Identifying multiple preference segments from own- and cross-price elasticities

Abstract

The authors develop an approach to decompose a market-level matrix of own- and cross-price elasticities to reveal potentially overlapping preference segments. The approach is grounded on the premise that markets may be represented by a parsimonious number of relatively homogeneous segments. Market-level elasticities are expressed as functions of segment weights and within-segment market shares. These relationships permit segment weights and within-segment market shares to be estimated from the market-level elasticity matrix and patterns of brand substitutability to be analyzed. The approach is illustrated with data on the grocery coffee category. © 1993 Kluwer Academic Publishers.