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Expectancy-Value Model For Market Share Prediction and Price Setting

Expectancy-Value Model For Market Share Prediction and Price Setting. Ted Mitchell. Your Job is to Predict . 1) Which Brand the customer will buy? 2) What is the Maximum Price the customer will pay for it? 3) What your relative Market share should be?

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Expectancy-Value Model For Market Share Prediction and Price Setting

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  1. Expectancy-Value ModelFor Market Share Predictionand Price Setting Ted Mitchell

  2. Your Job is to Predict • 1) Which Brand the customer will buy? • 2) What is the Maximum Price the customer will pay for it? • 3) What your relative Market share should be? • 4) How can you improve the Probability of the Customer Buying your product?

  3. RESULTS FROM RESPONDENT 2135 BRAND A BRAND B BRAND C BRAND D STYLE WEIGHT ? ? ? ? ? POWER WEIGHT ? ? ? ? ? Capacity WEIGHT ? ? ? ? ? COMFORT WEIGHT ? ? ? ? ?

  4. RESULTS FROM RESPONDENT 2135 BRAND A BRAND B BRAND C BRAND D STYLE 30% ? ? ? ? POWER 20% ? ? ? ? PRICE 15% ? ? ? ? COMFORT 35% ? ? ? ?

  5. Approach to Prediction • Compensatory Models Seek an overall score for prediction of choice • Non-compensatory Models assume a decision in the process of evaluation

  6. All Models Start With The Premise That if a product is scored best on all attributes by a customer then it will be purchased by that customer That is to say: The Dominance Model Of Choice is Universal

  7. Brand X is the dominant choice because it is best on all attributes. BRAND A BRAND B BRAND C BRAND X STYLE 30% 1 2 5 6 POWER 20% 6 3 4 7 Capacity 15% 3 4 2 5 COMFORT 35% 5 6 4 7

  8. When there is no dominant brand, then Compensatory explanations

  9. Compensatory Looks For BRAND A BRAND B BRAND C BRAND D STYLE 30% 1 2 5 6 POWER 20% 6 3 4 5 Capacity 15% 3 4 2 5 COMFORT 35% 5 6 4 2 OVERALL SCORE ? ? ? ?

  10. Non-compensatory: Lexicographic Identify Most Important attribute, then BRAND A BRAND B BRAND C BRAND D STYLE 30% 1 2 5 6 POWER 20% 6 3 4 5 Capacity 15% 3 4 2 5 COMFORT 35% 5 6 4 2

  11. Non-compensatory: Lexicographic Identify Most Important attribute, then BRAND A BRAND B BRAND C BRAND D STYLE 30% 1 2 5 6 POWER 20% 6 3 4 5 Capacity 15% 3 4 2 5 COMFORT 35% 5 6 4 2 Choose the brand with the best score on that attribute.

  12. Types of Non-compensatory Models • Conjunctive • Must meet a minimum level on all attributes or drop • Disjunctive • Be greater than a specific level on a few of the important attributes • Lexicographic • Highest on most important attribute, go to second most important attribute only to break a tie.

  13. Compensatory: Expectancy Value Model BRAND A BRAND B BRAND C BRAND D STYLE 30% 1 2 5 6 POWER 20% 6 3 4 5 Capacity 15% 3 4 2 5 COMFORT 35% 5 6 4 2 OVERALL SCORE ? ? ? ?

  14. RESULTS FROM RESPONDENT 2135 BRAND A BRAND B BRAND C BRAND D STYLE 30% .3 (1) =.3 .3(2) = 0.6 .3(5) = 1.5 .3(6) = 1.8 POWER 20% .2(6) =1.2 .2(3) = 0.6 .2(4) = 0.8 .2(5) = 1.0 Capacity 15% .15(3) = .45 .15(4) = 0.6 .15(2) = 0.3 .15(5) =0.75 COMFORT 35% .35(5) = 1.75 .35(6) = 2..1 .35(4) = 1.4 .35(2) = 0.7 OVERALL SCORE ? ? ? ?

  15. RESULTS FROM RESPONDENT 2135 BRAND A BRAND B BRAND C BRAND D STYLE 30% 0.3 0.6 1.5 1.8 POWER 20% 1.2 0.6 0.8 1.0 Capacity 15% .45 0.6 0.3 0.75 COMFORT 35% 1.75 2..1 1.4 0.7 OVERALL SCORE ? ? ? ?

  16. RESULTS FROM RESPONDENT 2135 BRAND A BRAND B BRAND C BRAND D STYLE 30% 0.3 0.6 1.5 1.8 POWER 20% 1.2 0.6 0.8 1.0 Capacity 15% .45 0.6 0.3 0.75 COMFORT 35% 1.75 2..1 1.4 0.7 OVERALL SCORE 0.3 + 1.2 +.45 + 1.75 = 3.75 ? ? ?

  17. RESULTS FROM RESPONDENT 2135 BRAND A BRAND B BRAND C BRAND D STYLE 30% 0.3 0.6 1.5 1.8 POWER 20% 1.2 0.6 0.8 1.0 Capacity 15% .45 0.6 0.3 0.75 COMFORT 35% 1.75 2..1 1.4 0.7 OVERALL SCORE 3.75 3.9 4.0 4.25

  18. BRAND D STYLE 30% 1.8 RESULTS FROM RESPONDENT 2135 IN A SIMPLE EXPECTANCY VALUE MODEL PREDICT HE WILL PURCHASE BRAND D BRAND A BRAND B 0.3 0.6 POWER 20% 1.0 1.2 0.6 Capacity 15% 0.75 .45 0.6 COMFORT 35% 0.7 1.75 2..1 OVERALL SCORE 4.25

  19. RESULTS FROM RESPONDENT 2135 BRAND A BRAND B BRAND C BRAND D STYLE 30% 1 2 5 6 POWER 20% 6 3 4 5 Capacity 15% 3 4 2 5 COMFORT 35% 5 6 4 2 OVERALL SCORE 3.75 3.9 4.0 4.25

  20. Why Is this Basic Model so popular? • Forces us to be explicit about advertising/product decisions • It allows us to think about probabilities of purchase and using them as a measure of intention strength • Use the probabilities in pricing and market share

  21. Basic Weakness of The Compensatory Model • Weights are constant, beliefs are stable • Attributes are constant across products and across usage situations. • Attributes are not necessarily independent • safety & power, quality and price, • “Bigger is always better” • Evaluation and Articulation are not the same. • New products can cause new dimensions

  22. Not Weaknesses of ModelWeaknesses • There is nothing statistical about the model per se. (no statistical weakness.... sample size etc. • Failure to include an attribute is not a weakness of the model (zero weight) • “You don’t know if the model has the right attributes.” • Using wrong model is not a weakness of the model (wrongly used lexicographic) • Subjectivity is not a weakness! Lack of consistency is a potential problem.

  23. Implications for Changing Strategy • Modify the product (real positioning) • Alter beliefs about amount of attributes • Alter beliefs about competitor’s amount • Alter importance weights • Call attention to neglected attributes • Shift the buyers’ ideals

  24. Assume your are the manager of Brand B BRAND A BRAND B BRAND C BRAND D STYLE 30% 1 2 5 6 POWER 20% 6 3 4 5 Capacity 15% 3 4 2 5 COMFORT 35% 5 6 4 2 OVERALL SCORE 3.75 3.9 4.0 4.25

  25. Use promotion to change beliefs about amount of attribute in your brand. BRAND A BRAND B BRAND C BRAND D STYLE 30% 1 2 5 6 POWER 20% 6 3 4 5 Capacity 15% 3 4 2 5 COMFORT 35% 5 6 4 2 OVERALL SCORE 3.75 3.9 4.0 4.25

  26. Use promotion to change beliefs about amount of attribute in your Competitor’s brand. BRAND A BRAND B BRAND C BRAND D STYLE 30% 1 2 5 6 POWER 20% 6 3 4 5 Capacity 15% 3 4 2 5 COMFORT 35% 5 6 4 2 OVERALL SCORE 3.75 3.9 4.0 4.25

  27. Change the importance Weights BRAND A BRAND B BRAND C BRAND D STYLE 30% 1 2 5 6 POWER 20% 6 3 4 5 Capacity 15% 3 4 2 5 COMFORT 35% 5 6 4 2 OVERALL SCORE 3.75 3.9 4.0 4.25

  28. Talk About Neglected Attributes BRAND A BRAND B BRAND C BRAND D SMOOTH RIDE 1 9 1 1 STYLE 30% 1 2 5 6 POWER 20% 6 3 4 5 Capacity 15% 3 4 2 5 COMFORT 35% 5 6 4 2 OVERALL SCORE 3.75 3.9 4.0 4.25

  29. Probabilities of Purchase • Highest value takes all the market? Unrealistic! • A high score reflects a high probability of Purchase is more realistic • A probability of purchase on an individual basis implies a market share percentage over the total market

  30. What is the market share that is anticipated for each of the four brands?

  31. RESULTS FROM RESPONDENT 2135 BRAND A BRAND B BRAND C BRAND D STYLE 30% 1 2 5 6 POWER 20% 6 3 4 5 Capacity 15% 3 4 2 5 COMFORT 35% 5 6 4 2 OVERALL SCORE 3.75 3.9 4.0 4.25

  32. RESULTS FROM RESPONDENT 2135 BRAND A BRAND B BRAND C BRAND D OVERALL SCORE 3.75 3.9 4.0 4.25

  33. RESULTS FROM RESPONDENT 2135 BRAND A BRAND B BRAND C BRAND D OVERALL SCORE 3.75 3.9 4.0 4.25 Probability of A

  34. Repeat for each brand BRAND A BRAND B BRAND C BRAND D OVERALL SCORE 3.75 3.9 4.0 4.25 Probability of Purchase 23.6% 24.5% 25.2% 26.7% Probability of Purchase implies Market Share

  35. Implications for Changing Strategy • Modify the product (real positioning) • alter beliefs about amount of attributes • alter beliefs about competitor’s amount • alter importance weights • call attention to neglected attributes • What degree of shift in beliefs about power is necessary to give us a 1% increase in market share? • What will it cost to gain this increase in beliefs? • Will the increase in Market share pay for the effort? • We Can Set a price based on Relative Quality!

  36. The Overall Scores reflect the Quality that the customer(s) places on the 4 Brands

  37. RESULTS FROM RESPONDENT 2135 BRAND A BRAND B BRAND C BRAND D STYLE 30% 1 2 5 6 POWER 20% 6 3 4 5 Capacity 15% 3 4 2 5 COMFORT 35% 5 6 4 2 OVERALL SCORE 3.75 3.9 4.0 4.25

  38. RESULTS FROM RESPONDENT 2135 BRAND A BRAND B BRAND C BRAND D OVERALL SCORE 3.75 3.9 4.0 4.25 Total Score Reflects the Total Quality Score

  39. RESULTS FROM RESPONDENT 2135 BRAND A BRAND B BRAND C BRAND D OVERALL SCORE 3.75 3.9 4.0 4.25 Percentage of Total Quality Score for Brand A

  40. Repeat for each brand BRAND A BRAND B BRAND C BRAND D OVERALL SCORE 3.75 3.9 4.0 4.25 % Share of Total Quality 23.6% 24.5% 25.2% 26.7% Share of Total Quality Score for Each Brand

  41. The Average % Score for the Four brands is? • 1/N = ¼ = 25% • Relative Quality Score = Brand Score/Average • Relative Quality for Brand A = 24.58%/25% • Relative Quality for Brand A = 94.32%

  42. Relative to Average Percent of Total Quality of 25% BRAND A BRAND B BRAND C BRAND D OVERALL SCORE 3.75 3.9 4.0 4.25 % Share of Total Quality 23.6% 24.5% 25.2% 26.7% Relative Quality 94.32% 98% 101% 1.07%

  43. The Maximum Price for Brand D • The average price in the market for the four Brands is $200 each • IF the price is set to reflect relative quality, then what is the most that Brand D can charge • Brand D has a 107% of the relative quality, It can charge a maximum of 107% of the average price! • Brand D’s price = 107% x $200 = $214

  44. # 2 If everything in your marketing mix is identical to the competitor’s mix • There is a total of Five firms in the industry • What is the average market share? • 1/N = 1/5 = 20% • What is you market share? • 20%

  45. #3 If everything in your marketing mix is identical to the competitor’s mix • Except Your Relative Product Quality is 120% above the average. • There is a total of Five firms in the industry. • What is the average share? • 1/N = 1/5 = 20% • What do you expect your market share to be? • S = 1.20 x 20% = 24%

  46. #4 If everything in your marketing mix is almost identical to the competitor’s mix • Except Your Relative Product Quality is Ur =120% above the average. • What do you expect your relative market share to be? • Ur = Sr = 120% • However your relative share is actually measured to be 108% • How efficient, E, is your marketing system at converting Relative product quality into Relative market Share • Sr = E x Ur • Sr = Sr/Ur x Ur • Sr = 108%/120% x Ur • Sr = 90% x Ur • E = 90%

  47. #5 If everything in your marketing mix is identical to the competitor’s mix • Except Your Relative Product Quality is 120% above the average. • The average price in the market is $300 • What is the highest price you can charge based on your relative quality • P = 1.20 x $300= $360

  48. #6 If everything in your marketing mix is identical to the competitor’s mix • Except Your Relative PRICE is 150% above the average PRICE • The average price in the market is $300 • WHAT PRICE ARE YOU CHARGING • P = 1.50 x $300= $450 • WHAT RELATIVE MARKET SHARE DO YOU ANTICIPATE? • NOT 150% OF AVERAGE • Sr = 1/Pr = 1/1.50 = 66.67% of the average share

  49. Market Share Theorem • Predicts Your Relative Market Share based on your Relative Marketing Effort. • Your relative product quality is 120% • Your relative price is 150% of average • What do you predict will be your relative market share? • Sr = Ur x 1/Pr • Sr = Ur/Pr = 120%/150% = 80% of the average

  50. Any Questions on • 1) The use of Relative Quality to predict Relative Market Share • 2) The use of Relative Quality to set a selling price • 3) The Use of the Relative Quality and Relative Market Share to measure conversion efficiency • 4) The Use of Relative Value as the Inverse of Relative Price to Predict Market Share

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