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Causal Research: Experiments. Test Market

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1 Causal Research: Experiments. Test Market
Adrien CORFMAT

2 What is an Experiment ? Experiment: Research approach in which one variable is manipulated and the effect on another variable is observed. An experiment is straightforward. The researcher changes or manipulates one thing (called an experimental, treatment, independent, or explanatory variable) to observe the effect on something else (referred to as a dependent variable).

3 What is an Experiment ? In marketing experiments, the dependent variable is frequently some measure of sales, such as total sales, market share, or the like; experimental variables are typically marketing mix-variables, such as price, amount or type of advertising, and changes in product features. Experimental research provides evidence of whether a change in an independent variable causes some predictable change in a dependent variable.

4 Demonstrating Causation
To show that a change in A likely caused an observed change in B, one must be able to show three things: - Concomitant variation (correlation): Statistical relationship between two variables. - Appropriate time ordre of occurrence: Change in an independent variable occured before an observed change in the dependent variable. - Elimination of other possible causal factors: Had to prove that something else did not cause change in B.

5 Experimental Setting Experiments can be conducted in a laboratory or a field setting: - Laboratory: the researcher can control extraneous factors. However, in marketing research, laboratory settings often do not appropriately replicate the marketplace. - Field experiments: experiments conducted in the actual marketplace. The researcher cannot control all the other factors that might influence the dependent variable.

6 Experimental Validity
Validity is defined as the degree to which an experiment actually measures what the researcher was trying to measure. In experimentation, we are concerned with internal and external validity. - Internal validity refers to the extent to which competing explanations for the experimental results observed can be ruled out. - External validity refers to the extent to which causal relationships measured in an experiment can be generalized to outside persons, settings, and times.

7 Extraneous Variables In interpreting experimental results, the researcher would like to be able to conclude that the observed response is due to the effect of the experimental variable. However, many things stand in the way of the ability to reach this conclusion. Extraneous variables are other independent variables that may affect the dependent variable and thus stand in the way of the ability to conclude than an observed change in the dependent variable was due to the effect of the experimental, or treatment, variable.

8 Extraneous Variables Examples of Extraneous Variables: - History
- Maturation - Instrument variation - Selection bias - Mortality - Testing effect - Regression to the Mean

9 Extraneous Variables Controlling extraneous variables:
Four basic approaches are used to control extraneous factors: - Randomization - Physical control - Design control - Statistical control

10 Experimental Design, Treatment, and Effects
In an experimental design, the researcher has control over and manipulates one or more independent variables. An experimental design includes four factors: The treatment, or experimental, variable that is manipulated The subject who participate in the experiment A dependent variable that is measured Some plan or procedure for dealing with extraneous causal factors

11 Limitations of Experimental Research
Experiments have an obvious advantage in that they are the only type of research that can demonstrate the existence and nature of causal relationships between variables of interest. Yet the amount of actual experimentation done in marketing research is limited baceause of: - the high cost of experiments ( money and time) - the security issues (exposing a marketing plan in the actual marketplace)

12 Selected Experimental Designs
Pre-Experimental Design: Pre-experimental designs offer little or no control over the influence of extraneous factors and are thus generally difficult to interpret. True Experimental Designs: The researcher is able to eliminate all extraneous variables as competitive hypotheses to the treatment. Quasi-Experiments: The researcher has control over data collection procedures but lacks complete control over the scheduling of treatments.

13 Test Markets Test marketing involves testing a new product or some element of the marketing mix by using experimental or quasi-experimental designs. Test markets are field experiments, and they are extremely expensive to conduct.

14 Test Markets Test market studies are designed to provide information in regard to the following issues: - Estimates of market share and volume - The effects that the new product will have on sales of similar products already marketed by the company - Characteristics of consumers who buy the product (demographic data, lifestyle, psychographic…) - The behavior of competitors during the test. This may provide some indication of what competitors will do if the product is introduced nationally.

15 Test Markets We can categorized it into four types: Traditional:
Testing the product and other elements of the marketing mix through a firm’s regular channels of distribution. - Takes a long time (6 months or more), costly - Immediately tip one’s hand to the competition. Scanner or electronic: Markets where scanner panel research firms have panels of consumers who carry scannable cards for use in buying particular products, especially those sold through grocery stores. - Speed, lower cost, some degree of security regarding the marketing strategy - The major criticism is its unrepresentative sampling.

16 Test Markets Controlled:
Controlled test markets are managed by research suppliers who ensure that the product is distributed through the agreed upon types and numbers of distributors. - often supply more realistic levels of distribution - provide better monitoring of product movement Simulated: A more limited amount of information is used in conjunction with mathematical models that include estimates of the effects of different marketing variables that can be adjusted to fit the situation. - conducted more quickly than the other approaches, lower cost - produce results that are highly predictive of what will actually happen

17 Test Markets Costs of Test Marketing
Test markets are expensive, and, as a result, they should be used only as the last step in a research process that has shown the new product or strategy has potential. In some situations, it may be cheaper to go ahead and launch the product, even if it fails.

18 Test Markets Four major factors should be taken into account in determining whether to conduct a test market: Weigh the cost and risk of failure against the probability of success and associated profits. Consider the likelihood and speed with which competitors can copy your product and introduce it on a national basis. Consider the investment required to produce the product for the test market versus the investment required to produce the product in the quantities necessary for a national rollout. Consider how much damage an unsuccessful new product launch would inflict on the firm’s reputation.

19 Test Markets Steps in a Test Market Study
Once the decision has been made to conduct test marketing, a number of 7 steps must be carried out if we are to achieve a satisfactory result: - Define the objective - Select a basic approach - Develop detailed test procedures - Select test markets - Execute the plan - Analyse the test results

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