Modeling Markets: Analyzing Marketing Phenomena and Improving Marketing Decision Making

417 Pages·2015·5.55 MB·English

by  Peter S.H. Leeflang

International Series in Quantitative Marketing
Peter S.H. Leefl ang
Jaap E. Wieringa
Tammo H.A. Bijmolt
Koen H. Pauwels
Modeling
Markets
Analyzing Marketing Phenomena and
Improving Marketing Decision Making
International Series in Quantitative Marketing
SeriesEditor
JehoshuaEliashberg
TheWhartonSchool
UniversityofPennsylvania
Philadelphia,PA,USA
Moreinformationaboutthisseriesathttp://www.springer.com/series/6164

Peter S.H. Leeflang • Jaap E. Wieringa
Tammo H.A. Bijmolt • Koen H. Pauwels
Modeling Markets
Analyzing Marketing Phenomena and
Improving Marketing Decision Making
123
PeterS.H.Leeflang JaapE.Wieringa
DepartmentofMarketing DepartmentofMarketing
UniversityofGroningen UniversityofGroningen
Groningen,TheNetherlands Groningen,TheNetherlands
AstonBusinessSchool
KoenH.Pauwels
BirminghamUK
DepartmentofMarketing
UniversityofSt.Gallen Özyeg˘inUniversity
Switzerland Istanbul,Turkey
TammoH.A.Bijmolt
DepartmentofMarketing
UniversityofGroningen
Groningen,TheNetherlands
ISSN0923-6716 ISSN2199-1057(electronic)
ISBN978-1-4939-2085-3 ISBN978-1-4939-2086-0(eBook)
DOI10.1007/978-1-4939-2086-0
SpringerNewYorkHeidelbergDordrechtLondon
LibraryofCongressControlNumber:2014950059
©SpringerScience+BusinessMediaNewYork2015
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To DickWittink(1945–2005),
our colleague,friend,
and oneof thefounders
of MarketingScience.

Preface
Thisbookis abouthowmodelscanbe developedtorepresentdemandandsupply
on markets, where the emphasis is on demand models. Our primary focus is on
quantitativemodelsthat can be used by managersto supportmarketingdecisions.
We define a model as a representation of the most important elements of a
perceivedreal-worldsystem.Appropriatelyconstructedmodelscanprovideinsights
aboutstructuralrelationsbetweenmarketingvariables.Since modelsexplicatethe
relations,boththe processofmodelbuildingandthe modelthatultimatelyresults
canimprovethequalityofmarketingdecisions.Thisbookisourattempttoprovide
a structure for model building. The content of the book should be of interest to
researchers,analysts,managersandstudentswhowanttodevelop,evaluate,and/or
usemodelsofmarketingphenomena.
Compared with only a few decades ago, marketing models have become
importanttoolsformanagersinmanyindustries.Withtechnologicaladvances(e.g.,
theavailabilityofscannerdata,improvedhardwareandsoftware),theopportunity
toobtainmeaningfulestimatesofdemandmodelsvastlyimproved.Theintroduction
oftheInternethasalsochangedthelandscapeofmarketingmanagementinthepast
decade.Internetoffersmanyopportunitiestocollectdatafromindividualconsumers
andtousenewcommunicationvehiclessuchassocialmedia.
Managerswillparticularlybenefitfrommodelsofmarketingphenomenaifthey
understandwhatthesemodelsdoanddonotcapture.Withthisunderstandingthey
can,forexample,augmentmodel-basedconclusionswiththeirownexpertiseabout
complexities that fall outside the modelers’ purview. Importantly, the systematic
analysisofpurchaseandotherdatacanprovidecompetitiveadvantagestomanagers.
Model benefits include cost savings resulting from improvements in resource
allocations as we discuss in various applications. And the leaders or first movers
in the modeling of marketing phenomena can pursue strategies not available nor
transparenttomanagerslaggingintheuseofdata.
In this book we provide the basics, and we discuss the steps of the model
buildingprocess.Thebookissuitableforstudentuseincoursessuchas“Modelsin
Marketing,”“MarketingScience,”and“QuantitativeAnalysisinMarketing”atthe
vii
viii Preface
graduateand advancedundergraduatelevel.The materialcan be supplementedby
articlesfromjournalssuchasJournalofMarketingResearch,JournalofMarketing,
MarketingScience,QuantitativeMarketingandEconomics,andTheInternational
JournalofResearchinMarketing.
This book is a revised edition of Building Models for Marketing Decisions
(Leeflangetal.2000)andisthefirstoftwovolumes.
Inthisvolumewediscussthestepsofthemodelbuildingprocess:
1. specification(Chap.2);
2. parameterization,i.e.organizingdataandestimation(Chaps.3and4);
3. validation(Chap.5);
4. re-estimation(Chap.6).
WealsospendattentiontoBayesianestimationmethodsinSect.6.8andwespecify
modelsthathavebeendevelopedformarketsinChaps.7(modelsforaggregatedata)
and8(individualdemandmodels).Weobservethatthereisagrowingattentionfor
databasemarketing.InChap.9wediscussmodelsthathavebeendevelopedinthis
area. Finally we discuss issues that deal with the final step of the model building
process:Use/implementation(Chap.10).
The second volume deals with more advanced topics that are used to model
markets,suchas:
• hierarchicalmodels;
• timeseriesmodels;
• statespacemodels;
• structuralmodels;
• spatialmodels;
• diffusionmodels;
• structuralequationmodels;
• mixturemodels;
• advancedestimationmethodssuchasnonlinear,non-parametric,andsemi-para-
metricestimation;
• modelsthatrepresentcompetitivereactions,includinggametheoreticalmodels.
Several colleagues have contributed with their comments on various drafts. We
thanktheformerauthors:thelateDickWittink,MichelWedel,andPhilippeNaert
andcolleagues/assistantsoftheUniversityofGroningen,viz:NielsHoltrop,Hans
Risselada, Chantal Hagen, and Roos Nijzing. We thank Harald van Heerde for
providingthedatafortheVerhoutencase.
WededicatethisbooktoourfriendandcolleagueDickWittinkwhopassedaway
unexpectedlyin2005.MarketingscientistsowemuchtoDick,oneofthefounders
ofMarketingScience.
Groningen,TheNetherlands PeterS.H.Leeflang
Groningen,TheNetherlands JaapE.Wieringa
Groningen,TheNetherlands TammoH.A.Bijmolt
Istanbul,Turkey KoenH.Pauwels
July2014
Contents
1 BuildingModelsforMarkets.............................................. 1
1.1 Introduction........................................................... 1
1.2 VerhoutenCase....................................................... 2
1.3 TypologiesofMarketingModels.................................... 4
1.3.1 Introduction................................................. 4
1.3.2 Decision Models Versus Models That
AdvanceMarketingKnowledge ........................... 4
1.3.3 DegreeofExplicitness ..................................... 7
1.3.4 Intended Use: Descriptive, Predictive
andNormativeModels ..................................... 13
1.3.5 LevelofDemand ........................................... 14
1.4 BenefitsfromUsingMarketingDecisionModels.................. 15
1.4.1 DirectBenefits.............................................. 15
1.4.2 IndirectBenefits ............................................ 16
1.5 TheModelBuildingProcess......................................... 18
1.6 Outline................................................................ 21
References.................................................................... 22
2 ModelSpecification......................................................... 25
2.1 Introduction........................................................... 25
2.2 ModelCriteria........................................................ 26
2.2.1 ImplementationCriteriaRelatedtoModelStructure..... 26
2.2.2 ModelsShouldBeSimple ................................. 26
2.2.3 ModelsShouldBeBuiltinanEvolutionaryWay......... 29
2.2.4 ModelsShouldBeCompleteonImportantIssues........ 30
2.2.5 ModelsShouldBeAdaptive ............................... 32
2.2.6 ModelsShouldBeRobust.................................. 33
2.3 ModelElements...................................................... 34
2.4 SpecificationoftheFunctionalForm................................ 37
2.4.1 ModelsLinearinParametersandVariables............... 37
2.4.2 ModelsLinearinParametersButNotinVariables ....... 38
ix