An examination of consumer heterogeneity in a stochastic model of consumer purchase dynamics with explanatory variables

A stochastic model of brand choice and purchase incidence is proposed that relates marketing variables, including advertising exposures, to brand performance measures such as market share, penetration and depth of repeat purchase dynamics over time. The approach considers various aspects of consumer heterogeneity including individual differences in brand loyalty levels, advertising exposures, and purchase rates for a population of consumers. A major focus of this study is on the evaluation of the impact of consumer heterogeneity in alternative models on the basis of single-source scanner panel data for an actual market situation. In particular, the authors demonstrate the critical importance of considering heterogeneity over a consumer population as a means of enhancing descriptive and predictive model fit as well as for allowing the analysis of advertising media schedules.