Consumer spending patterns across firms and categories: Application to the size- and share-of-wallet

• Published in: International journal of research in marketing Vol. 33; no. 1; pp. 123 - 139
• Main Authors: Jang, Sungha, Prasad, Ashutosh, Ratchford, Brian T.
• Format: Journal Article
• Language: English
• Published: Amsterdam Elsevier B.V 01-03-2016; Elsevier Sequoia S.A
• Subjects: Bayesian analysis; Bayesian estimation; Competition; Consumer spending; Consumers; Credit cards; Customer spending; Estimating techniques; Expenditures; Multiple discreteness; Share-of-wallet; Simultaneous equations Tobit; Studies; Customer spending; Share-of-wallet; Bayesian estimation; Multiple discreteness; Simultaneous equations Tobit
• ISSN: 0167-8116; 1873-8001
• DOI: 10.1016/j.ijresmar.2015.06.008

Predicting share-of-wallet and size-of-wallet (i.e., category expenditure) of customers requires a firm to have, in addition to its own sales, an estimate of customer spending at competing firms. Given data on competitive spending from a sample of customers, this study considers the problem of predicting consumer expenditures at competing firms when data is unavailable. The proposed methodology, designed for multi-category firms, is a simultaneous equations Tobit model with latent classes which can handle three complicating factors: (i) heterogeneity in spending patterns; (ii) interrelationship of expenditures across firms and categories, called simultaneity; and (iii) data censoring, which occurs when consumers have zero expenditure in a category. The model is estimated on credit card data using Bayesian estimation. Two segments are revealed. One comprises 76% of consumers and is characterized by habitual spending patterns. The other 24% of consumers spend based on income allocation. Segments show different interrelationship of expenditures across firms and categories. Thus, this paper contributes a methodological tool for more accurate prediction of size-of-wallet and share-of-wallet and better targeting of customers when expenditures at competing firms are unavailable. This is accomplished by considering consumer heterogeneity and asymmetric complementary and substitute interactions between expenditures.