European Journal of Operational Research 29 (1987) l-23 North-Holland 1 Invited Review Stochastic models of consumer behaviour Udo WAGNER and Alfred TAUDES University of Economics, 1090 Vienna, Augasse 2-6, Vienna, Austria Abstract: During the past thirty years much research has been carried out in order to produce decision aids for managers. Considerable efforts have been dedicated to models that describe how consumers make purchase decisions. Within this vast area of research we review stochastic approaches to consumer behaviour, i.e. probabilistic laws relating the observed strings of consecutive purchases to explanator variables. We start out by discussing the basic concepts underlying this field. Then we deal with models concentrating on brand choice, whereby we trace the development from the early ideas in the Fifties to today’s sophisticated models. Subsequently we turn to the Negative Binomial Distribution, the ‘classical purchase incidence model, and its extensions. Then we describe combined purchase timing-brand selection models and introduce models of store choice and purchase quantity selection. After briefing on estimation and validation methods for stochastic models we finally critically review the state-of-the-art in this field. Special emphasis is placed on empirical applications throughout the review. Keywords: Stochastic models, consumer behaviour, marketing 1. Introduction 1.1. Aim of the review Recently, numerous approaches have been published dealing with the use of Operations Reseaich techniques to support marketing decision-making. This review concentrates on the specific subject of \ stochastic models of consumer behaviour. In particular we review the basic stochastic approaches to buying behaviour, discuss their drawbacks and trace the development to the current state-of-the-art in this field. Special emphasis is placed on the empirical results obtained by means of the various models. 1.2. The consumer’s buying decisions - The result of a stochastic process When looked upon from a marketer’s point of view, the output of the consumers’ decision process is simple. What a market researcher observes on the disaggregated level are ‘purchase histories’, strings of purchases characterized by date of purchase, brand chosen, amount bought and store selected. But there are many factors that might govern consumer behaviour. Possible explanations for purchase decisions are e.g. household characteristics, experience with the product, marketing mix variables, situational factors or ‘word-of-mouth-communication’ (see Figure 1). Moreover the way in which these factors influence buying Received May 1986 0377-2217/87/$3.50 Q 1987, Elsevier Science Publishers B.V. (North-Holland)