Analyzing Sales Response by a Hierarchical Bayesian Neural Network

H. Hruschka (Germany)


Neural Networks; Marketing; Sales Response


So far studies estimating sales response functions on the basis of store-specific data either consider heterogeneity or functional flexibility. That is why in this contribution a model is developed possessing both these features. It is a multilayer perceptron with store-specific coefficients which follows a hierarchical Bayesian framework. An appropriate Markov Chain Monte Carlo estimation technique is introduced capable to satisfy theoretical constraints (e.g. sign constraints on elasticities). The empirical study refers to a database consisting of weekly observations of sales and prices for nine leading brands of a packaged consumer good category. The data were acquired in 81 stores over a time span of at least 61 weeks. The multiplayer perceptron is compared to a strict parametric multiplicative model and turns out to be clearly superior in terms of posterior model probability. This result indicates the benefits of using a flexible model even if heterogeneity is dealt with. Estimated sales curves and elasticities demonstrate that both models differ with regard to implications on price response.

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