Modeling purchase-timing and brand-switching behavior incorporating explanatory variables and unobserved heterogeneity

The authors use a continuous-time semi-Markov approach to analyze in a single framework the purchase-timing and brand-switching decisions of households for a frequently purchased product. The analysis provides more insights into the dynamics of household purchase behavior than could be obtained from conventional discrete choice models such as logit or probit. The authors find that the probability distribution of interpurchase times is not the same for various switching between brands, revealing extra information about the purchase-timing decisions. Further, they find that though the marketing mix and household demographic variables explain a large part of the variation in the brand-switching rates, they account for only a small part of the variation in the repeat purchase rates. Another finding from the analysis is that the rates of switching between brands due to promotional activities such as special displays and price reductions are in reverse order to the share of purchases of the various brands.