Analysis of cross category dependence in market basket selection

Abstract

Market basket choice is a decision process in which a consumer selects items from a number of product categories on the same shopping trip. The key feature of market basket choice is the interdependence in demand relationships across the items in the final basket. This research develops a new approach to the specification of market basket models that allows a choice model for a basket of goods to be constructed using a set of "local" conditional choice models corresponding to each item in the basket. The approach yields a parsimonious market basket model that allows for any type of demand relationship across product categories (complementarity, independence, or substitution) and can be estimated using simple modifications of standard multinomial logit software. We analyze the choice of four grocery store categories that exhibit common cross-category brand names for both national brands and private labels. Results indicate that cross-category price elasticities are small. We argue that store traffic patterns may be more important than consumer-level demand interdependence in forecasting market basket choice. © 2000 New York University.