity|
|Persistent URL||dx.doi.org/10.1016/j.csda.2012.03.022, hdl.handle.net/1765/37689|
|Series||Econometric Institute Reprint Series|
|Journal||Computational Statistics & Data Analysis|
Fok, D, Paap, R, & Franses, Ph.H.B.F. (2012). Modeling dynamic effects of promotion on interpurchase times. Computational Statistics & Data Analysis, 56(11), 3055–3069. doi:10.1016/j.csda.2012.03.022