A parsimonious model of stockkeeping-unit choice

Abstract

The authors develop a model to describe and predict consumer stockkeeping-unit choice in frequently bought product categories. The model posits that a product category consists of several salient attributes with many attribute levels and represents a stockkeeping unit as an attribute-level combination. The number of parameters of the model does not increase with the number of stockkeeping units and the number of attribute levels. The authors demonstrate the descriptive and predictive power of their model using 133,492 purchase incidences in 16 product categories. Their model fits 7% better in sample and predicts 8% better out of sample in hit probability than two leading models and requires only half the number of parametes.