Market Segments and Stochastic Brand Choice Models

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Abstract
The modeling of buyer behavior by stochastic brand choice models has typically involved the use of a single model to represent the behavior of all consumers though consumer heterogeneity is recognized by allowing the model's parameters to vary across the population. However, analysis of panel data for several frequently purchased products indicates the existence of several distinct consumer segments which are difficult to represent by a single model. It is shown, instead, that in order to describe adequately the behavior of these segments, it is necessary to use several different models while allowing consumers within a segment to have different model parameters. It is further shown that simple heterogeneous multinomial and Markov models appear to be adequate to represent the behavior of most of the segments.

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