2. Variables and Attributes                                                                                            Back

 The model objective is to forecast the demand as a function of total industry demand and the firm market share. Total industry demand is a function of exogenous (macro-economic) and endogenous (industry) demand. The firm market share is a function of firm specific (competitive market) demand. After reviewing all the possible variables that may affect the firm demand, the following variables are included in building the model and testing their suitability for the model.

 1)      Exogenous variables are macro-economic influences on the firm demand.

a.       National unemployment rate

b.      Gross Domestic Product

c.       Per Capita Personal Income

d.       Inflation (CPI)

e.       Seasonality

f.        Stage of Life Cycle

2)      Endogenous variables describe the influence of aggregate industry behaviors.  

a.       Periods (T)

b.      Number of Firms in the Industry (N)

c.       Average Price (Avg_Price)

d.      Average Advertising Expenditures (Avg_Adv)

e.       Average R&D (Avg_RD)

To consider the lagging effect of advertising expenditures and R&D from previous periods on the current demand, four more variables are introduced.

f.        Average Advertising Expenditures for Last Quarter (Avg_Adv1)

g.       Average Advertising Expenditures Two Quarters Ago (Avg_Adv2)

h.       Average R&D for Last Quarter (Avg_RD1)

i.         Average R&D Two Quarters Ago (Avg_RD2)

Exogenous and endogenous factors are the external variables that beyond the firm’s control and will be estimated in the model development.

 3)      Relative variables are firm specific. They picture a firm’s competitive profile relative to the industry as a whole.

a.       Normalized Market Share (NSOM)

b.      Brand Loyalty Measured by Last Quarter’s Market Share (NSOM1)

c.       Relative Price (Prel)

d.      Relative Advertising Expenditures (Arel)

 To consider the lagging effect of advertising expenditures and R&D from previous periods on the current demand, four more variables are introduced.

e.       Relative Advertising Expenditures for Last Quarter (Arel1)

f.        Relative Advertising Expenditures Two Quarters Ago (Arel2)

g.       Relative R&D for Last Quarter (Rrel1)

h.       Relative R&D Two Quarters Ago (Rel2)

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