Consumer Learning and Brand Valuation for Nonprescription Drugs

We examine consumers' brand choice behavior on over-the-counter drugs in a discrete choice model with learning while accounting for valuation carryover and unobserved heterogeneity. The model we employ allows us to separate the effect of concurrent marketing promotions from the impact of perceived product quality valuation accrued through past experiences with the drug. Further, it lets us identify fast learners from slow learners and compare brands in terms of their memorability, which determines brand salience at the time of making the next purchase decision. We estimate the model using the hierarchical Bayesian method. We compare the full model to restricted models where no learning occurs or the valuation carryover is near perfect. We find evidence of significant learning and valuation carryover decline, idiosyncratic with the brand. The proposed model can be used as a comparative diagnostics tool for brand performance. The results produced by such a model have direct implications for marketing managers in the pharmaceutical industry by alerting them to existing customer confusion regarding brands and their application specifics and assisting them in enhancing the effectiveness of marketing strategies by designing marketing campaigns of adequate content and thrust. The social effects of the attained awareness are twofold: improved efficacy of self-treatment and healthcare cost reduction. Further, based on problems identified by the model, pharmaceutical companies can design product awareness programs to educate their consumers about brand specificity. Also, this methodology may assist drug manufacturers in their R&D efforts by identifying subjects who can be most observant of drug effects on their health in the case of clinical trials.