Chapter Eight Experimentation in Marketing Research

Copyright © Houghton Mifflin Company. All rights reserved.8 | 2 Eddie Bauer's Electronic Windows Eddie Bauer, a leading tri-channel specialty retailer was looking for a way to draw more shoppers into their stores Indiana University students conducted an in- store advertising experiment using electronic window posters (images displayed on plasma screens) on 3 selected stores

Copyright © Houghton Mifflin Company. All rights reserved.8 | 3 Electronic Windows (Cont’d) RESULTS –The number of passersby who entered the control stores went up 7 percent –Sales soared 56 percent compared to the weeks before the installation of digital windows

Copyright © Houghton Mifflin Company. All rights reserved.8 | 4 Advertising Experiment Will replacing commercial A with commercial B lead to a marked increase in consumer preference for a company’s brand?

Copyright © Houghton Mifflin Company. All rights reserved.8 | 5 Pricing Experiment Can a company improve the profitability of its fashion clothing line by increasing its price by 10 percent?

Copyright © Houghton Mifflin Company. All rights reserved.8 | 6 Sales Productivity Experiment Will an increase in the average number of sales calls per customer from six to eight per year significantly improve sales?

Copyright © Houghton Mifflin Company. All rights reserved.8 | 7 Shelf Space Experiment Will decreasing the shelf space allocated to brand X detergent by 25 percent significantly lower its sales?

Copyright © Houghton Mifflin Company. All rights reserved.8 | 8 Direct Mail Experiment Will it be worthwhile to mail last year's donors an attractive (but expensive) brochure describing the company’s activities and soliciting higher contributions for this year?

Copyright © Houghton Mifflin Company. All rights reserved.8 | 9 Experiment An experiment is a procedure in which a company manipulates one (or sometimes more than one) independent or cause variable and collects data on the dependent or effect variable while controlling for other variables that may influence the dependent variable

Copyright © Houghton Mifflin Company. All rights reserved.8 | 10 Descriptive Research This research asks consumers whether they would buy more of a product if its price were lowered Descriptive survey data will merely suggest causation

Copyright © Houghton Mifflin Company. All rights reserved.8 | 11 Experimental Research Manipulates the independent variable or variables before measuring the effect on the dependent variable –The effect of price changes on sales volume of a particular product can be examined by actually varying the price of the product The very basis of experimental research lies in the manipulation of independent variables

Copyright © Houghton Mifflin Company. All rights reserved.8 | 12 Conditions For Inferring Causality Temporal ordering of variables –X  Y not Y  X Evidence of association –X and Y are related ; presence of X  presence of Y; absence of X  absence of Y Control of other causal factors –X  Y, Z  Y

Copyright © Houghton Mifflin Company. All rights reserved.8 | 13 Laboratory vs. Field Experiments A laboratory experiment is a research study conducted in a contrived setting in which the effect of all, or nearly all, influential but irrelevant independent variables is kept to a minimum A field experiment is a research study conducted in a natural setting in which the experimenter manipulates one or more independent variables under conditions controlled as carefully as the situation will permit

Copyright © Houghton Mifflin Company. All rights reserved.8 | 14 Internal Validity Internal validity is the extent to which observed results are solely due to the experimental manipulation Laboratory experiments are generally high on internal validity Field experiments are generally low on internal validity

Copyright © Houghton Mifflin Company. All rights reserved.8 | 15 External Validity External validity is the extent to which observed results are likely to hold beyond the experimental setting Laboratory experiments are generally low on external validity Field experiments are generally high on external validity

Copyright © Houghton Mifflin Company. All rights reserved.8 | 16 Deciding Which Type of Experiment to Use Practical Considerations – Time – Cost – Exposure to competition – Nature of the manipulation

Copyright © Houghton Mifflin Company. All rights reserved.8 | 17 Test Marketing Dunkin Donuts and Baskin-Robbins are now offered in “combo” stores KaBloom is testing kiosk flower sales in a variety of locations Utilities companies are experimenting with providing Internet services via existing power lines

Copyright © Houghton Mifflin Company. All rights reserved.8 | 18 McDonald's Tests McPizza McDonald's test-marketed McPizza to strengthen the after-4pm adult market –Introduced McPizza with heavy advertising, emphasizing speedy service for pizza –McPizza received favorable nods in some test markets and had partial rollout nationally

Copyright © Houghton Mifflin Company. All rights reserved.8 | 19 McDonald's Tests McPizza (Cont’d) Pizza Hut, a leading competitor, reacted aggressively to McDonald's move by running a buy-one-get-one-free promotion wherever McPizza was introduced The sales performance of McPizza did not meet management's expectations

Copyright © Houghton Mifflin Company. All rights reserved.8 | 20 Simulated Test Marketing Step #1 Pre-recruitment Step #2 Background: habits and practices Step #3 Exposure to real advertising in a competitive context Step #4 Simulated store purchase Step #5 Post: purchase inquiry Step #6 Respondents take product home for usage Step #7 Post: usage evaluation

Copyright © Houghton Mifflin Company. All rights reserved.8 | 21 Virtual Test Markets-- Ray Burke, Professor of Business Administration at Indiana University Created a virtual store to determine how products catch a consumer's eye Computer 3-D graphics create a feeling of being in a store, walking past shelves of grocery items just as in a real store Consumers can pick items off the virtual shelves to examine them as in real store and can select items they would buy

Copyright © Houghton Mifflin Company. All rights reserved.8 | 22 Virtual Test Markets Virtual simulated marketing tests will enable companies to examine consumers' reactions to new products, product line extensions, prices, packaging, and merchandising

Copyright © Houghton Mifflin Company. All rights reserved.8 | 23 Scanner Data Analysis Electronic scanners at the checkouts capture the product sales Marketers of packaged goods conduct sophisticated field experiments The data from the stores are transmitted electronically to central computers for analysis and interpretation Information Resources Inc. (IRI) and ACNielsen offer marketers a variety of services through their information system called BehaviorScan and Scantrack

Copyright © Houghton Mifflin Company. All rights reserved.8 | 24 Web-Based Experiments Web-based experimentation will enable companies to test a wide range of possible marketing mix changes and statistically model consumer responses to these changes

Copyright © Houghton Mifflin Company. All rights reserved.8 | 25 Web-based Experiments Conducted to Test the Effectiveness of Banner Advertising Random people were selected while visiting the company’s website The questionnaire asked them to complete a short questionnaire while on the site Participants are shown random test banner ads Participants fill out a second survey, answering questions about the impact of the banner ads on their impressions of the brand

Copyright © Houghton Mifflin Company. All rights reserved.8 | 26 Web-based Experiments Conducted to Test the Effectiveness of Banner Advertising (Cont’d) What are the independent variables? What is the dependent variable? What are some validity threats?

Copyright © Houghton Mifflin Company. All rights reserved.8 | 27 Internal Validity The presence of any condition or occurrence (other than the independent variable manipulation) that can offer a compete explanation for the experimental results is a threat to internal validity

Copyright © Houghton Mifflin Company. All rights reserved.8 | 28 Threats to Internal Validity History - external events Maturation - physiological or psychological changes that occur over time Pretesting - Early responses impact later responses Instrument Variation - questionairre changes Selection - groups differ on characteristics Mortality - participants drop put

Copyright © Houghton Mifflin Company. All rights reserved.8 | 29 Threats To External Validity External validity of experimental results relates to their generalizability The various internal validity threats also indirectly affect external validity Biases that stand in the way of generalizing experimental results: – Reactive bias – Pretest-manipulation interaction bias – Non-representative-sample bias

Copyright © Houghton Mifflin Company. All rights reserved.8 | 30

Copyright © Houghton Mifflin Company. All rights reserved.8 | 31 Hyundai India’s Experiment Hyundai wanted to test and increase its brand awareness in rural India Hyundai attempted to identify and establish relationships with village leaders –The leaders are the only ones offered a test drive of the vehicle –A van with a video screen is brought to the village

Copyright © Houghton Mifflin Company. All rights reserved.8 | 32 Hyundai India’s Experiment (Cont’d) Advertisements are shown to the assembled villagers via the vans’ screens In some cases, the leaders take this opportunity to announce they have decided to purchase the vehicle These types of field experiments are not conventional field experiments, they are intended to gauge the effectiveness of a novel marketing technique

Copyright © Houghton Mifflin Company. All rights reserved.8 | 33 Hyundai India’s Experiment (Cont’d) What do you think of the Hyundai experiment? What causal inference is implied in this scenario? What is your evaluation of the validity of the implied causal inference?

Copyright © Houghton Mifflin Company. All rights reserved.8 | 34 Pre-Experimental Designs Pre-experimental designs exert little or no control over the influence of extraneous factors These studies are not much better than descriptive studies when it comes to making causal inferences Pre-experimental: emphasizes the fact that these studies are more exploratory than conclusive as far as causal inferences are concerned

Copyright © Houghton Mifflin Company. All rights reserved.8 | 35 Reasons for Studying Pre-Experimental Designs Studies employing pre-experimental designs often form the basis for causal inferences in the real world, and we need to be aware of their pitfalls to avoid interpreting their findings at face value Comparisons with pre-experimental designs can help highlight the merits of true experimental designs

Copyright © Houghton Mifflin Company. All rights reserved.8 | 36 One-Group, After-Only Design Situation A. A company introduces a new brand of margarine in four test market areas and employs a unique and revolutionary promotional campaign for it –The brand captures at least a 10 percent share in each market within two months after introduction –The company's management concludes that the revolutionary promotional campaign played a major role in the market share achieved by the brand

Copyright © Houghton Mifflin Company. All rights reserved.8 | 37 One-Group, After-Only Design (Cont’d) Situation B. The president of the United States makes a television speech soliciting public support for legislation favoring prayer in public schools –A telephone survey of those who viewed the presidential speech indicates that 70 percent favor such legislation –The president's speech is therefore considered to have had a significant impact on the U.S. public

Copyright © Houghton Mifflin Company. All rights reserved.8 | 38 One-Group, After-Only Design (Cont’d) Casual inference from a one-group, after-only design cannot be trusted entirely

Copyright © Houghton Mifflin Company. All rights reserved.8 | 39 True Experimental Designs The presence of one or more control groups The random assignment of units to various experimental and control groups Random assignment distributes the sample units chosen for a study to various groups on a strictly objective basis so that the group compositions can be equivalent before an experiment is started

Copyright © Houghton Mifflin Company. All rights reserved.8 | Ford F-150 Launch Ford launched the redesigned F-150 with the biggest communication blitz in its history 90% of the spending went to television, and it was estimated that males 25 – 49 saw the F-150 ad 30 times during the 60 day launch The Internet was also extensively used for this campaign An online marketing research companies was hired to track the effectiveness of this campaign

Copyright © Houghton Mifflin Company. All rights reserved.8 | Ford F-150 Launch (Cont’d) The researchers used a variety of experimental designs to isolate the effects of the various media The campaign was shown to be highly successful, and overall brand recall rose 26 percent over the course of the campaign

Copyright © Houghton Mifflin Company. All rights reserved.8 | 42 Experimental Designs EGXO O1XO2 EG CG XO1 O2 EG CG O1 O3 XO2 O3