LECTURE 1 - INTRODUCTION
What is marketing from the perspective of the consumer?
- A way to make products and services conveniently available
vs
- A method to change preferences and willingness to pay
Marketing is the new finance
The marketing framework
- Product & price
(combined)
determine value
proposition
- Place &
promotion is about
distribution of
goods and
information
Four P’s don’t run on the same clock speed:
- Pricing is often a fast instrument (changing it quickly, implementing quickly will create quick
market response); often used when you want to change things quickly; marginal cost is the
floor (lowest price willing to pay; ceiling is willingness to pay)
- Product is very slow; making new products (7-9 years) and slower consumer response
Ultimatum game (1)
1. Two persons encountering one another once
2. Person A proposes to person B how to divide an amount of money
3. Person B can say yes or no
→ Yes: A and divide the money as proposed
→ No: The money disappears and is gone forever
Ultimatum game (2)
1. Has been studies in many contexts
2. Theory suggests person A proposes minimum to person B who accept
3. Puzzle: in practice person A proposes much more
Findings:
- Modal offer: 40-50%
- Mean offer: 30-40%
- Offers below 20% are rejected half of the time
,- Offers below 10% are very rare
- Offers above 50% are very rare
- Offers around 40-50% are rarely rejected
Repetition: Has little effect
Stakes: Some % effect, though person B will reject larger offers with higher stakes
Anonymity: Has little effect
Gender: Same offers, women reject less often
Race: Little difference
Age: Little children make smaller offers than adults
Brais: Those who figured out the equilibrium offered 5% less
Biology: High testosterone males reject more but make larger offers
Beauty: Somewhat higher offers to beautiful people
Dictator game
1. Two persons, encountering one another once
2. Person A proposes to person B how to divide an amount of money
3. Person B has to accept A
Pricing decisions
Sharing the value a company creates between itself and its customers
- Pricing is the function that shares value between sellers and consumers. Divides value. Need
to think about consumer surplus. Ethics. Fairness.
- Foundation of the course is economic frameworks & elements of psychology. Focused on
marketing practise.
LECTURE 2 - MEASURING PREFERENCES
Issues in measuring consumer preference
What are good measures of preference?
1. Price is a good measure: if you are willing to pay that
means you have a high preference
2. Trade-offs: benefits vs costs
3. Price sensitivity - depends on goods
4. Repurchase
,5. Risk aversion
6. Brand attitude / equity
7. Rating and ranking preference
8. Market shares
9. Talk to sales reps
Preferences
Intention to buy
- too hard a question
- overconfident about buying probability
Self-reported importance weights
- lack of discrimination, everything is important
Trade-offs
- benefits and costs
- what is desired most
Actual purchase data
- counts
- sales force reports
Stated intention-to-buy measures
- All people overestimate their
intention to purchase
- There is still useful info in the
graph: def. yes is more likely
to buy than def. no
- Difference between def. yes
and def. no is not substantial
- Provides translation between
what people say and do
Toward conjoint analysis
- Value in asking consumers to
give tradeoffs vs allowing them to have everything
- Ideal points are generally not feasible
- Consumers more experienced in balancing cost and benefit than in stating ideal points
→ So use cost-benefit trade offs
Conjoint analysis
Survey-based research technique designed to force customers to make tradeoffs, thereby
revealing their true preferences.
, → Products and services are treated as combinations of features
→ Procedure produces a mathematical model of each customer’s ‘value system’
Conjoint aims to do two things really well:
1. Willingness to pay
Measure what individual consumers are willing to give up to obtain certain product
benefits
2. Distribution of willingness to pay
Measure how consumers differ in their willingness to pay
When is conjoint analysis typically applied?
Sample conjoint survey
Example of conjoint questionnaire:
Why does it work?
- Use regression approach
> Progress rating on the absence or presence of certain attribute levels
> Result: how much each attribute affects value
- Profiles are chosen such that the attributes are independent
What is marketing from the perspective of the consumer?
- A way to make products and services conveniently available
vs
- A method to change preferences and willingness to pay
Marketing is the new finance
The marketing framework
- Product & price
(combined)
determine value
proposition
- Place &
promotion is about
distribution of
goods and
information
Four P’s don’t run on the same clock speed:
- Pricing is often a fast instrument (changing it quickly, implementing quickly will create quick
market response); often used when you want to change things quickly; marginal cost is the
floor (lowest price willing to pay; ceiling is willingness to pay)
- Product is very slow; making new products (7-9 years) and slower consumer response
Ultimatum game (1)
1. Two persons encountering one another once
2. Person A proposes to person B how to divide an amount of money
3. Person B can say yes or no
→ Yes: A and divide the money as proposed
→ No: The money disappears and is gone forever
Ultimatum game (2)
1. Has been studies in many contexts
2. Theory suggests person A proposes minimum to person B who accept
3. Puzzle: in practice person A proposes much more
Findings:
- Modal offer: 40-50%
- Mean offer: 30-40%
- Offers below 20% are rejected half of the time
,- Offers below 10% are very rare
- Offers above 50% are very rare
- Offers around 40-50% are rarely rejected
Repetition: Has little effect
Stakes: Some % effect, though person B will reject larger offers with higher stakes
Anonymity: Has little effect
Gender: Same offers, women reject less often
Race: Little difference
Age: Little children make smaller offers than adults
Brais: Those who figured out the equilibrium offered 5% less
Biology: High testosterone males reject more but make larger offers
Beauty: Somewhat higher offers to beautiful people
Dictator game
1. Two persons, encountering one another once
2. Person A proposes to person B how to divide an amount of money
3. Person B has to accept A
Pricing decisions
Sharing the value a company creates between itself and its customers
- Pricing is the function that shares value between sellers and consumers. Divides value. Need
to think about consumer surplus. Ethics. Fairness.
- Foundation of the course is economic frameworks & elements of psychology. Focused on
marketing practise.
LECTURE 2 - MEASURING PREFERENCES
Issues in measuring consumer preference
What are good measures of preference?
1. Price is a good measure: if you are willing to pay that
means you have a high preference
2. Trade-offs: benefits vs costs
3. Price sensitivity - depends on goods
4. Repurchase
,5. Risk aversion
6. Brand attitude / equity
7. Rating and ranking preference
8. Market shares
9. Talk to sales reps
Preferences
Intention to buy
- too hard a question
- overconfident about buying probability
Self-reported importance weights
- lack of discrimination, everything is important
Trade-offs
- benefits and costs
- what is desired most
Actual purchase data
- counts
- sales force reports
Stated intention-to-buy measures
- All people overestimate their
intention to purchase
- There is still useful info in the
graph: def. yes is more likely
to buy than def. no
- Difference between def. yes
and def. no is not substantial
- Provides translation between
what people say and do
Toward conjoint analysis
- Value in asking consumers to
give tradeoffs vs allowing them to have everything
- Ideal points are generally not feasible
- Consumers more experienced in balancing cost and benefit than in stating ideal points
→ So use cost-benefit trade offs
Conjoint analysis
Survey-based research technique designed to force customers to make tradeoffs, thereby
revealing their true preferences.
, → Products and services are treated as combinations of features
→ Procedure produces a mathematical model of each customer’s ‘value system’
Conjoint aims to do two things really well:
1. Willingness to pay
Measure what individual consumers are willing to give up to obtain certain product
benefits
2. Distribution of willingness to pay
Measure how consumers differ in their willingness to pay
When is conjoint analysis typically applied?
Sample conjoint survey
Example of conjoint questionnaire:
Why does it work?
- Use regression approach
> Progress rating on the absence or presence of certain attribute levels
> Result: how much each attribute affects value
- Profiles are chosen such that the attributes are independent
