MARKETING MODELS Gary L. Lilien Penn State University Philip Kotler Northwestern University K. Sridhar Moorthy University of Rochester Prentice Hall, Englewood Cliffs, New Jersey 07632
CONTENTS PREFACE xi THEORY AND MODELS IN MARKETING 1 SCIENCE AND MARKETING MODELS 1 THE COMPLEXITY OF MARKETING 4 MODELS 5 Methodology 6 Purpose 6 DECISION SUPPORT MODELS 10 THEORETICAL MODELING IN MARKETING 11 FOCUS AND STRUCTURE OF THIS BOOK 16 PROBLEMS 17 CONSUMER BEHAVIOR 19 CHAPTER OVERVIEW 19 The Foundations of Consumer Behavior Models 20 The Nature of Consumer Behavior Models 22 UNDERSTANDING THE STAGES OF CONSUMER CHOICE 24 A Five-Stage Model of Consumer Behavior 25 Level of Involvement 28 Use of the Framework: A Range of Models 30 STOCHASTIC MODELS 31 Purchase Incidence Models 32 Stochastic Models of Brand Choice 40
vi Contents PROCESS-ORIENTED MODELS OF THE CONSUMER CHOICE PROCESS 56 Need Arousal 56 Information Search 64 Perceptual-Evaluation Models 74 Models of Attitüde and Preference Formation Purchase 97 Postpurchase and Purchase Feedback 107 88 INTEGRATION: EXAMPLES OF COMBINING MODELS TO SOLVE MANAGEMENT PROBLEMS 111 FUTURE DIRECTIONS FOR CONSUMER BEHAVIOR MODELS 123 SUMMARY 125 PROBLEMS 126 ORGANIZATIONAL BUYING MODELS 136 GENERAL MODELS OF ORGANIZATIONAL BEHAVIOR 138 The Sheth Model 138 Webster-Wind Model 140 The Choffray-Lilien Model 141 GROUP CHOICE 149 BARGAINING MODELS 154 Models of Bargaining Outcomes 157 Process Models of Negotiation 162 RESEARCH NEEDS IN ORGANIZATIONAL BUYING MODELS 165 SUMMARY 166 PROBLEMS 167 PRICE 169 PRICING 169 A MICROECONOMIC VIEW OF PRICING 171 DEVELOPING DEMAND AND COST INFORMATION FOR PRICING DECISIONS 189 MODEL EXTENSIONS 191 SETTING PRICE IN PRACTICE 206 SUMMARY 212 PROBLEMS 213 PRODUCT 218 THE PRODUCT: DEFINITIONS AND CLASSIFICATION 218
Contents VÜ THE THEORY OF PRODUCT STRATEGY 219 Product Strategy for a Monopolist 223 Product Strategy with Competition 229 DECISION MODELS FOR PRODUCT DESIGN 238 Model-Based Procedures for Product Design 245 SUMMARY 258 PROBLEMS 258 6 ADVERTISING 263 THE EFFECTS OF ADVERTISING 265 OBJECTIVE SETTING AND BUDGETING 275 Practice and Models 275 Other Approaches 292 MESSAGE AND COPY DECISIONS 295 Copy Testing and Measures of Copy Effectiveness 296 Estimating the Creative Quality of Ads 301 How Many Advertisements Should Be Created and Pretested? 302 MEDIA SELECTION AND SCHEDULING 307 Modeling Approaches 312 SUMMARY 319 PROBLEMS 320 PROMOTION 324 SALES PROMOTION: TYPES AND EFFECTS 324 Objectives of Promotions 326 Characteristics of Promotions 327 Evidence of Promotional Effects 329 PROMOTIONAL MODELS 334 Other Promotional Models 353 The Future of Promotional Models 356 SUMMARY 357 PROBLEMS 358 8 SALES FORCE 361 PERSONAL SELLING: TASKS, IMPORTANCE AND MODELS 362 The Role of the Sales Force 362 Sales Force Decision Problems 362 MODELING SALES FORCE PROBLEMS 365
viii Contents Sales Force Sizing 365 Allocation of Selling Effort 371 Sales Territory Design 380 Setting Commissions and Quotas: Indirect Control of the Sales Force 385 Integrative Models for Sales Force Decisions 398 SUMMARY 402 PROBLEMS 403 9 DISTRIBUTION 407 THE DISTRIBUTION PROBLEM 407 DISTRIBUTION STRATEGY 412 DISTRIBUTION LOCATION 431 Market-Selection Decision 431 Number-of-Outlets Decision 434 Site-Selection Decision 438 Store-Size and Characteristic Decisions 445 DISTRIBUTION LOGISTICS 448 SUMMARY 452 PROBLEMS 453 10 NEW PRODUCT PLANNING 457 TYPES OF NEW PRODUCT SITUATIONS 458 THE ADOPTION PROCESS FOR NEW PRODUCTS 461 AGGREGATE DIFFUSION MODELS: MODELS OF FIRST PURCHASE 464 REPEAT-PURCHASE MODELS FOR NEW PRODUCTS 480 SUMMARY 497 PROBLEMS 500 11 STRATEGY 506 MARKETING PLANNING AND STRATEGY DECISIONS 506 Market Definition and Market Structure 509 The Product Life Cycle 512 Cost Dynamics: Scale and Experience Effects 517 Marketing-Mix Analysis and Models 523 Competition 538 Analytical Approaches to Market-Strategy Development 547 SUMMARY 566 PROBLEMS 566
Contents ix 12 DECISION SUPPORT AND IMPLEMENTATION 573 THE EVOLUTION OF BUSINESS SYSTEMS 573 DECISION SUPPORT SYSTEMS 574 INTELLIGENT MARKETING SYSTEMS 581 IMS/MDSS: A BRIDGE TO SUCCESSFUL IMPLEMENTATION FOR MARKETING MODELS 589 Model/System-Related Dimensions of Implementation Success 592 Implementation Rules of Thumb 596 A LOOK AHEAD 597 PROBLEMS 598 Appendix A MATHEMATICS FOR MARKETING MODELS 599 MISCELLANY: A GRABBAG OF ELEMENTARY TOPICS 599 SOME IMPORTANT STATISTICAL DISTRIBUTIONS FREQUENTLY USED IN MARKETING MODELS 601 MIXING DISTRIBUTIONS AND HETEROGENEITY 611 MATHEMATICS OF OPTIMIZATION 616 Linear Inequality Constrained Optimization 623 Multiple-Objective Optimization 627 Linear Differential Equations 631 Appendix B OBJECTIVES AND UTILITIES 639 DECISION MAKERS AND OBJECTIVES 639 INCORPORATING RISK: ASSESSING UTILITY FUNCTIONS 641 MULTIPLE-GOAL FORMULATIONS: SINGLE DECISION MAKER 645 MULTIPLE DECISION MAKERS 647 Appendix C AGGREGATE MARKET RESPONSE MODELS 650 A TAXONOMY OF MODELS 650 NONCOMPETITIVE MARKET RESPONSE PHENOMENA 651 A Brief Catalog of One-Variable Mathematic Forms 653 Interactions 660 DYNAMIC EFFECTS 661 Discrete-Time Models 662 Continuous-Time Models 666 0
X Contents MODELING DEMAND AT DIFFERENT LEVELS 666 Market-Share and Product-Class Sales 666 Product-Class Sales Models 668 Market-Share Models 669 OTHER MODELING ISSUES 672 CHOOSING AND EVALUATING A MATHEMATICAL FORM 674 Appendix D MODEL CALIBRATION 675 OBJECTIVE PARAMETER ESTIMATION 675 Simple Linear Regression Model 676 Multiple Linear Regression 679 Parameter Estimation for Nonlinear Models 687 Multiple-Equation Problems and Solutions 690 Causal Models and Unobserved Variables 693 SUBJECTIVE PARAMETER ESTIMATION 696 BLENDING JUDGMENTAL AND EMPIRICAL DATA: BAYESIAN ESTIMATION 700 Appendix E GAME THEORY CONCEPTS 704 RATIONALITY, INTELLIGENCE, AND RULES OF THE GAME 704 STRATEGIC AND EXTENSIVE FORM REPRESENTATIONS 705 Nash Equilibrium 707 BIBLIOGRAPHY 717 AUTHOR INDEX 779 SUBJECT INDEX 785