Consumer Purchase Behavior in a Frequently Bought Product Category: Estimation Issues and Managerial Insights from a Hazard Function Model with Heterogeneity

We apply hazard function models to marketing data on household purchases of disposable diapers to calibrate repeat-purchase and brand-switching behaviors. In the model we allow for household-specific unobserved traits. Hazard function models with fixed-effects heterogeneity specification are computationally feasible. We directly compare the results of fixed- and random-effects heterogeneity specifications in the context of parametric and nonparametric duration-dependence functions. We find that a rigorous test fails to reject the random-effects specification in favor of the fixed-effects specification. The unimodal gamma distribution in the random-effects specification adequately captures unobserved heterogeneity.