Consumers' Extent of Evaluation in Brand Choice

Consumers' Extent of Evaluation in Brand Choice
Author(s): B. P. S. Murthi and Kannan Srinivasan

Source: The Journal of Business, Vol. 72, No. 2 (April 1999), pp. 229-256
Published by: The University of Chicago Press
Stable URL: http://www.jstor.org/stable/10.1086/209612
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B. P. S. Murthi
University of Texas at Dallas
Kannan Srinivasan
Carnegie Mellon University
Consumers’ Extent of Evaluation

in Brand Choice*
I. Introduction Brand choice models

implicitly assume that
In the past decade, with the advent of scanner consumers incorporate
data, researchers in marketing have used choice all relevant marketing
models extensively to study the effect of market- information such as
ing inputs on brand choice. By modeling the price, display, and fea-
ture for key brands on
probability of brand choice as a function of prices each purchase occa-
and promotions of all the brands in the data, an sion. We examine
implicit assumption is made that a consumer whether consumers ac-
evaluates all the relevant information on the tively evaluate the
brands on every purchase occasion. Since such brands on every occa-
sion. We propose a
an evaluation places a considerable ‘‘cost of multistate choice
thinking’’ (Shugan 1980), we argue that a con- model with varying lev-
sumer may engage in a more limited evaluation els of evaluation and
on some of the purchase occasions. We develop estimate the model
a multistate evaluation model to measure the av- with scanner data. In
addition, we study the
erage extent of evaluation across purchase occa- effect of household de-
sions. We use the term ‘‘habitual evaluation’’ to mographics, occasion-
denote a state in which consumers do not pay at- specific factors, as well
tention to marketing inputs in store and ‘‘exten- as unmeasured house-
sive evaluation’’ to denote the state in which con- hold and purchase occa-
sion factors on the ex-
sumers consider the prices and promotions of all tent of evaluation. The
brands before making a choice. Other intermedi- results indicate that
consumers do not eval-
uate brands on all occa-
sions. We discuss the
* We gratefully acknowledge valuable suggestions and en- implications of such
couragement to pursue the research from Frank Bass and limited evaluation.
Ram C. Rao, and we appreciate John Little’s interest in our
work. We thank John Hauser, Jim Lattin, and Russ Winer for
helpful comments. The article benefited greatly from the com-
ments provided by Abel Jeuland and three anonymous re-
viewers.
(Journal of Business, 1999, vol. 72, no. 2)

 1999 by The University of Chicago. All rights reserved.
0021-9398/99/7202-0004$02.50
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This content downloaded
230 Journal of Business
ate states of evaluation can also exist, and some of them are explored
in this study.
Consistent with Stigler’s (1961) seminal paper on information acqui-
sition, we suggest that a consumer may find the evaluation of all rele-
vant marketing mix information on the brands on every occasion to
be a time-consuming and tedious activity. Similarly, Shugan (1980)
develops the idea of ‘‘cost of thinking’’ associated with purchase evalu-
ation and derives the costs associated with different evaluation strate-
gies. When a consumer does not search, brand choice may not be opti-
mal. Therefore, the consumer makes a trade-off between search costs
and the risk of a suboptimal choice. This trade-off leads the consumer to
engage in evaluation of prices and promotions only on some purchase
occasions.
Based on price search theory, we anticipate that the decision to eval-
uate on a given occasion may be influenced by economic returns from
search (Stigler 1961; Goldman and Johansson 1978), search costs or
time constraints (Ratchford 1982), knowledge (Alba and Hutchinson
1987), and individual household characteristics (Doti and Sharir 1981;
Carlson and Gieseke 1983). We develop surrogate measures to test the
influence of these factors on search propensity.
Further, consistent with Bass (1974) and Goldman and Johansson
(1978), we believe that observed explanatory variables can only par-
tially explain the variation across consumers in their evaluation tenden-
cies. An interesting issue is whether there is an unobserved intrinsic
propensity for evaluation among households. For instance, Marmor-
stein, Grewal, and Fishe (1992) suggest that some consumers may en-
joy price-comparison shopping, while Doti and Sharir (1981) suggest
that consumers dislike shopping. Hence, we model such variation
across consumers in their intrinsic search propensity, unexplained by
demographic and other observed factors.
Moreover, unmeasured factors such as the type of shopping trip and
in-store conditions may also affect the extent of evaluation on a given
occasion. For example, an individual may visit a store to do the weekly
grocery shopping trip or may make an unplanned trip. Also, the pur-
chase may be for a special occasion such as a party or for routine con-
sumption. Failure to control adequately for such a source of unobserved
heterogeneity across purchase occasions may erroneously indicate vari-
ation in intrinsic search propensity across consumers. Hence, we ex-
plicitly control for unobserved variation across purchase occasions.
A final motivation of our analysis is to recover the correct effect of
the marketing inputs on brand choice. Choice models yield an estimate
of the mean effect over purchase occasions, irrespective of whether
consumers attend to marketing inputs. Consequently, they may under-
estimate the actual consumer response to marketing mix elements for
some segments.
Brand Choice 231
Economists have derived the optimal search policy for a consumer

searching for the lowest price by sampling across stores (Stigler 1961;
Nelson 1970; Wilde 1980a, 1980b). Under a number of assumptions,
they show the existence of an optimal stopping rule in which consumers
continue to search until they find a price that is below their reservation
price. In our grocery shopping situation, the customer is not shopping
across stores but decides when to evaluate information across purchase
occasions, based on search costs. We determine the average percentage
of occasions that consumers may be in a search mode (i.e., they pay
attention to marketing inputs).
We find support for our proposition in behavioral literature that sug-
gests that consumers often use only a part of the information available
about the brands (Katona and Mueller 1955; Newman and Staelin 1972;
Olshavsky and Granbois 1979; Park, Iyer, and Smith 1989). Moreover,
Hoyer (1984) and Dickson and Sawyer (1990) find that consumers
spend an average of 13 seconds in selecting a brand in the grocery
store, suggesting that consumers may not incorporate all the marketing
mix information of the brands prior to purchase decision. Recently,
Bucklin and Lattin (1991) find that for saltine crackers nearly 50% of
brand purchase decisions are not affected by point-of-purchase market-
ing activity, which they attribute to the fact that consumers may decide
their purchases before entering the store on some occasions.
Our proposed framework is also consistent with Howard’s (1974)
characterization of evaluation behaviors as extended, limited, and ha-
bitual. He classifies consumer decision making as ranging from com-
plex buying behavior for high-involvement products to habitual buying
behavior for low-involvement products. Depending on the value and
importance of the item to be purchased, consumers will expend effort
and time on the decision-making process. Similarly, one can expect
consumers to decide whether to evaluate or not, on a given occasion,
depending on the expected payoff from such an exercise.
There is further support for limited evaluation from the elaboration
likelihood model proposed by Petty and Cacioppo (1986). This model
suggests that consumers process information to varying degrees and
that there is a continuum from elaborate processing to nonelaborate
processing depending on the relevance of the stimuli. If the stimulus
is relevant to the consumer, there is greater processing of the informa-
tion. The theory suggests that the best way to influence passive consum-
ers is through the use of peripheral cues, while the involved consumer
needs to be targeted using central cues. Analogously, we suggest that
consumers may engage in either elaborate or nonelaborate processing
on different occasions.
There is an important difference between the above theories and our
application. The above theories were developed to explain differences
in extent of evaluation across product categories. However, we posit
that such differences in evaluation are also observed across different

purchase occasions within the same product category. Thus, we extend
these theoretical frameworks to explain why a given household is likely
to ignore marketing information on some purchase occasions.
Marketing researchers have recognized that consumers facing infor-
mation overload may engage in strategies to minimize the cost of such
burden. Focusing on the modeling literature, Hauser and Wernerfelt
(1989, 1990), Roberts (1989), and Roberts and Lattin (1991) argue that
consumers may limit their attention and evaluation to a subset (consid-
eration set) of available brands to simplify the purchase decision.
Gensch (1987) models a sequential two-stage decision process. In the
first stage, consumers employ simplifying heuristics to select a subset
of brands for a thorough evaluation in the second stage. The notion
that consumers may be in multiple states has been proposed earlier.
Fader and McAlister (1990) study the purchase states in the presence
and absence of promotional activity. Bucklin and Lattin (1991) esti-
mate the probability that consumers are in either a planned or an oppor-
tunistic purchase state. Last, when a brand is not available on the shelf,
information on these brands may be missing. In such cases, consumers
may be choosing a brand based on evaluation of only a few brands. It
is difficult to separate this ‘‘nonavailability effect’’ from the consider-
ation set effect using scanner data that does not record this information.
Our investigation of the consumer evaluation propensity using scan-
ner data on the ketchup category yields the following interesting in-
sights. The extent to which these results generalize to other product
categories remains an empirical issue.
1. Consumer choice decisions are not influenced by marketing inputs
on a significant number of occasions. A third of the market engages
in extended evaluation only on 25% of the purchase occasions. In con-
trast, a fifth of the market pays attention to marketing inputs on nearly
all purchase occasions. Overall, on more than 40% of the purchase
occasions, consumer decisions seem unaffected by current prices and
activities such as displays and features. On these occasions, consumers
rely on intrinsic brand preferences, loyalty, and/or past evaluation of
the brands.
2. Unobserved factors explain more variance than the combined ef-
fect of all observed factors that affect evaluation. Overall, consumers
differ substantially in their idiosyncratic evaluation propensity. The re-
sults lend credence to the stereotypes of consumers who either like or
dislike shopping. In essence, the extent of evaluation appears to have
a significant intrinsic household-specific component that explains con-
siderably more variation than the observed characteristics.
3. Household and shopping characteristics affect the extent of evalu-
ation. A consumer is more likely to evaluate on a weekend than on
a weekday. Consumers with higher income are less likely to engage
Brand Choice 233
in evaluation reflecting their higher valuation of time. A household with

at least one full-time homemaker engages in extended evaluation on
more purchase occasions. Better-educated consumers are more likely
to engage in evaluation. When there is a display or feature in a product
category, we find that consumers are more likely to evaluate. Such
promotional activity may signal a change in the market conditions, en-
couraging consumers to evaluate the brands thoroughly.
4. Last purchase influences choice more when consumers engage in
habitual evaluation. When consumers do not evaluate extensively,
they place a greater weight on the last purchase. The finding may reflect
consumer tendency to place emphasis on the most recent decision based
on extended evaluation. In contrast, when they engage in extended
evaluation, they place greater emphasis on their experience with the
brand over a longer time.
The effect of marketing inputs on brand choice is significantly higher
when consumers pay attention to such efforts. When consumers exten-
sively evaluate brands, we find that the effect of price, display, and
feature on brand choice increases by about 50% over the baseline logit
model. The effect of price differs dramatically across the segments that
vary in evaluation propensity. For example, the segment with a high
probability of evaluation responds to price 3–4 times more than the
low-evaluation segment. Since standard choice models measure the av-
erage effect of marketing mix, including the occasions when consumers
do not pay attention, the estimates will be biased.
5. Unmeasured purchase occasion factors are significant but do not
affect the implications of the model. An appropriate statistical test
supports inclusion of any omitted purchase occasion factors as a second
source of random variation. However, the variance of the distribution
is significantly smaller than the distribution of the idiosyncratic house-
hold factor.
6. A parsimonious two-state model may be sufficient to capture the
extent of evaluation. We investigated several multistate models to
capture the extent of evaluation in greater detail with different specifi-
cations of the limited evaluation state. The improvement in log-
likelihood value was marginal, while the parameter estimates and
their implications remain unaffected. At least in the ketchup product
category, a two-state specification of the extent of evaluation seems
sufficient.
II. The Model

A. Conceptual Development
As we have discussed in the previous section, the notion of limited
evaluation is a rich and diverse phenomenon. We aim to incorporate
and measure certain key elements of the phenomenon in the context of

a multinomial choice model. When a consumer relies solely on intrinsic
brand preferences and loyalty in determining a current brand choice,
we consider the consumer to be in a habitual evaluation state. At the
other extreme, in an extended evaluation state the consumer incorpo-
rates information on price, display, and feature activities for all brands,
in addition to loyalty and intrinsic brand preferences. We can consider
many intermediate possibilities. A consumer may consider only price
and ignore display and feature information. Another possibility is that
consumers may make their purchase decision based on recall of past
prices rather than on current prices. Our model can generalize to incor-
porate any number of intermediate states. As a first step, we seek parsi-
mony and describe a model for the two end states of extended versus
habitual evaluation modes. Our model thus postulates that a consumer
is in only one specific evaluation state on a purchase occasion. It esti-
mates the probability that a consumer is in either evaluation state on
any purchase occasion, given a vector of shopping and demographic
characteristics.
B. A Model with Two Evaluation Modes
Let us consider a consumer n (n ⫽ 1, . . . , N) who is in an extended
evaluation state with probability pkn on occasion k. Hence, the probabil-
ity that the consumer is in a habitual evaluation state is (1 ⫺ pkn ). The
unconditional probability of choosing brand j ( j ⫽ 1, . . . , J) on occa-
sion k (k ⫽ 1, . . . , K) is given by
probkn ( j ) ⫽ pkn prob kn ( j| EE) ⫹ (1 ⫺ pkn ) prob kn ( j |HE), (1)
where prob kn ( j |EE) is the probability of consumer n choosing brand j
given that she or he is in an extended evaluation (EE) state at occasion
k. Similarly, prob kn ( j |HE) is the probability of choosing brand j condi-
tional on being in a habitual evaluation (HE) state.
When a consumer is in an extended evaluation state, the conditional
probability of choosing a brand j is given by the multinomial logit
specification:
exp(Vjkn )
prob kn ( j| EE) ⫽ J
, j, i ∈ J, (2)
冱 exp(V
i⫽1
ikn )
where Vjkn ⫽ α j ⫹ ∑ m⫽1

M
β m X mjkn is the deterministic component of utility
based on M attributes of brand j for consumer n at occasion k. The
value Vjkn is expressed as a linear-in-parameters function of intrinsic
brand preferences, marketing mix variables, brand loyalty, and size loy-
alty. Specifically,
Brand Choice 235
V jkn ⫽ α j ⫹ β 1 Price jkn ⫹ β 2 Display jkn ⫹ β 3 Feature jkn

(3)
⫹ β 4 BL jn ⫹ β 5 SL jn ⫹ β 6 BLPjkn ⫹ β 7 SLPjkn .
The value α j represents the intrinsic preference for brand j. Dummy
variables Display and Feature indicate whether a brand is on promo-
tion. The variables BL jn and SL jn refer to the long-term brand and size
loyalty variables, respectively, and these capture a household’s prior
experience with the brand. We discuss the specification of the loyalty
variables in the next section. The effect of last purchase on current
choice is captured by dummy variables for the brand last purchased
(BLP) and the size last purchased (SLP). Note that all the coefficients
are assumed to be common across households. The intercept of the
store brand is normalized to zero. The four loyalty terms account for
household heterogeneity similar to the brand loyalty variable in Gua-
dagni and Little (1983). This specification has been employed in
Bucklin and Lattin (1991).
The conditional probability of choosing a brand given that a con-
sumer is in a habitual evaluation state is also a multinomial logit model
but with a different deterministic utility specification:
exp(U jkn )
prob kn ( j |HE) ⫽ J
, j, i ∈ J, (4)
冱 exp(U
i⫽1
ikn )
where Ujkn ⫽ α j ⫹ ∑ Ll⫽1 β l X ljkn is the deterministic component of utility

for brand j based on L attributes for consumer n on occasion k. When
a consumer is not in an extended evaluation state, the utility is deter-
mined by the intrinsic brand preferences (α j ), long-term loyalty vari-
ables (BL jn and SL jn ), and past purchases variables (BLPjkn and SLPjkn ).
Thus,
U jkn ⫽ α j ⫹ β 8 BL jn ⫹ β 9 SL jn ⫹ β 10 BLPjkn ⫹ β 11 SLPjkn . (5)
The coefficients for brand loyalty are different across the two states to
capture the differential effect of loyalty in the two evaluation states.
For instance, consumers may rely only on the last purchase (BLP and
SLP) when they engage in habitual evaluation, but they may place a
greater weight on a longer history of purchases in extended evaluation
state. We test the model against a nested model with common loyalty
coefficients. Note that the brand preferences (α j ) are common across
the two evaluation states, for parsimony. Later, we test for difference
in intercepts between the two states.
C. Observed Factors That Affect Evaluation Mode
Price search theory suggests that a number of factors affect a consum-
er’s extent of evaluation. The decision to evaluate on any given occa-
sion may be influenced by economic returns from search (Stigler 1961;

Goldman and Johansson 1978), search costs or time constraints (Stigler
1961; Ratchford 1982), knowledge (Alba and Hutchinson 1987), and
individual household characteristics (Doti and Sharir 1981; Carlson and
Gieseke 1983). We develop measures to test the factors that affect
search propensity (p kn ).
The benefit from a specific evaluation of the marketing mix is lower
price, which a consumer trades off against search costs. Since in pack-
aged goods like ketchup the economic returns from search are small
and do not vary much, we focus on the search costs. One of the costs
considered in the literature is the opportunity cost of time. A high-
income consumer has a high valuation of time (Stigler 1961; Farley
1964; Frank, Green, and Sieber 1967; Goldman and Johansson 1978;
and Marmorstein et al. 1992). In that case, a consumer may be more
willing to trade off in favor of a choice based on limited evaluation.
Hence, a consumer with higher income is less likely to evaluate. There
is indeed empirical evidence to show that income is negatively related
to external search (Udell 1966; Beatty and Smith 1987).
Another cost that might offset the benefits of evaluation is the avail-
ability of time. In behavioral literature, time constraints have been
shown to affect consumer behavior (Belk 1975). We model time avail-
ability in two ways. First, we posit that households with at least one
full-time homemaker are likely to have much lower time constraints,
and we create a dummy variable to represent the presence of at least
one full-time homemaker in a household. These households should en-
gage in a greater amount of extended evaluation.
Second, we believe that on some purchase occasions, a consumer
may face greater time constraints, which might explain varying degrees
of evaluation across different occasions. Therefore, to capture time
availability, we employ a surrogate: a weekday/weekend dummy vari-
able. On weekends, since there is more time available to working
households for shopping, we expect that consumers are more likely to
be in an extended evaluation state. Also, if more people shop on week-
ends and aisles are crowded, shoppers may have more time to evaluate
as they move through slow traffic. However, if a large percentage of
consumers buy their weekly groceries on a weekday (e.g., retired or
unemployed people), then they are more likely to evaluate on week-
days. Past research shows that consumers purchase their groceries on
a weekly basis (Dunn, Reader, and Wrigley 1983; Kahn and Morrison
1989), and over 53% report their favorite shopping day is on the week-
end (survey by International Mass Retail Association in the Dallas
Morning News, October 21, 1994). Hence, we expect that consumers
will evaluate more on weekends.
Alba and Hutchinson (1987) discuss the role of consumer knowledge
in affecting evaluation. By knowledge, they refer to both familiarity
Brand Choice 237
(the number of purchases made previously) and expertise (the ability

to process information). As product and store familiarity increases, the
consumer is able to process more information with less cognitive effort,
and the likelihood of analytic processing increases. Hence, these con-
sumers may engage in greater evaluation of marketing mix information.
In contrast, Newman and Staelin (1972) show that the amount of search
for appliances and cars decreases with the number of times the product
class is purchased, suggesting that familiarity reduces the need for ex-
tensive evaluation. We use frequency of purchase as a surrogate for
familiarity and empirically determine its effect on evaluation.
There are three reasons for expecting a positive effect of education
on evaluation. First, in Alba and Hutchinson’s framework (1987), ex-
pertise (or the ability to process information) can be represented by
education level of the household. Second, better-educated shoppers rec-
ognize the value of search and know how to use the information gath-
ered. Finally, educated consumers are more likely to buy newspapers
and become aware of competitive promotions that may increase their
in-store evaluation. Therefore, educated consumers are more likely to
engage in extended evaluation (Engel, Kollat, and Blackwell 1973;
Goldman and Johansson 1978; Doti and Sharir 1981). Beatty and Smith
(1987) show a positive relationship between education and external
search across a number of product categories.
There is evidence that when product information is inconsistent with
consumers’ own product knowledge, they are more likely to engage in
greater analysis and do so at the attribute level (Sujan 1985). Faced with
matching information (information that is consistent with consumer’s
knowledge), consumers engage in less evaluation and do so in heuristic
fashion. In grocery shopping, this suggests that a consumer is likely
to update information when there is evidence of a change in marketing
activity since the previous evaluation. Therefore, we posit that any pro-
motion in the category may suggest a change in information pertaining
to the product category and that consumers are more likely to evaluate
the marketing mix on such occasions.
Store loyalty affects consumer evaluation in many ways. Early stud-
ies suggest that consumers shopping in a familiar store may have
planned their purchases in advance (Park et al. 1989; Bucklin and Lattin
1991), which may lead them to engage in habitual evaluation in
the store. Further, cherry pickers (those who visit a store only to buy
the items on promotion) are less store-loyal. Moreover, the decision to
routinely select the same store or only a few stores may also indicate
a consumer’s tendency to minimize shopping time or reduce cognitive
effort (Alba and Hutchinson 1987). Because of these three reasons, we
expect greater store loyalty to be negatively correlated with evaluation.
Finally, consumers who are deal-prone look for a favorable deal op-
portunity and consequently are more likely to incorporate marketing
stimuli in their choice. Bucklin and Lattin (1991) report that deal-prone
consumers are opportunistic. Further, the deal-prone consumers are
price sensitive and may be considered to be relative experts on prices
in the category. We expect them, as price experts (Alba and Hutchinson
1987), to exhibit a greater tendency to evaluate.
In summary, based on extant research, we identified nine factors that
might affect search propensity. Four factors vary across purchase occa-
sions within a household (Z skn ): weekday (DOW), category display
(CDISP), category feature (CFEAT), and store loyalty (STLOY). The
remaining five factors vary across households but do not change across
purchase occasions (Zhn ): income (INC), education (EDU), frequency
of purchases (FREQ), time availability (TIME), and deal-proneness
(DLP). We defer details on these measures until the next section. Thus,
the probability of being in an extended evaluation state is
冢冣
S H
exp γ 0 ⫹ 冱γZ s skn ⫹ 冱γ Z h hn
pkn ⫽ s⫽1 h⫽1

, (6)
冢冣
S H
1 ⫹ exp γ 0 ⫹ 冱γ Z
s⫽1
s skn ⫹ 冱γ Z
h⫽1
h hn
where
S
冱γ Zs⫽1
s skn ⫽ γ 1 DOWkn ⫹ γ 2 CDISPkn ⫹ γ 3 CFEATkn ⫹ γ 4 STLOYkn
and
H
冱γ Z
h⫽1
h hn ⫽ γ 5 INC n ⫹ γ 6 EDU n ⫹ γ 7 FREQ n ⫹ γ 8 DLP n ⫹ γ 9 TIME n .
The intercept γ 0 in equation (6) represents the average intrinsic evalua-

tion propensity across households and across purchase occasions after
controlling for the effect of variables that affect evaluation behavior.
Note that any positive value of the parameter γ s and γ h suggests a higher
probability of search, while a negative value indicates a lower proba-
bility.
D. Unobserved Factors That Affect Evaluation Mode
Research shows that some consumers may obtain incremental utility
from search beyond the utility of lower prices (Doti and Sharir 1981;
Beatty and Smith 1987; Marmorstein et al. 1992). Moreover, unob-
served factors across purchase occasions (such as unavailability of
some brands) may also affect the extent of evaluation. Such compo-
nents of utility are not observed by the researcher. To parsimoniously
capture unaccounted variation across consumers and across purchase
Brand Choice 239
occasions, we propose the following random-effects specification

(Heckman 1981).
γ 0 ⫽ γ̄ 0 ⫹ δ n ⫹ ξ nk , (7)
where γ̄ 0 measures the mean intrinsic propensity to search across house-

holds and δ n represents the random deviation for consumer n from the
mean. The term ξ nk represents the deviation from the mean for a house-
hold on a given occasion. Further, we are assuming that the error terms
ξ nk and δ n are independent. This may be a restrictive assumption and
is employed for computational ease. Relaxing this assumption involves
estimating general models with fully specified covariance matrices, and
estimation methods for such models have recently been developed. We
leave such an exercise for future research.
The likelihood function for a given consumer on a purchase occasion
is obtained by substituting equations (2)–(7) in equation (1) and inte-
grating over the range of values that the random variables can take.
We assume that the random variables δ n and ξ nk are distributed nor-
mally, that is, δ n ⬃ N(0, σ 2δ ) and ξ nk ⬃ N(0, σ 2ξ ). The likelihood expres-
sion for the model across all consumers and all purchase occasions is
N K
兿冮冦兿冮冦冤
∞ ∞
L⫽ ( p kn ) prob( j| EE, ξ nk, δ n)
n⫽1 ⫺∞ k⫽1 ⫺∞
冥
⫹ (1 ⫺ p kn )prob( j| HE, ξ nk, δ n) φ(ξ nk )dξ nk φ(δ n )dδ n 冧冧
N K
兿冦兿冦冤( p )prob( j| EE, ξ , δ )

∞ ∞
⫽
n⫽1
1
√2πσ δ
冮 ⫺∞ k⫽1
1
√2πσ ξ 冮
⫺∞
kn nk n (8)
⫹ (1 ⫺ p )prob( j| HE, ξ , δ )冥 exp ⫺

冢 2σξ 冣dξ 冧
2
nk
kn nk n 2 nk
ξ
⫻ exp ⫺
冢冣冧 δ 2n
2σ 2δ
dδ n .
Since we estimate the mean of the intrinsic search propensity (γ̄ 0 ), the
mean of the normal distributions of δ n and ξ nk other than zero is not
identified. The parametric method of controlling for heterogeneity has
been employed by Chintagunta, Jain, and Vilcassim (1991), Gonul and
Srinivasan (1993), and Rossi, McCulloch, and Allenby (1996).
Heckman and Singer (1984) suggest that parameter estimates may
be sensitive to the assumed functional form of the random distribution
and propose a nonparametric specification to capture the unobserved
heterogeneity. In this specification, we assume a discrete distribution

for unobserved household heterogeneity with r (r ⫽ 1, 2, . . . , R)
support points. Each support point has a location parameter (A r ) and
a probability mass (Pr ). To ensure that the probabilities sum to one, Pr
is modeled as a logistic function of parameter D r , that is,
exp(Dr )
Pr ⫽ R⫺1
.
1⫹ 冱 exp(D )
r⫽1
r
Since the mean of the discrete distribution is zero, we can estimate

only r ⫺ 1 location parameters (A r ). The supports and their associated
probabilities are jointly estimated. A similar method is employed for
purchase occasion heterogeneity. The likelihood function across con-
sumers and purchase occasions for the nonparametric specification is
N K
兿冱冦兿冱
R X
L⫽ [( pkn )prob( j| EE, A x, A r)

n⫽1 r⫽1 k⫽1 x⫽1
(9)
⫹ (1 ⫺ p kn )prob( j |HE, A x, A r)]Px Pr , 冧

where r ⫽ 1, . . . , R and x ⫽ 1, . . . , X are the number of support points
with associated probability mass Pr for the household heterogeneity and
Px for the purchase occasion heterogeneity. We discuss the estimation
of the model in Section IIID.
While the nonparametric structure necessitates repeated estimation
and may converge to a local maximum (Heckman and Singer 1984),
the advantage of the discrete distribution is that it can be directly inter-
preted as distinct segments with different levels of mean evaluation
propensity. The approach is similar to the latent class segmentation
proposed by Grover and Srinivasan (1987), Kamakura and Russell
(1989), and Chintagunta et al. (1991). Applications of the method are
reported in Vilcassim and Jain (1991) and Gonul and Srinivasan (1993).
E. Nested Models
The full model nests several submodels. We briefly discuss a subset
of such nested models here.
Model A. When the evaluation probability is restricted to one, the
model reduces to a baseline multinomial logit model.
Model B. When we ignore the random variation across consumers
and the effect of explanatory variables that influence the probability of
evaluation, we have a two-state model with an aggregate measure of
evaluation propensity.
Brand Choice 241
TABLE 1 Shares of Ketchup Brands

Market Average Price
Brand ID Description Share (Cents/Ounce)
1 Heinz 32 oz. 46.7 3.23
2 Heinz 28 oz. 17.4 4.26
3 Heinz 64 oz. 3.6 4.49
4 Hunts 32 oz. 13.8 3.28
5 Hunts 44 oz. 3.0 3.96
6 Del Monte 32 oz. 9.7 3.13
7 Other 32 oz. 5.8 2.64
Model C and Model D. When we incorporate the random varia-

tions in the evaluation propensity but do not include relevant explan-
atory variables of restricted evaluation, we capture the random idio-
syncratic effect of restricted parametric evaluation (model C—with
parametric heterogeneity—and model D—with nonparametric hetero-
geneity).
Model E and Model F. The full models with explanatory vari-
ables and the two alternate heterogeneity specifications are models E
and F, respectively.
We can restrict the loyalty (brand as well as size) parameters in the
evaluation and nonevaluation states to be the same to check if the loy-
alty influences differ across the two states. In a more general specifica-
tion, we can allow the intrinsic brand preferences to be different across
the two states. As we show later, the additional parameters of the gen-
eral model do not improve likelihood significantly. In effect, intrinsic
preferences appear invariant to whether consumers evaluate in a prod-
uct category or not.
III. Data, Initialization, and Estimation
A. Data
We estimate the proposed brand choice models using scanner data from
A.C. Nielsen for the ketchup category. Three national brands account
for more than 90% of the market. The dominant brand is Heinz, and
the most popular size is 32 ounces. As proposed by Guadagni and Little
(1983), we treat each brand-size combination as a separate choice. We
consider six brand-size combinations of the national brands. We treat
the 32 ounce size of the remaining brands as the seventh brand-size
combination. Henceforth, we will refer to brand-size combination as a
brand. The shares of each brand are given in table 1. We consider a
data set with 225 households with at least 10 purchases of ketchup
during a 2-year period. Of these households, we randomly select 150
households for estimation and keep the remaining 75 households as a
holdout sample for prediction. We employ the initial 44 weeks of pur-

chase history to initialize certain household characteristics including
loyalty variables. During this period, each household in the estimation
as well as the holdout sample has more than five purchases. We esti-
mate the models on the remaining 60 weeks of data in the estimation
sample. These 150 households made 1,883 purchases in the ketchup
category during the 60-week period. Thus, on an average, for model
estimation we have information on 12 purchases in the ketchup cate-
gory for each household.
B. Key Variables
In equation (3) we define the variable price as price per ounce of
ketchup. Display and Feature are dummy variables that signify the
presence or absence of promotion for a brand. To capture short-term
loyalty effect, we create the following dummy variables: brand last
purchased (BLP) and size last purchased (SLP). Each variable assumes
a value of one if the brand (or size) was bought on the last occasion
and is zero otherwise.
Another variable of interest is whether the consumer bought the
brand on a weekday or a weekend. The day of week (DOW) variable
is a dummy variable that takes the value one if the brand is purchased
on a weekday and zero if bought on a weekend. Category display
(CDISP) and feature (CFEAT) variables are dummy variables that re-
flect any display and feature activities in the entire product category.
Promotional activities may trigger evaluation in the category and hence
are relevant variables to explain evaluation propensity. Additional rele-
vant variables income (INC) and education (EDU) are expected to cap-
ture the effect of demographics on evaluation propensity.
We check the correlation between the explanatory variables to mini-
mize or eliminate the potential problem of multicollinearity. In our data,
the correlation between income and education is 0.48. While the value
is significant and moderately high, it is not high enough to cause con-
cern. Moreover, when we estimate the models by dropping one of the
variables, the parameter of the other variable changes only marginally.
As a result, we include both variables in our specification. While the
correlation between category display and category feature is positive
and significant, the magnitude is too small (0.10) to cause any concern.
The correlations of income and education with deal-proneness are not
significant.
C. Additional Shopping Characteristics from the Initialization
Sample
We distinguish between short-term and long-term loyalty influences on
choice. As a measure of long-term loyalty (BL), we use the proportion
of purchases of a brand during the initialization period of 44 weeks:
Brand Choice 243
BL jn ⫽ (1/J ⫹ number of purchases of brand j by consumer n)

⫼ (1 ⫹ total number of purchases of all brands by consumer n).
This specification is a Bayesian estimate based on equally likely priors
with an equivalent sample size of one (Lattin 1987). Store loyalty
(STLOY) is defined as the proportion of dollars spent in each store
across all product categories during the initialization period. Note that
store loyalty is defined for each household for each store. On a given
occasion, based on which store a consumer goes to, store loyalty can
vary. Deal-proneness (DLP) is the proportion of purchases made by a
household when the purchased brand was on feature or display. The
number of shopping trips (FREQ) made by a household in the initializa-
tion period is included as an explanatory variable of evaluation propen-
sity.
D. Estimation
We estimate the proposed models using GAUSS. We specify a normal
distribution to capture intrinsic variations across households and across
purchase occasions in consumers’ propensity to evaluate. The resulting
likelihood expression does not have a closed form expression and has
to be integrated numerically. We employ the Gauss-Hermite quadrature
to evaluate the integral (Stroud and Secrest 1966). The quadrature
yields highly accurate values and is far cheaper to compute than con-
ventional procedures such as trapezoidal or Romberg integration (But-
ler and Moffitt 1982).
We estimate the nonparametric specification model with two, three,
and four support points and find that three support points are sufficient
to capture the underlying distribution of intrinsic evaluation propensity.
To estimate the model, we need to impose two constraints on the non-
parametric distribution. We restrict the mean of the distribution to be
zero since we measure the average effect with an intercept term (see
eq. [7]). In addition, we ensure that the probabilities associated with
the support points sum to unity. Hence, when we specify a three-
support-point distribution (three magnitudes and three associated
probabilities), only four parameters are uniquely determined. We
repeat the procedure with different starting values to ensure that the
model converges to a global maximum.
IV. Results, Discussion, and Managerial Implications

A. Results and Discussion
The parameters of all the models are reported in tables 2 and 3. In table
2, we present the results of the random (parametric and nonparametric)
restricted evaluation models (C and D) without any variables that in-
244
TABLE 2 Parameters of the Base Model and Proposed Models
Only Search Probability Parameter
Parametric Nonparametric
No Heterogeneity Heterogeneity Heterogeneity
Base Model (Model A Nested) (Models B, A Nested) (Models B, A Nested)
Model A Model B Model C Model D
Parameters Coefficient t-Value Coefficient t-Value Coefficient t-Value Coefficient t-Value
Int 1 .955 7.06 .945 8.49 .863 6.92 .895 6.55
Int 2 2.615 10.92 2.923 13.78 2.222 10.49 2.294 11.05
Int 3 1.761 6.34 1.711 6.68 1.082 4.83 1.158 4.72
Int 4 1.107 7.83 1.198 10.29 1.194 9.11 1.210 8.39
Int 5 1.749 6.99 1.750 7.13 1.259 5.91 1.343 5.79
Int 6 .350 2.48 .259 2.52 .227 1.67 .253 1.73
Price (β 1 ) ⫺.837 ⫺8.79 ⫺1.117 ⫺10.26 ⫺1.351 ⫺11.73 ⫺1.322 ⫺8.74
Display (β 2 ) .873 7.01 1.269 7.27 1.801 6.72 1.645 6.16
Feature (β 3 ) 2.380 23.72 3.236 27.27 3.922 19.38 3.755 16.21
BL (β 4 ) 2.212 12.92 3.089 14.34 3.692 13.68 3.529 13.19
BLP (β 5 ) 1.881 22.60 1.564 14.83 1.335 8.99 1.354 9.99
SL (β 6 ) .563 2.44 .955 4.96 .134 .67 .146 .53

SLP (β 7 ) .304 3.09 .172 3.02 .096 .92 .155 .86
Journal of Business
Gamma (γ) ⋅⋅⋅ ⋅⋅⋅ ⫺.966 ⫺11.08 ⫺.681 ⫺2.90 ⫺.464 ⫺3.38
BL2 (β 9 ) ⋅⋅⋅ ⋅⋅⋅ .212 2.11 .934 2.17 .869 2.16
BLP2 (β 10 ) ⋅⋅⋅ ⋅⋅⋅ 3.225 19.36 3.059 11.45 3.126 14.33
SL2 (β 11 ) ⋅⋅⋅ ⋅⋅⋅ .092 .83 .821 2.61 .934 2.48
Brand Choice
SLP2 (β 12 ) ⋅⋅⋅ ⋅⋅⋅ 1.167 6.28 .061 .27 .003 .02
σδ ⋅⋅⋅ ⋅⋅⋅ 1.825 10.08 ⋅⋅⋅ ⋅⋅⋅
A1 ⋅⋅⋅ ⋅⋅⋅ ⫺7.871 ⫺10.28
A2 ⋅⋅⋅ ⋅⋅⋅ 3.349 9.90
D1 ⋅⋅⋅ ⋅⋅⋅ ⫺.691 ⫺6.80
D2 ⋅⋅⋅ ⋅⋅⋅ ⫺.239 ⫺9.58
Log-likelihood ⫺1,629.80 ⫺1,601.90 ⫺1,554.90 ⫺1,550.40
U 2 null model .443 .452 .468 .470
U 2 equally likely model .555 .563 .575 .577
AIC 3,285.60 3,239.80 3,147.80 3,144.80
BIC 3,357.63 3,339.53 3,253.07 3,266.67
Log-likelihood on holdout sample ⫺799.55 ⫺785.67 ⫺779.03 ⫺777.79
Note.—See text for explanation of parameters. AIC ⫽ Akaike information criterion; BIC ⫽ Bayesian information criterion.
245

fluence the propensity to evaluate. We also report a simpler two-state

model (B) without any variation across households, in addition to the
baseline logit model (A). In table 3, we provide the estimates of the
full models E and F, that is, random (parametric and nonparametric)
evaluation models that include explanatory variables for propensity to
evaluate.
From table 2, we see that a model with two evaluation states (model
B), has a significantly higher log-likelihood value than the baseline
model (model A) and based on likelihood ratio tests (χ 2 ⫽ 55.8 with
5 df) we reject model A in favor of B. We also compute the Akaike
information criterion (AIC) and the Bayesian information criterion
(BIC) to compare model fit. These indices penalize a model with more
parameters, and lower values imply a better model fit after accounting
for the number of parameters. We see that both AIC and BIC values
improve in model B relative to model A. Further, including unobserved
household heterogeneity in the evaluation propensity (C and D) im-
proves the model fit indices over model B. A final measure of model
fit is given by Hauser’s (1978) U 2 fit index, which compares the fit of
a model with (i) a nested model with only intercepts or (ii) a nested
model that assumes that all brands have the same probability of being
chosen. The U 2 fit indices indicate models C and D are better then A
and B and are consistent with other indices of fit. Overall, we find that
accounting for household evaluation propensity and variation owing to
unobserved household factors improves the model fit considerably.
1. Restricted evaluation propensity. In the ketchup category, the
different evaluation models suggest that consumers, on average, evalu-
ate only on 59%–65% of the purchase occasions (these estimates are
obtained by averaging the value of probability of evaluation (p kn ) over
all the purchase occasions). Thus nearly 40% of purchases of ketchup
are made on the basis of intrinsic brand preferences and loyalty. We
find that consumers differ substantially in their propensity to evaluate.
In the parametric model, we find that two-thirds of the consumers may
evaluate between 38% and 83% (the average probability of evaluation
(p kn ) calculated at 1 SD from the mean γ) of the purchase occasions,
lending credence to the enormous individual differences in intent to
evaluate. The nonparametric model yields three segments with varying
degrees of evaluation propensity. About 32% of the consumers evaluate
on only 25% of the purchase occasions. Interestingly, only 24% of the
consumers appear to behave in a manner consistent with the standard
choice model specification. The remaining 44% of the market evaluates
on 68% of the purchase occasions. Though significant, the variation
across purchase occasions is lower than the variation across house-
holds.
2. Loyalty and restricted evaluation. In our model, we separate the
long-term loyalty effect from the short-term last purchase effect to test
Brand Choice 247
TABLE 3 Parameters of the Full Model

Parametric Heterogeneity Nonparametric Heterogeneity
(Models C, B, A Nested) (Models D, B, A Nested)
Model E Model F
Parameters Coefficients t-Value Coefficients t-Value
Int 1 .934 6.02 .943 6.42

Int 2 2.428 8.80 2.438 10.18
Int 3 1.285 4.21 1.296 4.73
Int 4 1.226 8.01 1.231 8.00
Int 5 1.487 4.98 1.504 5.73
Int 6 .326 2.06 .327 2.08
Price (β 1 ) ⫺1.222 ⫺8.88 ⫺1.240 ⫺8.68
Display (β 2 ) 1.490 5.75 1.521 5.50
Feature (β 3 ) 3.695 16.76 3.712 17.80
BL (β 4 ) 3.389 11.85 3.405 13.97
BLP (β 5 ) 1.354 9.92 1.334 9.55
SL (β 6 ) ⫺.104 ⫺.31 ⫺.120 ⫺.42
SLP (β 7 ) .342 2.20 .349 2.16
Gamma (γ) ⫺.604 ⫺2.42 ⫺.295 ⫺2.22
BL2 (β 9 ) .462 3.99 .504 1.35
BLP2 (β 10 ) 3.543 9.91 3.523 13.54
SL2 (β 11 ) 1.283 2.80 1.287 2.89
SLP2 (β 12 ) ⫺.382 ⫺1.05 ⫺.365 ⫺1.45
DOW (γ 1 ) ⫺.242 ⫺2.46 ⫺.301 ⫺2.92
CDISP (γ 2 ) .532 2.13 .486 2.18
CFEAT (γ 3 ) .842 3.11 .750 2.85
STLOY (γ 4 ) ⫺3.027 ⫺4.72 ⫺2.946 ⫺4.12
INC (γ 5 ) ⫺.184 ⫺1.98 ⫺.193 ⫺2.34
EDU (γ 6 ) .129 2.65 .191 2.23
FREQ (γ 7 ) ⫺.012 ⫺1.08 .045 2.32
DLP (γ 8 ) 1.529 4.13 1.561 4.24
TIME (γ 9 ) 2.140 2.60 2.074 4.30
σ n (household) 2.640 3.91 ⋅⋅⋅ ⋅⋅⋅
σ k (purchase
occasion) .714 1.97 ⋅⋅⋅ ⋅⋅⋅
Purchase
Household Occasion
Heterogeneity Heterogeneity
A1 ⋅⋅⋅ ⫺6.021 3.79 ⫺.387 ⫺2.78
A2 ⋅⋅⋅ 3.234 3.24 .433 3.22
D1 ⋅⋅⋅ ⫺.624 ⫺2.58 1.078 2.49
D2 ⋅⋅⋅ ⫺.359 ⫺2.48 .262 1.98
Log-likelihood ⫺1,519.23 ⫺1,514.36
U 2 null model .481 .482
U 2 equally likely .585 .587
model
AIC 3,096.46 3,098.72
BIC 3,257.14 3,292.64
Log-likelihood on
holdout sample ⫺765.74 ⫺765.37
Note.—See text for explanation of parameters and table 2 note.
TABLE 4 Effect of Observable Factors on Probability

of Evaluation
Hypothesized Result
Variables Effect Supported
Weekday dummy Decrease Yes
Category display Increase Yes
Category feature Increase Yes
Store loyalty Decrease Yes
Deal-proneness Increase Yes
Frequency of purchase Decrease No
Income Decrease Yes
Education Increase Yes
Time availability Increase Yes
if their influence on brand choice depends on a consumer’s evaluation

state. When consumers do not evaluate, we expect their brand choice
to be strongly influenced by the last occasion when they evaluated the
product category. In the context of our model, such a behavior would
suggest placing greater emphasis on the previous purchase. The pro-
cess, by recursion, ensures that the last occasion when a consumer eval-
uates influences the purchase of the consumer until the next occasion
of evaluation.
In all models, we find that the effect of long-term and short-term
loyalties differ dramatically across evaluation states. When the con-
sumer is in an extended evaluation state, long-term loyalty is more
important than last purchase loyalty in affecting brand choice. In con-
trast, when consumers engage in habitual evaluation, short-term loyalty
(last purchase) has a much larger coefficient relative to long-term loy-
alty. The above results are consistent with the notion that, when con-
sumers are actively evaluating, they appear to put greater weight on
many previous purchases as opposed to only the last purchased brand.
This partially validates the definition of the two states.
3. Shopping characteristics and restricted evaluation. We find em-
pirical support for eight of the nine proposed effects of factors influ-
encing evaluation propensity (see table 4 for a summary). When con-
sumers visit the store on a weekday, they are less likely to engage in
evaluation (γ 1 ⬍ 0). We also find that product category promotions
such as displays and features increase the probability of evaluation in
the product category (γ 2 ⬎ 0, γ 3 ⬎ 0). The promotions may signal a
change in information about the product category, encouraging con-
sumer evaluation.
We find that a store loyal consumer is less likely to evaluate (γ 4 ⬍
0) while a deal-prone household has a higher probability of evaluation
(γ 8 ⬎ 0). The tendency to visit the same store or fewer stores may
reflect the consumer’s desire to minimize shopping time and hence the
Brand Choice 249
proclivity for limited evaluation. Our findings on store loyalty and deal-
proneness are consistent with the evidence presented in Bucklin and
Lattin (1989). The empirical evidence suggests no significant effect of
frequency of purchase on evaluation propensity.
4. Demographics and restricted evaluation. High-income consum-
ers, as expected, are less likely to evaluate (γ 5 ⬍ 0) because of higher
valuation of their time. In contrast, consumers with higher education
exhibit a greater evaluation propensity (γ 6 ⬎ 0), perhaps due to better
ability to process information. As noted earlier, while the correlation
between education and income is positive, it is not high enough to cause
concern about collinearity. Time availability (TIME) increases the av-
erage propensity to evaluate extensively the brands (γ 9 ⬎ 0).
5. Impact of marketing mix variables on brand choice. All parame-
ter estimates of the marketing activity variables are significant and are
in the expected direction in all the models. In addition, we find that
the effect of the marketing mix variables in the extended evaluation
state is 20%–60% higher than that of the baseline logit model.
6. Evaluation propensity and brand choice probability. In the ap-
pendix, we derive the effect of evaluation propensity on the choice
probability. We see that the rate of change of choice probability with
evaluation is a function of the difference in the conditional probabili-
ties, that is, of [prob kn ( j| EE) ⫺ prob kn ( j |HE)]. This implies that, if
a firm believes the probability of choice for its brand increases with
evaluation (say, it has a more attractive price), then it pays for the
firm to encourage evaluation of the offering. But if there is a negative
difference between the conditional probabilities, the firm is better off
by discouraging consumer evaluation.
7. Performance of the models on the holdout sample. An important
disaggregate measure of performance of the models is to test if the
likelihood improvements of the models with the evaluation structure
carries through in the holdout sample. In tables 2 and 3, we also report
the log-likelihood values computed on holdout sample for all models
based on the parameters obtained from the calibration sample. We find
that the likelihood values mirror the pattern on the estimation sample.
The predictions of choices on holdout samples also favor the proposed
model.
B. Evaluation Propensity: A Household Trait?
In spite of the strong effect of the factors that constrain time or measure
a household’s valuation of time on extent of evaluation, the variance
explained by unobserved factors is more than the observed factors.
Hence, we conclude that there is a strong idiosyncratic component to
the extent of evaluation. The nonparametric distribution yields distinct
extended-evaluation and habitual-evaluation segments. These segments
bear semblance to the notion of individuals who like or dislike shop-
ping, reinforcing the notion of intrinsic household trait to frequently

engage in evaluation of brands or not.
C. Results of Other Multistate Models
We extend the two-state model by incorporating a third, limited evalua-
tion state. We outline several possible intermediate stages. For each
possibility, we estimate a three-state model:
Model 1. In addition to intrinsic preferences and loyalty, a con-
sumer may only use price information.
Model 2. In the limited evaluation state, the consumer only pays
attention to display, the most readily observable marketing input.
Model 3. Another possibility is that consumer recalls the past util-
ity of the brands. While loyalty incorporates information on the brand
chosen on the last occasion, the lagged utility variable provides infor-
mation on brands not chosen on the previous occasion.
In all the extensions to the two-state model, we find that the probabil-
ity of the intermediate evaluation state is small (6%–8%). Also, the
improvement in log-likelihood over the two-state model is marginal
(about 4 to 6 with six additional parameters). The model parameters
and key implications remain virtually unaltered. Hence, we surmise
that a parsimonious two-state model is adequate to capture the extent
of evaluation.
In addition to the above models, we estimate a random intercept
model to account for unobserved heterogeneity in preferences. We as-
sume independent normal distributions for the error terms. The log-
likelihood of this model is ⫺1,465, which improves significantly over
the full model E. The average propensity of evaluation is 0.58, and the
other effects are consistent with the results presented. We also estimate
a random coefficients model (parametric) by allowing the price and
promotion coefficients to vary randomly over the households. This is
to test if the two-state evaluation model is capturing more than the
variation in responsiveness of the consumers. The model log-likelihood
value improves to ⫺1,502, but the average propensity to evaluate is
unchanged. These additional models attest to the robustness of our re-
sults.
D. Managerial Implications
Our analysis suggests that consumers may not consider marketing ac-
tivities on nearly 40% of the purchase occasions. However, when they
do evaluate on the remaining 60% of occasions, their brand choice is
strongly influenced by the marketing activities. Failure to recognize
consumer evaluation propensity, as noted above, leads to underestima-
tion of the effect of the marketing effort.
We present the own and cross-price elasticities of the various brands
for the high-, medium-, and low-evaluation segments obtained from
Brand Choice 251
TABLE 5 Comparison of Price Elasticities

Nonparametric Model F
Parametric High Medium Low
Brand Base Model Model E Search Search Search
A. Own price elasticities:*
1 ⫺1.435 ⫺1.689 ⫺2.074 ⫺1.466 ⫺.572
2 ⫺2.890 ⫺3.732 ⫺4.471 ⫺3.222 ⫺1.288
3 ⫺3.540 ⫺4.524 ⫺5.357 ⫺3.907 ⫺1.583
4 ⫺2.337 ⫺2.951 ⫺3.458 ⫺2.525 ⫺1.030
5 ⫺3.139 ⫺4.003 ⫺4.741 ⫺3.453 ⫺1.389
6 ⫺2.320 ⫺2.913 ⫺3.407 ⫺2.512 ⫺1.016
7 ⫺2.024 ⫺2.571 ⫺2.980 ⫺2.225 ⫺.912
B. Cross-price elasticities:†
1 1.206 1.634 1.865 1.415 .593
2 .584 .651 .711 .557 .239
3 .125 .103 .110 .089 .036
4 .337 .429 .524 .381 .143
5 .097 .107 .084 .077 .038
6 .228 .307 .392 .261 .103
7 .138 .160 .240 .133 .042
* Each row represents the price elasticity of a brand across different models.
† Each row represents the cross-price elasticity of a brand with respect to any of the remaining
brands across different models. Note in a multinomial logit model, cross-price elasticity of a brand
with any other brand is the same.
the nonparametric analysis in table 5. Overall, we find that the high-

evaluation segment responds to price as much as four times more than
the low-evaluation segment. In addition to an aggressive price and pro-
motional effort, a brand manager aiming to encourage switching from
competing brands has to invite consumers to evaluate in the product
category. Toward that goal, advertising may play a critical role in in-
forming and persuading consumers to evaluate in the category.
We find that consumers are more likely to evaluate when they switch
stores. Hence, when a grocery store chain engages in a marketing cam-
paign to attract traffic from other stores, a cooperative effort to promote
the brand is likely to enhance the effect of promotion.
We observe a twofold effect of display and feature activities. Consis-
tent with the marketing literature, we find that these activities signifi-
cantly influence the choice of the promoted brand. An indirect effect
is that the promotional activity also encourages consumers to evaluate
in the category. As seen in the appendix, greater evaluation increases
the probability of brand choice only if the conditional probability of
choice given evaluation is greater than that given no evaluation. So it
may be advantageous for large share brands to reduce consumer evalua-
tion, if competitors are offering more attractive prices. Alternately, if
a brand has a favorable mix relative to competition, it should increase
evaluation, as the effect on brand choice is enhanced.
We find that a third of the market evaluates on only 25% of the

purchase occasions. Attracting the attention of this segment and en-
couraging them to purchase their brand is perhaps the key challenge
for brand managers. However, to identify which 25% of the occasions
are involved, a generalized model that allows for correlation between
purchase occasion heterogeneity and household heterogeneity needs to
be developed. Finally, we find that consumers are more likely to evalu-
ate on a weekend than on a weekday. As a result, scheduling promo-
tional activities on the weekends will yield better results.
E. Limitations
We developed a model that incorporates consumer evaluation and em-
pirically tested it within only one product category. However, Murthi
and Rao (1997) report strong support for our evaluation model in their
analysis of liquid laundry detergents and peanut butter data. With the
availability of scanner data across a number of categories, it would be
interesting to study the factors that explain intercategory differences
in evaluation propensity.
We do not investigate the issue of consideration sets in this article.
Fader and McAlister (1990) suggest that consumers may limit their
evaluation to only the subset of promoted brands. Therefore, this is
an important research issue that needs to be examined. An important
limitation is the assumption of independence between household het-
erogeneity and purchase occasion heterogeneity. This assumption is
restrictive because the purchase-occasion heterogeneity of light buyers
may be different from that of heavy buyers. An extension of our model
could allow for correlation between the two random error terms that
describe unobserved heterogeneity.
We have assumed a simple multistate model structure. In the model,
evaluation behavior is assumed to consist of a finite number of discrete
states. Another approach may be to model evaluation behavior as a
continuous function to reflect different degrees of evaluation. This
model structure will then be a mixture of two continuous distributions.
Our model also assumed a compensatory decision process for the con-
sumer. Behavioral research suggests that consumers may employ non-
compensatory processes. Future research could incorporate the idea
of consumer evaluation into noncompensatory models such as the
elimination-by-aspects models.
V. Conclusion
In this article, we raise the possibility that a time-constrained consumer
may not evaluate all the marketing inputs on each purchase occasion for
the brands in a category. Several demographic and purchase-occasion
characteristics that constrain a household’s time or reflect opportunity
Brand Choice 253
cost affect the probability of evaluation of the marketing inputs in the

hypothesized manner. A strong intrinsic household factor explains
greater variation among households in their propensity to evaluate than
the variation explained by all the observed factors in the data. Thus,
households differ in their time cost of evaluation beyond that which
can be explained by demographics or purchase-occasion characteris-
tics. Though the model is more detailed than a simple multinomial logit
model, we find that a parsimonious two-state model appears adequate
to glean the key insights. Overall, the model provides several diagnostic
insights on the choice behavior.
Two eminent managerial implications arise: first, marketing inputs
are far more effective in affecting brand choice when consumers incor-
porate such information in their evaluation. Inability to control for the
fact that households disregard such information to varying degrees may
erroneously suggest a lower impact of marketing inputs on choice. Sec-
ond, a significant segment of the market is inert and does not engage
in frequent incorporation of marketing information. This may be a
blessing or a curse depending on whether a brand gains or loses by
careful evaluation of all the brands in the category.
Appendix
The Effect of Evaluation on Choice Probability
The effect of evaluation on choice probability is
prob kn ( j) ⫽ pkn prob kn ( j| EE) ⫹ (1 ⫺ pkn ) prob kn ( j | HE), (A1)
∂prob kn ( j)/∂pkn ⫽ prob kn ( j | EE) ⫺ prob kn ( j| HE), (A2)
and elasticity is
prob kn ( j| EE) ⫺ prob kn ( j | HE)
η⫽ ∗ pkn
pkn prob kn ( j| EE) ⫹ (1 ⫺ pkn ) prob kn ( j | HE)
1
⫽ .
1
⫹1
[prob kn ( j | EE)/prob kn ( j| HE) ⫺ 1] ∗ pkn
This suggests that as the evaluation propensity ( p kn ) increases, the elasticity in-
creases if the ratio of the conditional probabilities is greater than one. In other
words, if a brand has a favorable evaluation, then it should increase consumers’
evaluation in the store. Consumers’ evaluation acts as a multiplier to enhance the
effect of the favorable marketing mix. If a brand’s mix is likely to be evaluated
as unfavorable, then the firm should discourage evaluation by the consumer in
the store:
冢冣
S H
exp γ 0 ⫹ 冱 γ s Z skn ⫹ 冱γ Z h hn
pkn ⫽ s⫽1 h⫽1

(A3)
冢冣
S H
1 ⫹ exp γ 0 ⫹ 冱γ Z
s⫽1
s skn ⫹ 冱γ
h⫽1
h Z hn
and
∂prob kn ( j)/∂Z skn ⫽ γ s p kn (1 ⫺ pkn ) ∗ [prob kn ( j | EE) ⫺ prob kn ( j| HE)]
冢冣
S H
exp γ 0 ⫹ 冱 γ s Z skn ⫹ 冱γ Z h hn
⫽ s⫽1 h⫽1
(A4)
冤1 ⫹ exp冢γ ⫹ 冱 γ Z ⫹ 冱 γ Z 冣冥
S H 2
0 s skn h hn
s⫽1 h⫽1
⫻ γ s [prob kn ( j | EE) ⫺ prob kn ( j| HE)].
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Consumers&#39; Extent of Evaluation in Brand Choice

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Consumers' Extent of Evaluation in Brand Choice

Author(s): B. P. S. Murthi and Kannan Srinivasan

Consumers’ Extent of Evaluation

I. Introduction Brand choice models

(Journal of Business, 1999, vol. 72, no. 2)

229 from 115.164.221.22 on Sun, 13 Aug 2017 13:38:36 UTC

Economists have derived the optimal search policy for a consumer

that such differences in evaluation are also observed across different

in evaluation reflecting their higher valuation of time. A household with

II. The Model

and measure certain key elements of the phenomenon in the context of

where Vjkn ⫽ α j ⫹ ∑ m⫽1

V jkn ⫽ α j ⫹ β 1 Price jkn ⫹ β 2 Display jkn ⫹ β 3 Feature jkn

where Ujkn ⫽ α j ⫹ ∑ Ll⫽1 β l X ljkn is the deterministic component of utility

sion may be influenced by economic returns from search (Stigler 1961;

(the number of purchases made previously) and expertise (the ability

exp γ 0 ⫹ 冱γZ s skn ⫹ 冱γ Z h hn

pkn ⫽ s⫽1 h⫽1

The intercept γ 0 in equation (6) represents the average intrinsic evalua-

occasions, we propose the following random-effects specification

where γ̄ 0 measures the mean intrinsic propensity to search across house-

兿 冦兿 冦冤( p )prob( j| EE, ξ , δ )

⫹ (1 ⫺ p )prob( j| HE, ξ , δ )冥 exp ⫺

heterogeneity. In this specification, we assume a discrete distribution

Since the mean of the discrete distribution is zero, we can estimate

L⫽ [( pkn )prob( j| EE, A x, A r)

⫹ (1 ⫺ p kn )prob( j |HE, A x, A r)]Px Pr , 冧

TABLE 1 Shares of Ketchup Brands

Model C and Model D. When we incorporate the random varia-

III. Data, Initialization, and Estimation

holdout sample for prediction. We employ the initial 44 weeks of pur-

BL jn ⫽ (1/J ⫹ number of purchases of brand j by consumer n)

IV. Results, Discussion, and Managerial Implications

All use subject to http://about.jstor.org/terms

All use subject to http://about.jstor.org/terms

fluence the propensity to evaluate. We also report a simpler two-state

TABLE 3 Parameters of the Full Model

Parameters Coefficients t-Value Coefficients t-Value

Int 1 .934 6.02 .943 6.42

Note.—See text for explanation of parameters and table 2 note.

TABLE 4 Effect of Observable Factors on Probability

if their influence on brand choice depends on a consumer’s evaluation

ping, reinforcing the notion of intrinsic household trait to frequently

TABLE 5 Comparison of Price Elasticities

the nonparametric analysis in table 5. Overall, we find that the high-

We find that a third of the market evaluates on only 25% of the

cost affect the probability of evaluation of the marketing inputs in the

pkn ⫽ s⫽1 h⫽1

∂prob kn ( j)/∂Z skn ⫽ γ s p kn (1 ⫺ pkn ) ∗ [prob kn ( j | EE) ⫺ prob kn ( j| HE)]

⫻ γ s [prob kn ( j | EE) ⫺ prob kn ( j| HE)].

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兿冦兿冦冤( p )prob( j| EE, ξ , δ )