Investigating Source of Purchase-Occasion Heterogeneity with Implications for Acquisition and Retention Strategy

Recently, marketers realize that in order to maximize company profitability in the market for frequently purchased packaged goods, there should be a balanced use of both acquisition programs in targeting competitors' consumers as well as retention programs in maintaining current retained consumers. One condition, in particular, is important to successful implementation of such programs: marketers need to understand consumers' underlying motivational factors in making their repeat purchases and switching behaviors and the differential magnitudes of impacts of each marketing variables, along with brand preferences. In other words, marketers need to consider the role of purchase-occasion heterogeneity on the design and implementation of both types of marketing programs. By proposing a first-order brand choice model as a framework to capture the purchase-occasion heterogeneity, this study demonstrates that without accounting for it, marketers are highly likely to be misled by the resulting parameter estimates and two types of price elasticities and consequently, design wrong marketing programs due to their misunderstanding. In addition, this study finds that a single parameter for price in zero-order brand choice model is likely to push cross-price elasticity downward and own price elasticity upward due to aggregation bias. Overall, this study provides important managerial implications to marketing practitioners