J. Jeffrey Inman, Joonwook Park, and Ashish Sinha
Executive Summary
Market structure, which describes the state of the market in relation to its competition, has been a fertile area for academic research in the past few decades. It has numerous practical applications, including informing companies that are making strategic product and positioning decisions. Recent developments in the estimation of these models and the availability of panel data have made this analysis an integral part of managerial decision making. Unfortunately, academic models are often difficult to apply to “real-world” problems, because much of the academic research has been brand centric rather than attribute centric, the level at which most product decisions are made. At the same time, consumer choice decisions are usually at an attribute level, in which consumers may exhibit varied reinforcing behavior (i.e., high repeating) on some attributes and derived varied behavior (i.e., high switching) on other attributes. This calls for extending the existing market structure models.
The authors propose and estimate an internal market structure model using stockkeeping unit (SKU) data, which not only have the advantage of being specified at an attribute level but also incorporate the dynamics of consumer choice decisions. The authors estimate the model in the pourable salad dressing category and show that the proposed model outperforms competing models. Because the model simultaneously identifies consumer segments and positions attribute levels in attribute space, it can be used for identifying existing and potential competitors and for targeting consumers. The results show that consumers exhibit derived varied behavior for certain attributes—namely, brand and flavors—and exhibit zero-order behavior for other attributes, such as fat and size. This implies that not incorporating dynamics of consumer choice seriously biases the results and may lead to erroneous conclusions. Another major finding of this work is that there is a great deal of heterogeneity in segments exhibiting both varied level and reinforcement behavior, which would imply that certain segments are more likely than others to indulge in seeking different attribute levels.
The authors also illustrate the utility of the model for making key decisions, such as those involving assortment. The authors use both the coefficients from the model and the market structure to simulate the impact of SKU deletion. The results of the simulation show that the proposed model provides policy implications that are different from models that assume zero-order behavior. In addition, policy decisions based on dynamic maps can help managers identify potential opportunities and threats stemming from SKU rationalization. In summary, although the proposed model outperforms competing models in both estimation and validation sample, the major contribution of this work is in proposing a system that managers can readily use to make better strategic and managerial decisions.
Biography
J. Jeffrey Inman joined the faculty of the Katz Graduate School ofBusiness at the University of Pittsburgh in 2000. Before that, he was on the faculties at the University of Wisconsin (1994–2000) and the University of Southern California (1991–1994). His research focuses on consumption behavior and consumer decision making. He is on the editorial board of Journal of Consumer Research, Journal of Marketing Research, Journal of Marketing, Marketing Science, Journal of Consumer Psychology, International Journal of Marketing Research, and Journal of Retailing. He is an associate editor at J Journal of Marketing Research and International Journal of Marketing Research and is also president of the Journal of Consumer Research Policy Board. Jeff received his Bachelor of Science in Mechanical Engineering from General Motors Institute (now Kettering University) in 1979, his MBA from Indiana University in 1982, and his PhD from the University of Texas in 1990. His work has appeared in Journal of Consumer Research, Journal of Marketing Research, Marketing Science, Journal of Marketing, Journal of Retailing, and California Management Review. Before venturing into academia, Jeff was a production supervisor for General Motors and a semiconductor distribution manager for Texas Instruments.
Joonwook Park is Assistant Professor of Marketing in the Cox School of Business at Southern Methodist University. He received his bachelor’s degree in Business and MBA from the Korea University, his MS in Marketing from the University of Wisconsin at Madison, and his PhD from Pennsylvania State University. His current research focuses on market structure, consumer preference, structural heterogeneity, and Bayesian modeling. Before joining academia, he developed scanner panel data–related models at Information Resources Inc. and consulted at Daewoo Economic Research Institute.
Ashish Sinha is an associate professor in the School of Marketing and International Business at Victoria University of Wellington, New Zealand. He obtained his PhD from University of Alberta, Canada, in the area of Marketing Science with minors in Statistics and Economics. His major area of interest lies in developing models that help managers make better decisions. This interest is a natural extension of his work at Information Resources Inc., where, in the role of vice president and chief modeler of Analytics Insight Group, he spearheaded the development of several multimillion-dollar products, including attribute drivers, mix drivers, consumer mix drivers, and portfolio drivers. He has consulted for many blue-chip companies, including Kraft, Pepsico, Frito-Lay, and Campbell Soup Company, among others. His work has appeared in many academic and trade journals, such as Marketing Science, Journal of Retailing, Marketing Letters, Journal of Retailing and Consumer Services, and Australasian Marketing Journal. He is also a recipient of several academic awards, including the Davidson Award for the Best Journal of Retailing Paper, Academy of Marketing Science Best Dissertation Award, and AMA Best Market Research Paper Award. With Jeff Inman and Joonwook Park, Sinha was a recent finalist for the prestigious INFORMS Marketing Science Institute Practice Award in recognition of his work in the area of category management and assortment.
Journal of Marketing Research, Vol. XLV, No. 1, February 2008
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