Quantifying the Benefits of Individual-Level Targeting in the Presence of Firm Strategic Behavior

Author:

Dong Xiaojing1,Manchanda Puneet2,Chintagunta Pradeep K.3

Affiliation:

1. Leavey School of Business, Santa Clara University

2. Ross School of Business, University of Michigan

3. Graduate School of Business, University of Chicago

Abstract

The authors develop a method to quantify the benefits of individual-level targeting when the data reflect firm strategic behavior—that is, when firms (1) are engaged in targeting and (2) take into account the actions of competing firms. This article studies a pharmaceutical firm's decision on the allocation of detailing visits across individual physicians. For this analysis, the authors develop, at the individual level, a model of prescriptions and a model of detailing. Using physician panel data, they estimate, at the physician level, the parameters of the prescription and detailing models jointly using full-information Bayesian methods. The results suggest that accounting for firm strategic behavior improves profitability by 14%–23% compared with segment-level targeting. In addition, ignoring firm strategic behavior underestimates the benefit of individual-level targeting significantly. The authors provide reasons for this finding. They also carry out several robustness checks to test the validity of the modeling assumptions.

Publisher

SAGE Publications

Subject

Marketing,Economics and Econometrics,Business and International Management

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