This paper aims to propose a finite‐mixture brand‐choice model, which relaxes the common dichotomous assumption in market segmentation based on consumer loyalty. The model can be used to estimate the optimal number of consumer segments and capture both across‐ and within‐household heterogeneity in consumers' evolutional patterns of loyalty behaviors.
The proposed model is empirically calibrated on a scanner panel data of two product categories, i.e. liquid detergent and toilet tissue obtained from the ERIM scanner panel of AC Nielsen.
Empirical results suggest that: the dichotomous classification of consumers into loyal and non‐loyal groups is sub‐optimal in capturing the heterogeneity in consumer loyalty. Two evolutional patterns of loyalty behaviors exist, showing that past experience with a particular brand may either increase or decrease the current level of loyalty, and consumers' sensitivity to various marketing variables differs between repeat and switching decisions (i.e. within‐household heterogeneity).
The proposed model does not capture consumers' inertia/variety‐seeking tendencies. Furthermore, it does not account for the role of scale parameter in capturing consumer heterogeneity.
This study contributes to the stream of research on consumer loyalty and provides important marketing implications for practitioners in designing effective targeting programs as well as attraction/retention strategies.
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