A Model for Trade-Up and Change in Considered Brands

A common theme in the marketing literature is the acquisition and retention of customers as they trade-up from inexpensive, introductory offerings to those of higher quality. We extend the nonhomothetic choice model of Allenby and Rossi (1991) to accommodate effects of advertising, professional recommendation and other factors that facilitate the description and management of trade-up. Our model allows advertising to affect the relative superiority or inferiority of products. This allows for a wide variety of trade-up patterns beyond those obtained from a standard random utility formulation of the logit model. Advertising effects are measured using a randomized treatment and evaluated by considering their direct implications for firm pricing and profits.