MKTG 555: Marketing Models

Transcription

1 MKTG 555: Marketing Models Intro to Marketing Modeling Arvind Rangaswamy January 17,

2 Types of Marketing Models Theoretical Models (to understand/diagnose/ explain marketing phenomena, develop testable propositions) Empirical Models (to understand/summarize data; test theoretical propositions; provide insights for decision making) Decision Models (help improve managerial/firm performance) 2

3 Types of Decision Models Descriptive (what happened? Helps you provide generalizable descriptions e.g. visualization to guide decisions) Predictive (what will happen?) Diagnostic (why did it happen?) Prescriptive (what should we do?) 3

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6 A Predictive Model Source: Pinkovskiy and Sala-i-Martin, Federal Reserve Bank of New York (2014) 6

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8 Marketing Models Offer Explicit statement(s) of objectives, variables, and relationships Core relationships based on theory plus judgment Framework for evaluating facts or data 13

9 What is a Model? A stylized representation of reality that is easier to deal with and explore for a specific purpose than reality itself. Verbal Boxes and Arrows Graphical Mathematical 14

10 An Example of a Verbal Model Sales of a new product often start slowly as innovators in the population adopt the product. The innovators influence imitators, leading to accelerated sales growth. As more people in the population purchase the product, sales continue to increase but sales growth slows down. 15

11 Boxes and Arrows Model Fixed Population Size Innovators Timing of Purchases by Innovators Innovators influence imitators Imitators Timing of Purchases by Imitators Pattern of Sales Growth of New Product 16

12 Graphical Model Fixed Population Size Cumulative Sales of a Product Time 17

13 Mathematical Model dx t dt = (a + bx t )(N x t ) where: x t = Total number of people who have adopted product by time t N = Population size a,b = Constants to be determined. The actual path of the curve will depend on these constants 18

14 Decision Model System Marketing Actions (Inputs) Product design Price Advertising Selling effort, etc Competitive Actions (2) Market Response (1) Model (4) (3) Environmental Conditions Observed Market Response Awareness level Preference level Sales Level Control Adaption (6) Objectives Evaluation (5) 19

15 Are Models Valuable? Belief: No mechanical prediction method can possibly capture the complicated cues and patterns humans use for prediction. Hard Fact: A host of studies in medical diagnosis, loan granting, auditing and production scheduling have shown that even simple models out-perform expert judgment. Example: Bowman and Kunreuther showed that simple models based on managers past behavior, (for production scheduling and inventory decisions) out-perform the managers themselves in the future. 20

16 Models vs Intuition/Judgments Types of Subjective Objective Judgments Experts Had to Make Mental Model Decision Model Decision Model Academic performance of graduate students Life expectancy of cancer patients Changes in stock prices Mental illness using personality tests Grades and attitudes in psychology course Business failures using financial ratios Students rating of teaching effectiveness Performance of life insurance salesman IQ scores using Rorschach tests Mean (across many studies) Source: Russo and Schoemaker

17 Sample Applicant Profile Data for Academic Performance Study in Previous Slide Under- Appli- Personal Selectivity graduate College Work GMAT GMAT cant Essay of Under- Major Grade Exper- Verbal Quantigraduate Institution Avg. ience tative 1 poor highest science % 60% 2 excellent above avg. business % 80% 3 average below avg. other % 80% 117 weak least business % 99% 118 strong above avg other % 67% 119 excellent highest science % 25% 120 strong not very business % 58% 22

18 The Value of Information/Insights? In-class exercise. 23

19 Complexity of Marketing Environment Sales response to a single market instrument Marketing mix interaction Delayed response Multiple territories Multiple products Functional interactions Multiple goals Competitive response Uncertainty Non-stationarity 24

20 A Focus on.. Decision Model Benefits Small models/theoretical models can offer insight Models can identify phenomena Operational models can provide long-term benefits 25

21 Small Models Example: Trial/Repeat Model Share = % Aware % Available Aware % Try Aware, Available % Repeat Try, Aware, Available, Usage Rate 26

22 Trial/Repeat Model Target Population Aware? Available? Try? 50% 80% 40% Repeat? 50% Market Share =? 27

23 Model Diagnostics hi Trial low hi J Repeat low L 28

24 Trial Dynamics 100% You may get everyone to try % Population Trying (Trial) Time 29

25 Repeat Dynamics 100% % Repeaters Among Triers (Repeat) Note late triers often do not become regular users Time 30

26 = Share Dynamics 100% Share = (Trial Repeat) Fiona the brand manager gets promoted Steve, her replacement, gets fired John, the caretaker, takes over Time 31

27 New Phenomenon: Retail Outlet Management What People Observed Sales/Outlet What People Thought # Company Outlets in Market 32

28 Why? 100 Market Share Market Share = Outlet Share Outlet Share Typical outlet-share/market-share relationship 33

29 Retail Building Implications 1. Market Share = Outlet Share Use incremental analysis and spread resources evenly. But 2. Market Share/Outlet Share is S-shaped Concentrate in few areas Invest or divest 34

30 Organizational Value of Decision Models 35

31 But, Why Do Managers Prefer Intuition? Is It Because. Mental models are often good enough? Models are incomplete? Managers cannot typically observe the opportunity costs of their decisions? Models require precision? Models emphasize analysis; Managers prefer actions? Managers are compensated based on actual outcomes, not on the strategic desirability of a decision? Software useability? (Needed) research on use/implementation of marketing decision models 36