Investigating consumers’ store-choice behavior via hierarchical variable selection

Abstract

This paper is concerned with a store-choice model for investigating consumers’ store-choice behavior based on scanner panel data. Our store-choice model enables us to evaluate the effects of the consumer/product attributes not only on the consumer’s store choice but also on his/her purchase quantity. Moreover, we adopt a mixed-integer optimization (MIO) approach to selecting the best set of explanatory variables with which to construct the store-choice model. We devise two MIO models for hierarchical variable selection in which the hierarchical structure of product categories is used to enhance the reliability and computational efficiency of the variable selection. We assess the effectiveness of our MIO models through computational experiments on actual scanner panel data. These experiments are focused on the consumer’s choice among three types of stores in Japan: convenience stores, drugstores, and (grocery) supermarkets. The computational results demonstrate that our method has several advantages over the common methods for variable selection, namely, the stepwise method and $L_1$-regularized regression. Furthermore, our analysis reveals that convenience stores are most strongly chosen for gift cards and garbage disposal permits, drugstores are most strongly chosen for products that are specific to drugstores, and supermarkets are most strongly chosen for health food products by women with families.