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A stochastic model of individual buyer behavior is developed from a set of postulates about the buying process. The postulates are shown to imply a linear learning model modified by a term to explain response to pricing stimuli. Thus, a customer's purchasing probability is modelled as a combination of the effect of his past purchasing behavior plus the effect of price-variation in the market. Methods are developed to calculate short- and long-term probabilistic properties of the process. A method for parameter estimation is included. The model differs from past modelling efforts in this area in that a controllable variable, product price, is explicitly included in the model-structure, allowing the model to be used to aid in pricing decision making under a certain set of assumptions about competitive behavior in a market situation.
Gary L. Lilien (Fri,) studied this question.