Perceptual Mapping EWMBA 206.1

1. Perceptual MappingEWMBA 206.1 Session 3 Fall 2009

2. Perceptual Maps To gain competitive advantage, a firm must correctly position itself, its products, or services against competitive offerings. Need to develop a �Mental Map� of how our product is perceived by consumers relative to the different competing products in the marketplace. Linking Segmentation and Positioning. Techniques that help us to construct such mental or Perceptual Maps are called Multidimensional Scaling and Factor Analysis. Who am I My name is ganesh iyer. And I would like to tell you something about myself. I am originally from the city of Bombay in India. I have an undergraduate degree in electrical engineering and an MBA from the university of Bombay. I also have a Ph.D in marketing from the University of Toronto. I have seven years of corporate experience in a wide variety of marketing jobs and industries both in India and in North America. I have worked as a product manager. In the early part of my career I have handled the largest brand of alcoholic beverages in India. then in the later part of my career I swicthed to being a product manager for in the pharmaceutical industry when I began working for Boots Pharmaceuticals which with glaxo�s is one of the largest pharmaceutical conglomerate in Europe. In fact one of the brands that I handled was �Advil� some of you may recognize that as a headache tablet. Perhaps this change in my carreer was probably to make up for all the hangover headaches that I must have been responsible for as a product manager for alcoholic beverages. I have also worked as a sales manager and have handled large sales forces. Finally in Canada I have worked as a marketing research specialist before I joined the Phd program when I did projects for companies like Shell, McKinsey Consulting and Ault Foods. I have consulted for P&G and.. I have also provided consulting on competition and antitrust policy issues to various agencies. My research deals with economic analysis of marketing problems. During my Ph.D I got training in microeconomic theory, a frontier level mathematical theory of competitive analysis and strategy called game theory and industrial organization. And so I use these theoretical framework to attack various marketing problems. I am particularly interested in problems dealing with distrbution channels, retailing and customer service. In terms of teaching I have taught the principles and other advanced marketing management courses as also a course in marketing research. One thing that you will notice that I will often tend to get very excited in the class and you will have to get used to that. I love teaching this principles course and also my research and you will see that this translates into high energy levels in the class. So now enough about me. Lets us get to hear about each one of you. I would like each one of you to introduce yourself say a few sentences about yourself�� Who am I My name is ganesh iyer. And I would like to tell you something about myself. I am originally from the city of Bombay in India. I have an undergraduate degree in electrical engineering and an MBA from the university of Bombay. I also have a Ph.D in marketing from the University of Toronto. I have seven years of corporate experience in a wide variety of marketing jobs and industries both in India and in North America. I have worked as a product manager. In the early part of my career I have handled the largest brand of alcoholic beverages in India. then in the later part of my career I swicthed to being a product manager for in the pharmaceutical industry when I began working for Boots Pharmaceuticals which with glaxo�s is one of the largest pharmaceutical conglomerate in Europe. In fact one of the brands that I handled was �Advil� some of you may recognize that as a headache tablet. Perhaps this change in my carreer was probably to make up for all the hangover headaches that I must have been responsible for as a product manager for alcoholic beverages. I have also worked as a sales manager and have handled large sales forces. Finally in Canada I have worked as a marketing research specialist before I joined the Phd program when I did projects for companies like Shell, McKinsey Consulting and Ault Foods. I have consulted for P&G and.. I have also provided consulting on competition and antitrust policy issues to various agencies. My research deals with economic analysis of marketing problems. During my Ph.D I got training in microeconomic theory, a frontier level mathematical theory of competitive analysis and strategy called game theory and industrial organization. And so I use these theoretical framework to attack various marketing problems. I am particularly interested in problems dealing with distrbution channels, retailing and customer service. In terms of teaching I have taught the principles and other advanced marketing management courses as also a course in marketing research. One thing that you will notice that I will often tend to get very excited in the class and you will have to get used to that. I love teaching this principles course and also my research and you will see that this translates into high energy levels in the class. So now enough about me. Lets us get to hear about each one of you. I would like each one of you to introduce yourself say a few sentences about yourself��

3. What is a Perceptual Map A perceptual map is a visual representation of how target customers view the competing alternatives in a Euclidean space which represents the market The map has the following characteristics: Pair-wise distances between product alternatives directly indicate how close or far apart the products are in the minds of customers A vector on the map indicates both magnitude and direction in the Euclidean space. Vectors are usually used to geometrically denote attributes of the perceptual maps The axes of the map are a special set of vectors suggesting the underlying dimensions that best characterize how customers differentiate between alternatives

4. Perceptual Mapping Process Specify the "Relevant" Objects or Products. Relevance means that the set of products chosen must be the set of competitive products that are relevant for managerial decision-making. Two possible methodologies to collect information on consumers perception of products: Method 1: Attribute based method (Factor Analysis). Method 2: Similarity-Based method (Multi-Dimensional Scaling)

5. Method 1: Attribute Rating MethodExample: Evaluation of a New Laptop concept. Select a set of laptop computers of interest to be the target group including the new concept�(say 4 products) Decide on the set of relevant attributes on which to capture consumer perceptions (6 attributes) Prior quantitative or qualitative research that elicits important attributes for the target consumers. Ensure that consumers are familiar with the laptops that are to be evaluated (e.g., through video presentation, or actual prototypes) Respondents (target customers) evaluate / rank or rate products.

6. Perceptual Mapping

7. Factor Analysis: Key Concepts It is difficult to get a clear picture of the market when dealing with so many attributes and products. All the data/dimensions might not be necessary to capture consumer perceptions. Why? Highly correlated attributes Create linear combination of the measures to get a single new dimension of the original attributes. Take out attributes on which all computers are rated about the same. Factor analysis output: Say 70% of the information contained in the original attributes can be represented by creating just 2 new dimensions. These dimensions are called factors. Analysis done using commercial software SPSS or SAS

8. Example Plot of Attributes of Laptops on a 2D Perceptual Map

9. Example Plot of Attributes of Laptops on a 2D Perceptual Map

10. Guidelines for Interpreting Perceptual Maps (Laptop) The arrow indicates the direction in which that attribute is increasing. Length of the line from the origin to the arrow is an indicator of the variance of that attribute explained by the 2D map. The longer this line, the greater is the importance of that attribute in explaining variance. Attribute that are both relatively important (i.e., long vector) and close to the horizontal (vertical) axis help interpret the meaning of axis. To represent a laptop on each attribute, draw an imaginary perpendicular line from the location of the laptop onto that attribute. (These are shown by dashed lines on the map). What practical uses can you now put this map to at this stage?

11. Limitations Researcher should be able to clearly conceptualize the attributes No perception gap between intended and actual perception of the attributes. Works well for hard or functional attributes, (price, product features).

12. Method 2: Overall Similarity RatingsMultidimensional Scaling Suppose we are interested in developing a perceptual map of the ED market consisting of Viagra, Levitra and Cialis. Suppose we ask a respondent for his perceptions of the similarities among the 3 products by asking for his judgments about all possible pairs (3 possible pairs) Ask the respondent to rank on a scale of 1-7 the similarity of two products. Do this for all pairs�n products => n(n-1)/2 pairs. 1 is very similar 7 is very different How different are the products perceived? What are features distinguish different products Commercial software implementation SPSS and SAS.

13. ED Market

14. ED Market

15. MDS Perceptual Map

16. Multidimensional Scaling With 3 products, I can perfectly represent the information in two dimensions With more products to be represented in two dimensions information loss Multidimensional scaling (MDS) is a mathematical technique that helps implement this analysis of similarity perceptions with minimum information loss. What are advantages/disadvantages of MDS Allows you to map products and simultaneously infer attributes. Better for softer attributes which we do not verbalize very well (feel, aesthetics) Impractical when the number of products are large. Commercial software implementation SPSS, SAS modules.

17. Uses of Perceptual Maps Customer Analysis and Competitive Analysis Understand the competitive market structure as perceived by customers. Position relative to competition Select the set of competitors to compete against Represent customers� perceptions in a manner that aids communication and discussion within the organization Product Perceptions of a new product concept in the context of existing brands in the market Finding the �gap� in the market to position the product.

18. Learning Perceptual maps are about �How our product is perceived by consumers relative to competition?� Link Segmentation and Positioning Segmentation, Positioning and Perceptual mapping involve careful and sophisticated quantitative analysis and not vague managerial intuition. Two important methods to develop perceptual maps Attribute rating Similarity rating

19. Multi-dimensional Scaling (MDS) AlgorithmTechnical Note

20. A commonly-used stress formula in MDS

21. Number and Labeling of Dimensions Stress values less than 0.05 are considered good and maps with stress values greater than 0.20 are not generally meaningful Interpret the dimensions in the map Infer meanings of dimensions May need inputs from respondents to interpret the map