Knowledge that Transforms

The Rasch latent trait model is derived from a double exponential error theory similar to that utilized for random utility models in choice theory. This formulation imbues multi-attribute measurements with an important probabilistic interpretation; namely, that the brand measurement is the log odds for the brand being rated above the mid-point on a particular attribute scale. Hence, one may compare brand measurements across attributes and construct multi-attribute configurations such as that illustrated. In addition to this theoretical underpinning for rating scale theory, the present paper establishes a statistical inference for survey rating scales based upon generalized least squares. An important advantage of the present GLS analysis stems from its capability of testing various hypotheses concerning brand configurations in multi-attribute spaces.

The Dorfman-Steiner Theorem has provided the marketing community with a powerful result for allocating resources between competing marketing mix variables. It is well known that the optimal allocation of resources is in direct proportion to their demand elasticities. To implement this result, the marketing manager must know the elasticities of the various marketing elements under his/her control. Since the precise values of these elasticities is rarely, if ever, known, the manager must use estimates of the elasticities in allocating the resources. Point estimates of the elasticities can be obtained from laboratory or field experiments and from econometric models. In both cases, these estimates are known with uncertainty. This paper discusses the appropriate method for incorporating uncertainties in the point estimates of the elasticities to yield rigorous confidence intervals applicable to the ratio of the elasticities. An empirical example is used to illustrate the methodology.

This paper discusses the impact of aggregating time series observations on the specification of an econometric model. In the framework of a familiar sales response model, temporally aggregated specifications are derived. It is illustrated that different aggregation schemes provide different models, each of them having appealing characteristics. Furthermore, the derived specifications illustrate that frequently calibrated models are misspecified and as such provide biased estimates which significantly affect the interpretation of the results. Some suggestions are provided for estimating the exact specifications in such a way that the obtained parameter estimates provide correct insights into the underlying response process.

This paper analyzes a specific model of oligopolistic competition involving product differentiation, marketing activities, and economies of scale in production. This model is consistent with sales response models which have been justified on theoretical and empirical bases. It is shown that at a Nash equilibrium each firm must have market share equal to zero or greater than a threshold value. This result has implications for determination of minimum firm size, the effectiveness of a low market share strategy, entry barriers, and the likelihood of concentration in an industry. The paper explores these implications and relates them to various theories and hypotheses in industrial organization and strategic planning.

Psychographic, or life-style, analysis has proved useful in a wide variety of applications. However users have voiced concern about the reliability of the analysis and the reality of the segmentations it produces. As life-style items tend to be specific to individual applications and often have little theoretical support, there is particular need for a method of evaluating the stability of results. This paper reviews marketing studies which have tested life-style reliability and stability, and presents a method of assessing reliability using the jackknife. This method is particularly useful as it can handle small sample sizes, is not dependent on the number of items in the scale or the type of factor model used, and can provide detailed assessments of factor reliability. An empirical application of the method is presented.

The paper gives an overview and evaluates the theoretical traditions underlying choice models that are used in marketing. In particular, the emphasis of this essay is on the underlying assumptions, limitations and empirical demands of these choice models. Four fundamental choice models are used as a basis to analyze this complex field; the neoclassical economic theory as extended by Lancaster, the Risk-Preference Theory of Choices under uncertainty, the Strict Utility Theory and the Random Utility Theory. These four choice models and their extensions are compared and contrasted along the three critical steps in the model building process: theory generation, parameterization and estimation.

In the experience of the authors, most firms do not have good procedures for estimating the net profitability of coupon promotions. Instead, managers generally examine a number of subsidiary measures such as: redemption rates, market share and the direct costs of the coupon promotion. A user-oriented computer model is presented for simulating the effect of coupon promotions on sales and calculating net profitability. The model includes the actions of the manufacturer, retailers, and consumers. It takes into account three key phenomena of consumer response: the acceleration of product category purchases, the brand loyalty of coupon redeemers, and repeat purchase effects. The model also incorporates the effects of retailer promotions that often accompany a coupon program. Data from an actual application are used to illustrate use of the model.

The recall and recognition of people for 95 print ads were examined with an aim toward investigating memory structure and decay processes. It was found that recall and recognition do not, by themselves, measure a single underlying memory state. Rather, memory is multidimensional, and recall and recognition capture only a portion of memory, while at the same time reflecting other mental states. When interest in the ads was held constant, however, recall and recognition did measure memory as a unidimensional construct. Further, an examination of memory over three points in time showed considerable stability. The findings are interpreted from the perspective of recent research in cognitive psychology as well as current thinking in consumer behavior and advertising research. Managerial implications are considered as well.

A nonuniform influence (NUI) innovation diffusion model for forecasting first adoptions of a new product is proposed. An extension of the Bass model, the proposed model overcomes three limitations of the existing single-adoption diffusion models. First, the current models generally assume that the word-of-mouth effect remains constant over the entire diffusion span. However, for most innovations, the word-of-mouth effect is likely to increase, decrease or remain constant over time. Second, the existing models assume that an innovation must attain its maximum penetration rate before capturing a prespecified level of potential market, for example, 50%. That is, they restrict the location of the inflection point for the diffusion curves. Third, the current models assume that the adoption patterns after and before the location of maximum penetration rate are mirror images of each other. That is, the diffusion curve is symmetric. By allowing the word-of-mouth effect to systematically vary over time, the proposed model allows the diffusion curve to be symmetrical as well as nonsymmetrical, with the point of inflection responding to the diffusion process. Data from five consumer durables are analyzed to illustrate the generality of the model.

This paper analyzes how a firm should adjust its marketing expenditures and its price to defend its position in an existing market from attack by a competitive new product. Our focus is to provide usable managerial recommendations on the strategy of response. In particular we show that if products can be represented by their position in a multiattribute space, consumers are heterogeneous and maximize utility, and awareness advertising and distribution can be summarized by response functions, then for the profit maximizing firm: it is optimal to decrease awareness advertising, it is optimal to decrease the distribution budget unless the new product can be kept out of the market, a price increase may be optimal, and even under the optimal strategy, profits decrease as a result of the competitive new product. Furthermore, if the consumer tastes are uniformly distributed across the spectrum a price decrease increases defensive profits, it is optimal (at the margin) to improve product quality in the direction of the defending product's strength and it is optimal (at the margin) to reposition by advertising in the same direction. In addition we provide practical procedures to estimate (1) the distribution of consumer tastes and (2) the position of the new product in perceptual space from sales data and knowledge of the percent of consumers who are aware of the new product and find it available. Competitive diagnostics, such as the angle of attack, are introduced to help the defending manager.