Determining Segmentation in Sales Response Across Consumer Purchase Behaviors

A joint estimation approach is developed to segment households on the basis of their response to price and promotion in brand choice, purchase incidence, and purchase quantity decisions. Brand choice (what to buy) is modeled by multinomial logit, incidence (whether to buy) by nested logit, and quantity (how much to buy) by poisson regression. Response segments are determined probabilistically using a latent mixture model. The approach simultaneously calibrates sales response on 2 dimensions: across segments and the 3 purchase behaviors. The procedure permits market-level sales elasticities to be decomposed by segment and purchase behavior. The authors apply the approach to scanner panel data for the yogurt category and find substantial differences across segments in the relative impact of the choice, incidence, and quantity decisions on overall sales response to price.