A Logit Model of Brand Choice Calibrated on Scanner Data

Optical scanning of the Universal Product Code in supermarkets provides a new level of detail and completeness in household panel data and makes possible the construction of more comprehensive brand choice models than hitherto possible. A multinomial logit model calibrated on 32 weeks of purchases of regular ground coffee by 100 households shows high statistical significance for the explanatory variables of brand loyalty, size loyalty, presence/absence of store promotion, regular shelf price and promotional price cut. The model is quite parsimonious in that the coefficients of these variables are modeled to be the same for all coffee brand-sizes. Considering its parsimony, the calibrated model predicts surprisingly well the share of purchases by brand-size in a hold-out sample of 100 households over the 32 week calibration period and a subsequent 20 week forecast period. Discrepencies in prediction are conjectured to be due in part to missing variables. Three short term market response measures are calculated from the model: regular shelf price elasticity of share, percent share increase from a promotion with a median price cut, and promotional price cut elasticity of share. Responsiveness varies across brand-sizes in a systematic way with large share brand-sizes showing less responsiveness in percentage terms. On the basis of the model a quantitative picture emerges of groups of loyal customers who are relatively insensitive to marketing actions and a pool of switchers who are quite responsive.