A Forecasting Model Incorporating Replacement Purchase: Mobile Handsets in South Korea's Market

The paper introduces a replacement forecasting model that operates at the brand level and overcomes limitations of existing models. The model (1) consists of a diffusion model and a time series model; (2) separately identifies the diffusion of first-time purchases and that of replacement purchases; (3) reflects brands¡¯ competitive factors affecting product diffusion; and (4) characterizes consumers¡¯ different replacement cycles.The model is applied to South Korea¡¯s mobile handset market. The model performs well in terms of its fit and forecasting when compared with other forecasting models incorporating replacement and repeat purchases. The usefulness of the model stems from its ability to describe complicated environments and its flexibility in including multiple factors that drive diffusion in the regression analysis.