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Estimating Loyalty and Switching with an Application to the Automobile Market

Author

Listed:
  • Patrick S. McCarthy

    (Krannert Graduate School of Management, Purdue University, West Lafayette, Indiana 47907)

  • P. K. Kannan

    (College of Business and Public Administration, University of Arizona, Tucson, Arizona 85721)

  • Radha Chandrasekharan

    (Krannert Graduate School of Management, Purdue University, West Lafayette, Indiana 47907)

  • Gordon P. Wright

    (Krannert Graduate School of Management, Purdue University, West Lafayette, Indiana 47907)

Abstract

A brand switching model that considers the choices: previous choice, current choice, and substitute choice, if the current choice were not available, is developed and estimated. An important assumption of the model is that the market consists of two types of consumers: "Loyals" and "Shoppers." The model provides estimates for: (1) the proportion of Loyals in a submarket, and (2) the success of each submarket in capturing Shoppers. We illustrate how the model can be used to characterize the competitive structure of a market. We also show how the estimated parameters of the model can be validated using simulation and a theoretically derived covariance matrix. Our empirical application to automobile data from J. D. Power and Associates provides insights into several interesting marketing phenomena including: (1) the competitiveness of domestic versus foreign makes of automobiles, (2) competition between submarkets defined by form, and (3) the effect of previous dealer experience on loyalty and shopping.

Suggested Citation

  • Patrick S. McCarthy & P. K. Kannan & Radha Chandrasekharan & Gordon P. Wright, 1992. "Estimating Loyalty and Switching with an Application to the Automobile Market," Management Science, INFORMS, vol. 38(10), pages 1371-1393, October.
    • Handle: RePEc:inm:ormnsc:v:38:y:1992:i:10:p:1371-1393
    DOI: 10.1287/mnsc.38.10.1371
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    Citations

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    Cited by:

    1. H-Y Tsao & P-C Lin & L Pitt & C Campbell, 2009. "The impact of loyalty and promotion effects on retention rate," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 60(5), pages 646-651, May.
    2. Yim, Chi Kin & Kannan, P. K., 1999. "Consumer Behavioral Loyalty:: A Segmentation Model and Analysis," Journal of Business Research, Elsevier, vol. 44(2), pages 75-92, February.
    3. H-Y Tsao & L Pitt & C Campbell, 2010. "Analysing consumer segments to budget for loyalty and promotion programmes and maximize market share," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 61(10), pages 1523-1529, October.
    4. Hsiu-Yuan Tsao & Lucy M. Matthews & Victoria L. Crittenden, 2012. "Balancing Market Share Growth And Customer Profitability: Budget Allocation For Customer Acquisition And Retention," Organizations and Markets in Emerging Economies, Faculty of Economics, Vilnius University, vol. 3(2).
    5. Zeng, Xiaohua & Dasgupta, Srabana & Weinberg, Charles B., 2016. "The competitive implications of a “no-haggle” pricing strategy when others negotiate: Findings from a natural experiment," International Journal of Research in Marketing, Elsevier, vol. 33(4), pages 907-923.
    6. Gordon P. Wright & Alok R. Chaturvedi & Radha V. Mookerjee & Susan Garrod, 1998. "Integrated Modeling Environments in Organizations: An Empirical Study," Information Systems Research, INFORMS, vol. 9(1), pages 64-84, March.
    7. ALTAF Mohsin & REHMAN Ahmad & ALI Ahmed, 2012. "Determinants Of Customer Switching Behavior In Banking Sector," Studies in Business and Economics, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 7(2), pages 20-34, August.
    8. S. R. Nikhashemi & Naser Valaei & Arun Kumar Tarofder, 2017. "Does Brand Personality and Perceived Product Quality Play a Major Role in Mobile Phone Consumers’ Switching Behaviour?," Global Business Review, International Management Institute, vol. 18(3_suppl), pages 108-127, June.

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