Can demand and consequently the market for consumers' durable goods be reduced to a mathematical model? Yes, these business economists contend, provided the right framework is chosen and proper statistical correlations are made to compensate for those eternal marketing variables—price, credit, income, and use-facilities. They illustrate their point by constructing an econometric model, applicable to any durable good, and demonstrate its use and accuracy by analyzing sales of washing machines.
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References
1.
By “successfully employed,” we mean the prediction of the turning points as well as the trend of a series. Some relatively brief examples appear in SpencerM.SiegelmanL., Managerial Economics (Homewood, Illinois: Richard D. Irwin, Inc., 1959), Chapter 5; many detailed examples are given in a recent book by SpencerClarkHoguet, Business and Economic Forecasting (Homewood, Illinois: Richard D. Irwin, Inc., 1981), Chapter 7. The procedure developed here is an approach which is not widely known or understood.
2.
See SpencerClarkHoguet (see note 1), Chapter 7, for further aspects of this.
3.
Perhaps the most elaborate and detailed econometric demand study ever made of a consumer durable good was the analysis of the demand for automobiles done by RoosC. F.von SzeliskiV., The Dynamics of Automobile Demand (General Motors Corporation, 1939). It was in this monumental work that the concept of a maximum ownership level was first conceived and integrated with a replacement function in an econometric model. For a fuller discussion of this as well as a comprehensive summary of the study, see SpencerClarkHoguet (see note 1), pp. 244–52.
4.
The assumption of an 11-year maximum life for washing machines is based on survey data compiled by manufacturers, trade associations, and advertising agencies. The estimates obtained from these different sources varied considerably, ranging from 9 to 15 years for the prewar period, and from 10 to 12 years for the postwar period. After running the calculations several times using various life estimates, it was found that the best fit was obtained with a single life estimate of 11 years for both the prewar and postwar years. This estimate appears to accord reasonably well with the survey data, especially for the postwar period. Apparently, technological changes have improved the quality of washing machines over the years, but not extended their maximum life materially. Given the maximum life, Lm, the average life, La, though not necessary for this study, can nevertheless be estimated from the formula: La = (Lm/2) + 1. The derivation of this formula, as well as the survival coefficients to be discussed next, is based on an article by Kimball cited in the source to Table 1.
5.
Even an extensive industry-wide promotion campaign is unlikely to overcome the more dampening effects of the other variables in the model.
