Handbook of Marketing Analytics
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Handbook of Marketing Analytics

Methods and Applications in Marketing Management, Public Policy, and Litigation Support

Edited by Natalie Mizik and Dominique M. Hanssens

Marketing Science contributes significantly to the development and validation of analytical tools with a wide range of applications in business, public policy and litigation support. The Handbook of Marketing Analytics showcases the analytical methods used in marketing and their high-impact real-life applications. Fourteen chapters provide an overview of specific marketing analytic methods in some technical detail and 22 case studies present thorough examples of the use of each method in marketing management, public policy, and litigation support. All contributing authors are recognized authorities in their area of specialty.
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Chapter 18: A nested logit model for product and transaction-type choice planning automakers’ pricing and promotions

Jorge Silva-Risso, Deirdre Borrego and Irina Ionova

Abstract

We develop a consumer response model to evaluate and plan pricing and promotions in durable good markets. We discuss its implementation in the US automotive industry, which “spends” about $50 billion each year in price promotions. The approach is based on a random effects multinomial nested logit model of product and transaction-type choice. Consumers differ in their overall price sensitivity as well as in their relative sensitivity to alternative pricing instruments which has to be taken into account to design effective pricing programs. We estimate the model using Hierarchical Bayes methods to capture response heterogeneity at the local market level. We illustrate the model through an empirical application to a sample of data drawn from J.D. Power transaction records.

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