Effects of Brand Preference, Product Attributes, and Marketing Mix Variables in Technology Product Markets
Marketing science (Providence, R.I.)
We develop a demand model for technology products that captures the effect of changes in the portfolio of models offered by a brand as well as the influence of the dynamics in its intrinsic preference on that brand's performance. To accommodate the presence of multiple models at different points in time from a few (stable) brands, we use a nested logit model with the brand (e.g., Sony) at the upper level and its various models (e.g., Mavica, FD, DSC, etc.) at the lower level of the nest.
... of the nest. Relative model preferences are captured via their attributes and prices. The attractiveness of a brand's product line, reflected in the inclusive value of the lower level of the nest, changes over time with entry and exit of new models and with changes in attribute and price levels. At the upper level of the nest, brand-level preferences are driven by the inclusive value as well as by the intrinsic preferences for each of the brands. To allow for time-varying intrinsic preferences at the brand level, we use a state-space model based on the Kalman filter which captures the influence of marketing actions such as brand-level advertising on the dynamics of intrinsic brand preferences. Together, the brand and model levels of the proposed model account for brand preferences, model attributes and marketing mix variables. We estimate our model parameters on data for the U.S. digital camera market. Overall, we find that the effect of dynamics in the intrinsic brand preference relative to that of the dynamics in the inclusive values varies across brands. Assuming plausible profit margins, we evaluate the effect of increasing the advertising expenditures for each of the brands that respond to advertising and find that these brands can increase their profitability by increasing their advertising expenditures. We also analyze the impact of modifying a camera model's attributes on its profits. Such an analysis could potentially be used to evaluate if product development efforts would be profitable. 1 The logit model has long been recognized as a useful means of characterizing demand when there is entry and exit in the marketplace (see, for example, Berry, Levinsohn, and Pakes 1995 ).