Title: Market Response Modeling
1Market Response Modeling
2Response Models
- Aggregate response models
- Individual response models
- Shared-experience models
- Qualitative response models
3The Concept of a Response Model
Idea
Marketing Outputs
- Sales
- Share
- Profit
- Awareness, etc.
4Input-Output Model
Marketing Actions Inputs
Observed Market Outputs
Competitive Actions
(2)
Market Response Model
(1)
(4)
(3)
Environmental Conditions
Control Adaption (6)
Evaluation (5)
Objectives
5Response Function
Max
Sales Response
Response Function
Current Sales
Min
Current Effort
Effort Level
6A Simple Model
Y (Sales Level)
b (slope of the sales line)
a (sales level
when advertising 0)
X (Advertising)
7(No Transcript)
8Phenomena
P1 Through Origin
P2 Linear
Y
Y
X
X
P3 Decreasing Returns (concave)
P4 Saturation
Y
Y
X
X
9Phenomena
P5 Increasing Returns (convex)
P6 S-shape
Y
Y
X
X
P8 Super-saturation
P7 Threshold
Y
Y
X
X
10Aggregate Response ModelsLinear Model
- Y a bX
- Linear/through origin
- Saturation and threshold (in ranges)
11Aggregate Response ModelsFractional Root Model
- Y a bXc
- c can be interpreted as elasticity when a 0.
- Linear, increasing or decreasing returns (depends
on c).
12Aggregate Response ModelsExponential Model
- Y aebx x gt 0
- Increasing or decreasing returns (depends on b).
13Aggregate Response ModelsModified Exponential
Model
- Y a (1 ebx) c
- Decreasing returns and saturation.
- Widely used in marketing.
14Aggregate Response ModelsAdbudg Function
- Y b (ab)
- S-shaped and concave saturation effect.
- Widely used.
- Amenable to judgmental calibration.
15Aggregate Response ModelsMultiple Instruments
- Additive model for handling multiple marketing
instruments - Y af (X1) bg (X2)
- Easy to estimate using linear regression.
16Aggregate Response ModelsMultiple Instruments
contd
- Multiplicative model for handling multiple
marketing instruments - Y aXb Xc
- b and c are elasticities.
- Widely used in marketing.
- Can be estimated by linear regression.
1 2
17Dynamic Effects
1. Marketing Efforte.g., sales promotion
18Dynamic Effects
2. Conventional delayed response and customer
holdout effects
Sales Response
Time
19Dynamic Effects
3. Hysteresis effect
Sales Response
Time
20Dynamic Effects
4. New trierwear out effect
Sales Response
Time
21Dynamic Effects
5. Stocking effect
Sales Response
Time
22Aggregate Response ModelsDynamics
- Dynamic response model
- Yt a0 a1 Xt l Yt1
-
- Easy to estimate.
carry-overeffect
currenteffect
23Aggregate Response ModelsMarket Share
- Market share (attraction) models
- Ai
- Mi
- A1 A2 . . . An
- Ai attractiveness of brand i.
- Satisfies sum (market shares sum to 1.0) and
range constraints (brand share is between 0.0 and
1.0) - Has proportional draw property.
24Individual-Level Response ModelsRequirements
- Satisfies sum and range constraints.
- Is consistent with the random utility model.
- Has the proportional draw property.
- Widely used in marketing.
25Individual-Level Response ModelsMNL
- Multinomial logit model to represent probability
of choice. The individuals probability of
choosing brand 1 is - eA1
- Pi1
- å eAj
- j
- where Aj å wk bijk
- k
26Logit Model Implications . . .
High
Marginal Impact of a Marketing Action
Low
0.0
0.5
1.0
Probability of Choosing the Alternative
27Attribute Ratings per Store
28Shares per Store
- (a) (b) (c) (d) (e)
- Share Share estimate estimate without
with Draw Store Ai wk bjk eiA new store new
store (c)(d) - 1 4.70 109.9 0.512 0.407 0.105
- 2 3.30 27.1 0.126 0.100 0.026
- 3 4.35 77.5 0.362 0.287 0.075
- New 4.02 55.7 0.206
29Objectives
- Profit( Sales Margin Costs)
- Sales
- ROI
- Market share
- Maximization over time
- Dealing with uncertainty
- Multiple goals
- Multiple points of view
- Others ??
30Shared Experience Models
- Base the response model on behavior observed at
other leading firms - Advisor model
- PIMS model
31Qualitative Response Models
- Rules to capture qualitative response
- The retailer will accept the trade deal, but
what he does with it is based on coop advertising
dollars. If the deal includes coop money, the
retailer will accept the deal and pass on all of
the discount to the consumer. If the discount is
greater than 30 percent, he will put up a big
display. Otherwise, the retailer leaves the item
at regular price and does not use an ad feature
or a display. - ADCAD