Start Date
14-12-2012 12:00 AM
Description
In this study, we use a proprietary data set from an online marketplace to study the conversion rate dynamics in online retail. We examine how seller-level covariates, such as online sellers’ pricing and product strategies, service responsiveness, and other attributes, affect conversion rates. Specifically, we address the following research questions: (i) How do sellers’ covariates affect their conversion rates? (ii) Is the relationship between the conversion rate and sellers’ covariates state dependent? (iii) If the relationship is state dependent, what are the factors that determine the states and the state transitions? The estimation results indicate that there are two states that affect conversion rate dynamics. The relationship between the conversion rate and the sellers’ covariates is state dependent, that is, given the different states of sellers, the effects of the sellers’ covariates on their conversion rates are different. We also estimate the thresholds between states.
Recommended Citation
Fan, Ming; Hao, Lin; Sheng, Zhenzhong; and Tan, Yong, "A Hidden Markov Model For Conversion Rate Dynamics In Online Retail" (2012). ICIS 2012 Proceedings. 16.
https://aisel.aisnet.org/icis2012/proceedings/EconomicsValue/16
A Hidden Markov Model For Conversion Rate Dynamics In Online Retail
In this study, we use a proprietary data set from an online marketplace to study the conversion rate dynamics in online retail. We examine how seller-level covariates, such as online sellers’ pricing and product strategies, service responsiveness, and other attributes, affect conversion rates. Specifically, we address the following research questions: (i) How do sellers’ covariates affect their conversion rates? (ii) Is the relationship between the conversion rate and sellers’ covariates state dependent? (iii) If the relationship is state dependent, what are the factors that determine the states and the state transitions? The estimation results indicate that there are two states that affect conversion rate dynamics. The relationship between the conversion rate and the sellers’ covariates is state dependent, that is, given the different states of sellers, the effects of the sellers’ covariates on their conversion rates are different. We also estimate the thresholds between states.