Modeling consideration sets and brand choice using artificial neural networks

The concept of consideration sets makes brand choice a two-step process. House-holds first construct a consideration set which not necessarily includes all available brands and conditional on this set they make a final choice. In this paper we put forward a parametric econometric model for this two-step process, where we take into account that consideration sets usually are not observed. It turns out that our model is an artificial neural network, where the consideration set corresponds with the hidden layer. We discuss representation, parameter estimation and inference. We illustrate our model for the choice between six detergent brands and show that the model improves upon a one-step multinomial logit model, in terms of fit and out-of-sample forecasting. 5001-6182 Business 5410-5417.5 Marketing Library of Congress Classification (LCC) HF 6161.B4 Brand name: Advertising M Business Administration and Business Economics M 31 C 44 Marketing Statistical Decision Theory Journal of Economic Literature (JEL) M 31 C 45 Marketing Neural Networks and Related Topics 85 A Business General 280 G 255 A Managing the marketing function Decision theory (general) European Business Schools Library Group (EBSLG) 290 D Branding Gemeenschappelijke Onderwerpsontsluiting (GOO) 85.00 Bedrijfskunde, Organisatiekunde: algemeen 85.40 85.03 Marketing Methoden en technieken, operations research Classification GOO 85.40 85.03 Marketing Methoden en technieken, operations research Bedrijfskunde / Bedrijfseconomie Marketing / Besliskunde