Accounting for taste

Despite the abundance of advertisement and price promotion in marketing, consumption choices often rely just as heavily on personal taste. We compare the conventional Multinomial Logit discrete choice model, with a Mixed Logit specification, as to ascertain whether consumers behave hetero- or homogeneously. We consider both Multivariate Normal and discrete distributions for model parameters. Model performance is measured by in-sample information criteria, as well as out-of-sample forecasting performance. We find strong evidence of preference heterogeneity in both a product marketing setting, as well as a discrete choice survey experiment. By incorporating a Guadagni and Little (1983) loyalty variable, we extend this result to a dynamic choice setting, finding residual preference heterogeneity, even when brand loyalty is accounted for.