| Abstract: | In this paper we develop a stochastic (first order Markovian) consumer choice model that represents variety seeking behaviour and we investigate the practical implications of this model for optimal product positioning relative to a zero order model that does not incorporate variety seeking. We show that the optimal positioning implications of a variety seeking process is indeed different than those of a (no-variety-seeking) zero order process. Based on intuition, one might expect increased variety seeking to imply that firms should increase the distance between their products in an attribute space. In fact, we show that this effect does occur for relatively low share brands. But just the opposite effect holds for relatively high share brands. That is, variety seeking behaviour generates a desire to more differentiation among low share brands, and a desire for less differentiation among high share brands. |
