A New Approach to Modeling Replacement Sales: Forced versus Discretionary Replacements

33 Pages Posted: 11 Jun 2008

See all articles by Maria Kaya

Maria Kaya

Christian-Albrechts-Universität

Paul Steffens

Queensland University of Technology - School of Management

Sönke Albers

Christian-Albrechts-Universitaet at Kiel

Date Written: March 2008

Abstract

Why is understanding replacement purchases of consumer durables so important? It is the sales of replacement units that will ensure their long-term success. Replacement sales account for more than 75% of total sales for many durables (Islam and Meade 2000). Thus, the accurate modeling of replacements is important to forecast overall demand, particularly later in the product life cycle when they dominate total sales. In addition, knowing at what age consumes are most likely to replace units is important for durable goods marketers to target customers at the right time.

By distinguishing between forced and discretionary replacements and utilizing the Modified Gamma distribution, three contributions are made. First, the Modified Gamma distribution was shown to fit both the forced and discretionary replacement rate distributions much better than earlier models. Second, we examine the accuracy of sales forecasting by combining sales data with the survey data of household replacements. Third, a promotion response model was developed incorporating an asymmetric impact of marketing effort on forced versus discretionary replacements. This provides very interesting insights for managers when designing promotions to encourage consumers to replace older units.

Keywords: Diffusion of Innovations, Forecasting, Durable Goods, Repeat Purchases

JEL Classification: M20

Suggested Citation

Kaya, Maria and Steffens, Paul and Albers, Sönke, A New Approach to Modeling Replacement Sales: Forced versus Discretionary Replacements (March 2008). Available at SSRN: https://ssrn.com/abstract=1142874 or http://dx.doi.org/10.2139/ssrn.1142874

Maria Kaya

Christian-Albrechts-Universität ( email )

Westring 425
Kiel, Schleswig-Holstein 24118
Germany

Paul Steffens (Contact Author)

Queensland University of Technology - School of Management ( email )

Brisbane, Queensland 4001
Australia

Sönke Albers

Christian-Albrechts-Universitaet at Kiel ( email )

D-24098 Kiel
Germany

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