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| Author: | Anderson, E.T. |
| Title: | A Guadagni-Little Likelihood Can Have Multiple Maxima |
| Journal: | Marketing Letters
2002 : VOL. 13:4, p. 373-388 |
| Index terms: | MARKETING MODELS LOGIT MODELS ANALYTICAL REVIEW |
| Language: | eng |
| Abstract: | Despite many advances in marketing models, the Guadagni-Little (1983) model is still in widespread use by both practitioners and academics. For many new marketing models, the Guadagni-Little model serves as a benchmark. The key variable that allows the Guadagni- Little model to accurately fit data is the loyalty variable, which is an exponential smoothing of past purchases. In this paper, the author shows that inclusion of this variable in the logit model may result in a likelihood function that can have multiple maxima. The author is able to demonstrate this using simulated data and actual household scanner panel data. In addition, the author documents a systematic relationship between the loyalty coefficient and the loyalty smoothing parameter. |
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