6.1. Topic 6. Part 1 - Random Block One Way

MARKET RESEARCH
Topic 6.
COMMERCIAL EXPERIMENTATION. PART I
Lecturer: Inna Alexeeva A.
inna.alexeeva@uneatlantico.es
6.1. Commercial Experimentation
 Experimentation methods applied to the market facilitate contrasting of

causal inference.
 E.g., How can we establish that the new promotion campaign can
increase sales?
 Market experimentation allows manipulation of one or more independent
variables (price, advertising, promotion, product, sales force) to determine
its effect on the dependent variables (generally, sales) controlling other
causal external effects.
 To ensure that an experiment is developed in an efficient way, it’s
necessary to employ scientific methods in its planning.
Marketing Research. Topic 6: Commercial Experimentation. Part I

2
Guide for recommended proceeding
1
• Compensation and planning of the problem
2
• Election of treatments and levels
3
• Specification of the experimental units
4
• Selection of the response variable
5
• Delimitation of the test market. External variable
6
• Election of the experimental design
7
• Experimentation running
8
• Information analysis
9
• Conclusions and recommendations

3
1
1 Compensation and planning of the problem
This point looks obvious but in reality it is not easy to realize that
there is a problem or opportunity that require experimentation or
design a clear and acceptable planning.

4
2 Election of treatments and levels
 Select the independent variables, for example: modification of prices,

presentation of a new product, change in advertising means, a new
channel of distribution, etc.
 The effects of these variables are submitted to experimentation testing.
 Select the ranges of variation of the above mentioned variables and
specific levels that will be studied.
 Consider the form in which the treatments will be controlled to
maintain them in the desired values and the way they will be
measured.
 Research all the variables that might be interesting and that won’t
depend much on the past experience.

5
3 Specification of the experimental units
 The object of the study are the individuals, firms or markets with response
to the experimental treatment. They are testing units, that is, those that
are really are submitted to change, or they are control units – they are
simply observed during the testing period without being submitted to
treatment, with the aim to contrast the results obtained with the those of
testing units.
 Example: we can ask different people to try a product to measure their
attitudes towards it. Alternatively, the product can be presented in a new
packaging and put for sale in some supermarkets (testing units) and
compare these sales with those obtained with a traditional packaging put
for sale in other supermarkets with similar characteristics (control units).
The researcher will analyse the effect of the variable “packaging” on the
“sales” (dependent variable).
6
4 Selection of the response variable
 Measure the behavior of the experimental units: sales in volume and

value, market share, preference, knowledge of the product.

7
5 Delimitation of the test market. External variable
 Experiment at the local level in a certain segment of the total market

 Define previously the testing market where the experiment will
take place.
 The decision on the wideness of the testing market (extension of the

geographic area and number of testing units) implies comparing of
their costs in regard with the expected benefits.

8
 Example: for consumer goods submitted to experimentation in a

market, it’s necessary to select certain cities/towns and
representative shops (establishments) of this market. Then it’s
necessary to put the product for sale under new established
conditions, maintaining it during a certain period of time that
depends on the frequency of purchase and finish this period,
collect sales data analysing the predominant influence. That is,
the variables that are objects of experimentation are analysed.

9
 The obtained results will allow to determine by extrapolation the

sales that the firm might perfume on the market (all geographic
areas and shops) or in specific segments (types of retailers) where it
is planned to commercialize the product.

10
6 Election of the experimental design
 Design is a planning process of an experiment to obtain

appropriate data that can be analysed through statistical methods
with the idea to derive valid and objective conclusions.
 A statistical focus of the experimental design is required to obtain
significate conclusions on the base of the data.

11
 Two aspects to consider in any experiment:

1) Experiment design
2) Statistical analysis of the data.
Both are closely interrelated since the method of analysis
depends on the design. The market is too complex, so, the
research must be concerned about designing and running
properly the experiment so that the obtained results are valid.

12
 The researcher must control the causes (external variables) of:

a) Internal validity: the degree to which we can affirm that the
effects observed in the testing units have been caused by the
variables submitted to treatment. The results of the
experimentation allow to prove that there was a change in the
variable, so, then only this variable affects the result.
b) External validity: if the researcher plans to experiment in a
testing market, he/she should ensure extrapolation of the
results to the population of the customers (consumers), shops
or geographic areas.

13
7 Experimentation running
 Important to watch the process to ensure that all is done

according to the planning.
 The errors in the procedure should not cancel the experimental
validity.

14
8 Information analysis
 Employ statistical methods to analyse the data, so that the results

and conclusions are objective.
 Variance analysis (ANOVA) is a technique of data analysis used in
researches of commercial experimentation.
The strategy of ANOVA: to estimate the variance of

the population in two ways (among the groups and
within the groups).

15
8 Information analysis
 To apply ANOVA models, the following 3 conditions are required:

1) Independence: each observation is selected randomly from its
population and is assigned randomly to some of the treatments. It
means that the results obtained for each experimental unit are
independent from the obtained for the rest of the results
corresponding to any other experimental unit.
2) Normality: random samples are extracted from normal population.
The errors are distributed normally.
3) Homoscedasticity: populations from which samples are extracted,
besides being normal, they all have the same variance.

16
9 Conclusions and recommendations
 Once data are achieved, the researcher must extract conclusions

from the results and recommend an action.
 In order to have a successful experiment, it’s necessary to know the
important treatments, intervals in which the variance occurs, the
proper quantity of levels to use, the units of measurement
appropriate for these variables and the form to ensure validity of
the experiment.
 Generally speaking, no one knows responses to the questions, but
we can learn from them during the research. It means that we
should NOT experiment sequentially.

17
6.2. Statistical methods for analysis and design of
experiments
The purpose of the analysis of variance, ANOVA, is to help the
researcher to formulate a linear model capable to describe the data
obtained in a commercial experiment study. It describes the response
variable (dependent) as a result of the pondered sum of various
effects:
• Effects due to the factors or treatments (variables),
• Effect of the non controlled factors (errors).
ANOVA is statistical technique proper to COMPARE the means coming from
more than one population. They can be classified according to the three
criteria:
x1, x2, x3…… xn  N(µi, σ)
H0: µ1 = µ2 … µk
H1: ∃ µ1 ≠ µ2 for i ≠ j

18
experiments
Number of factors
 The term ‘factor’ in a context of ANOVA is a synonym of independent

variable or treatment. Using an experimental design with 1 independent
variable  one way ANOVA.
 If the design contains 2 independent variables, the ANOVA model is called
two way ANOVA.
 With 3 independent variables  three way ANOVA. …and so on.
 We use a factor design to analyse data with two or more independent
variables, factors or treatment. These models allow including interactive
effect or effect attributed to the combination of different levels of the
independent variables.

19
experiments
Types of randomization
 The term ‘randomization’ is used to determine the process consistent in

assigning randomly experimental units to each of the levels of the factor or
treatment.
 Two ways:
 Completely randomized design – when randomization is done on all
experiment units.
 Randomized block design – when we feel that there are external

variables that may alter significantly the conclusions of the commercial
experiment, we can project a direct control modifying a type of
randomization controlling the effects of one external variable.
 Latin square design – hen we need to control simultaneously two

external variables with the aim to reduce the experiment error.

20
experiments
Level sampling
 The levels of each treatment, independent variable or factor can be
established two ways:
a) Through the model of ANOVA of fixed effects or systematic that allow
the researcher to fix those levels that really are interesting to study.
b) Through the model of ANOVA of randomized effects, when the
researcher selects randomly a set of levels among all possible.
 We will focus on the models of fixed effects, since they are used more
frequently in marketing research.

21
6.3. ANOVA. Completely Randomized Design
In this type of design one independent variable is manipulated, for example,
PRICE with various levels, and one dependent variable is controlled, for example,
SALES. The research should define well the following:
a) Testing market: representative area of the total market of the product (sales of
milk in Cantabria, Asturias, Galicia…).
b) Testing units: shops homogeneous and representatives of sales points
(supermarkets).
c) Independent variables, or treatments: Marketing-Mix variables that are tested.
We should establish different levels or categories and see if they condition the
sale (e.g., various types of packaging: cardboard, glass, plastic…)
d) Dependent variable: units of measurement of the results (e.g., reduced price).
e) Allocation: randomized of each testing unit to the treatment.
f) Hypothesis: the variables DON’T affect in a different way the testing units (Ho).
g) Measurement: measure if there are significant effects of the variable treatment
on sales.

22
Yij = EG + ETj + EAij
Yij = sales of the testing units i with a treatment j
EG = global effect
ETj = treatment effect j incremental regarding the global effect EG
EAij = randomized effect
i = testing unit i=1, 2, ….. 𝑛𝑗
j = treatment j=1, 2, ….. t

23
Yj = N(µi, σ)
(Y1j, Y2j, … Ynj) ഥ+ 𝒀

𝒀𝒊𝒋 = 𝒀 ഥ𝒋 − 𝒀
ഥ + 𝒀𝒊𝒋 − 𝒀
ഥ𝒋
𝑡
2 2
𝑁 = ෍ 𝑛𝑗 ෍ ෍ 𝑌𝑖𝑗 − 𝑌ത = ෍ 𝑛𝑗 𝑌ത 𝑗 − 𝑌ത 2
+ ෍ ෍ 𝑌𝑖𝑗 − 𝑌ത 𝑗
𝑗=1 𝑖 𝑗 𝑗 𝑖 𝑗
Total variance = treatment variance + residual (error) variance
F is the statistical prove, it is determined according to the following equation:

Estimation of the population variance based on the differences AMONG the sampling means
𝑭=
Estimation of the population variance based on the differences WITHIN the sampling

24
Example 1.
Wisley Publishing wants to know if it sells more allocating its books on a

display in different positions: the front, back or middle of the computer book
section.
A commercial experiment is carried out with these three allocations in 12
different book shops (testing units) with homogeneous characteristics.
The following results are observed and

noted down in the following table:

25
Example 1.
The results of the experiment:
Ojos
Front Back
Manos Pies
Middle
40 40 15
45 30 25
35 45 30
50 35 25
Totaltreatments
Total tratamientos 170 150 95
Mediatreatments
Mean tratamientos 42,5 37,5 23,75
GlobalGran
Total total 415
Gran
Global media
Mean 415/12=34,58
The Company wants to know if this strategy is benefitial for its sales.

26
Solution to the Example 1.
Ojos
Front Back
Manos Pies
Middle
40 40 15
45 30 25
35 45 30
50 35 25
Totaltreatments
Total tratamientos 170 150 95
Mediatreatments
Mean tratamientos 42,5 37,5 23,75
GlobalGran
Total total 415
Gran
Global media
Mean 415/12=34,58
The degrees of freedom (DF) are computed the following way:
• For the treatments: number of levels (t) – 1
• For residual (errors): number of observations (N) – t
• Total DF: N-1 (or the sum of DFs of treatments and residual)

27
We need to find the total dispersion through dispersions of treatments and

residual and compare the result with the statistical value of the table to decide
whether to reject or accept the null hypothesis.
• H0: allocation on different displays (treatments) DOESN’T produce
significate effects on sales.
• H1: allocation on different displays (treatments) DOES produce significate
effects on sales.
Compute the variance of treatments:
෍ 𝑛𝑗 𝑌ത 𝑗 − 𝑌ത 2

28
Compute the variance of residuals:
2
෍ ෍ 𝑌𝑖𝑗 − 𝑌ത 𝑗
𝑖 𝑗
(40 – 42,5)2 + (45 – 42,5)2 + (35 – 42,5)2 + (50 – 42,5)2 + (40 – 37,5)2 +
+ (30 – 37,5)2 + (45 – 37,5)2 + (35 – 37,5)2 + (15 – 23,75)2 + (25 – 23,75)2 +
+ (30 – 23,75)2+(25 – 23,75)2 = 368,7125

29
Dispersion Sum of Degrees of Mean F value Statistical F

squares, SS freedom, squares, value
DF MS = SS/DF
Treatment 754,1668 t-1=2 377,0834 377,0834
= 9,204 F2;9;0.05=4,26
Residual 368,7125 N-t=9 40,9680 40,9680
We note down all the intermediate results in the ANOVA table that facilitates
the interpretation of the analysis.
 Treatment: comparison among the groups.
 Residual: comparison within the groups (internal interaction).
We compare the F value obtained in the analysis with that from the distribution
table of F - Fisher Snedecor of significance level 0,05 (confidence level of 95%).
30
uentes de Suma Grado Cuadrados medios Valor F Valor Tabla

Dispersion Sum of
libertad (GL)
Degrees of Mean F value Statistical F
ispersión cuadrados squares, SS (varianza)
freedom, = Suma
squares, value
DFcuadrados/GL
MS = SS/DF
ratamiento Treatment
754,1668
754,1668
t-1=2
t-1=2 377,0834
377,0834 377,0834
= 9,204 F2;9;0,05
F2;9;0.05 =
=4,26
40,9680 4,26
Residual 368,7125 N-t=9 40,9680
esidual 368,7125 N-t=9 40,9680
The F value obtained in the analysis is higher than the statistical value from
the table (4,26)  we reject the null hypothesis.
The conclusion is that the treatment (allocation of the books on different
levels of display is a computer section of the book shop) DOES produce
significate effects on sales.

31
6.4. ANOVA. Randomized block design
Example 2.
A company wants to determine energy needs of a person by walking, eating
or sport training.
Suppose that there are 10 people available for our experiment. The number
of calories consumed per second is considered as response variable. The
results will vary according to the individual who takes part in the
experiment.
Determine what is the FACTOR and the possible LEVELS.

32
Example 2.
The factor is the performed activity, with 3 possible levels: walking, eating or
sport training.
If any of the individuals is assigned to a different activity, it might happen that
the observed variability among the activities is due to the differences among
the individuals themselves.
A possible solution is that each of the individuals performs the 3 activities.
This way, the variable “block” is the type of the people and each of the blocks
is a person.
Each block (person) will have 3 levels of the factor randomly.

33
Observations:
 The term ‘block’ designs a stratification of testing units according to an

external variable, for example, type of shop, size of the geographic area,
age, income of the customer, etc.
 It also can be according to various variables considered conjointly, although
later the individual effects of each variable might be hard to isolate, since
they influence in an important way on the results, usually on sales.
 In each block, or stratum, the testing units, mores homogeneous, are
assigned randomly to each level of the variable treatment.

34
Observations:
 The word ‘completely’ indicates that all the levels of the variable treatment
fixed by the researcher are tested in each block.
 The variable ‘block’ DOESN’T present interaction with the factors in the
study.
 The model is said to be of completely randomized blocks when in each block
all possible treatments are presented (or a multiple of this number) and
within the block the treatments are assigned randomly.
 Sometimes it’s impossible to assign all the treatment to each block 
incomplete randomized blocks.

35
Concepts
• representative area of the total market of the product
Testing market • E.g., Santander, Torrelavega  for sales of bread
• Not all of them are homogeneous

Testing units • A block is a stratification of testing units in terms of an external variable.
E.g, type of shop: Hypermarket, Supermarket, Traditional
Dependent variable • Measure the results of the experiment. E.g., Sales
• Each treatment appears once in a block. Treatments are assigned

Allocation randomly in each block
Hypothesis • The rest of the variables DOESN’T affect the testing units
Measurement • Measure whether significate effects of the variables exist

36
FORMULA to apply: Yij = EG + EBj + EAij
where:
Yij = sales in the block i with a treatment j
EG = global effect
EBj = block effect j incremental regarding the global effect EG
EAij = randomized effect
ETj = treatment effect j incremental regarding EG
i = block i i=1, 2, ….. b
j = treatment j j=1, 2, ….. t  N = b x t
Yj = N(µj, σ)

37
ഥ + 𝒀𝒊 − 𝒀
𝒀𝒊𝒋 = 𝒀 ഥ + 𝒀𝒋 − 𝒀
ഥ + 𝒀𝒊𝒋 − 𝒀𝒊 − 𝒀𝒋 + 𝒀
ഥ
𝟐 𝟐
ഥ
෍ ෍ 𝒀𝒊𝒋 − 𝒀 ഥ𝒊 − 𝒀
= 𝒕෍ 𝒀 ഥ 𝟐 ഥ𝒋 − 𝒀
+ 𝒃෍ 𝒀 ഥ 𝟐 ഥ𝒊 − 𝒀
+ ෍ ෍ 𝒀𝒊𝒋 − 𝒀 ഥ𝒋 + 𝒀
ഥ
𝒊 𝒋 𝒊 𝒋 𝒋 𝒊
Total dispersión = block + treatment + residual

38
The HYPOTHESIS for all the data that are analysed:
For blocks: For treatments:

H0: the blocks DON’T produce H0: the treatments DON’T
significate effects on Y (sales). produce significate effects on Y
(sales).
H1: the treatments DO produce
H1: the blocks DO produce the the significate effects on Y
significate effects on Y (sales). (sales).

39
The following TABLE is prepared: it contains different values obtained after
application of ANOVA block model
Dispersion Sum of squares, SS Degrees of Mean F value Statistical
freedom, squares, MS F value
DF = SS/DF
Block b-1 𝑆𝑆𝑏 𝑀𝑆𝑏 Fb-1, (b-1)(t-1)
𝑏−1 𝑀𝑆𝑟
Treatment t-1 𝑆𝑆𝑡𝑟

𝑡−1
Residual (b-1) (t-1) 𝑆𝑆𝑟 𝑀𝑆𝑡𝑟 Ft-1, (b-1)(t-1)

(𝑏 − 1)(𝑡 − 1) 𝑀𝑆𝑟
Total N-1

40
Example 2. Price fixing for a new product
One firm decides to carry out a commercial experiment in sales

establishments which are different among each other. We will consider 3
blocks of retailers: specialized shops, traditional shops,
supermarkets/hypermarkets.
In each block the retailers are assigned randomly to treatments. The duration
of the experiment is one month. We will need to analyse the interactions
through ANOVA model by complete blocks (with a confidence level of 95%).
The following results are collected (see the table):

41
Example 2. Price fixing for a new product
Testing units Treatments Total Mean

200€ 210€ 220€ 230€ blocks blocks
Super- & Hypermarkets 43 36 33 28 140 35,00

Traditional shops 37 21 16 9 83 20,75
Specialized shops 21 20 12 15 68 17,00
Total treatments 101 77 61 52
Mean treatments 33,7 25,7 20,3 17,3
Total 101+77+61+52=291
Mean 291/12=24,25

42
Solution to the Example 2. Price fixing for a new product
We need to compute dispersions of treatment, block, residual and total.

ഥ𝒋 − 𝒀
 Dispersion of treatment, SStr  𝒃 σ𝒋 𝒀 ഥ 𝟐
3 x ((33,7-24,25)2+ (25,7-24,25)2 + (20,3-24,25)2 + (17,3-24,25)2) = 465,93

ഥ𝒊 − 𝒀
 Dispersion of block, SSB  𝒕 σ𝒊 𝒀 ഥ 𝟐
4 x ((35-24,25)2+ (25,75-24,25)2 + (17-24,25)2) = 721,5

𝟐
ഥ
 Dispersion total, SST  σ𝒊 σ𝒋 𝒀𝒊𝒋 − 𝒀
(43-24,25)2+ (36-24,25)2 + …… + (15-24,25)2 = 1.318,25

𝟐
ഥ𝒊 − 𝒀
 Dispersion residual, SSR  σ𝒋 σ𝒊 𝒀𝒊𝒋 − 𝒀 ഥ𝒋 + 𝒀
ഥ
1.318,25 – 465,93 – 721,5 = 130,82 (difference between the total dispersion and the
other two)
43
Solution to the Example 2. Price fixing for a new product
Dispersion Sum of squares, Degrees of Mean squares, F value Statistical

SS freedom, DF MS = SS/DF F value
Treatment 465,93 3 155,31 Ftr=7,12 F3;6;0,05=4,76
Block 721,5 2 360,75
Fb=16,55 F2;6;0,05=2,6
Residual 130,82 6 21,8
Total 1.318,25 11
Conclusions: both prices and type of shops produce significate effect on sales.

44
Thank you very much for your
attention!
45

6.1. Topic 6. Part 1 - Random Block One Way

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

6.1. Topic 6. Part 1 - Random Block One Way

Uploaded by

Copyright:

Available Formats

MARKET RESEARCH

 Experimentation methods applied to the market facilitate contrasting of

Marketing Research. Topic 6: Commercial Experimentation. Part I

Marketing Research. Topic 6: Commercial Experimentation. Part I

1 Compensation and planning of the problem

Marketing Research. Topic 6: Commercial Experimentation. Part I

2 Election of treatments and levels

 Select the independent variables, for example: modification of prices,

Marketing Research. Topic 6: Commercial Experimentation. Part I

3 Specification of the experimental units

4 Selection of the response variable

 Measure the behavior of the experimental units: sales in volume and

Marketing Research. Topic 6: Commercial Experimentation. Part I

5 Delimitation of the test market. External variable

 Experiment at the local level in a certain segment of the total market

 The decision on the wideness of the testing market (extension of the

Marketing Research. Topic 6: Commercial Experimentation. Part I

5 Delimitation of the test market. External variable

 Example: for consumer goods submitted to experimentation in a

Marketing Research. Topic 6: Commercial Experimentation. Part I

5 Delimitation of the test market. External variable

 The obtained results will allow to determine by extrapolation the

Marketing Research. Topic 6: Commercial Experimentation. Part I

6 Election of the experimental design

 Design is a planning process of an experiment to obtain

Marketing Research. Topic 6: Commercial Experimentation. Part I

6 Election of the experimental design

 Two aspects to consider in any experiment:

Marketing Research. Topic 6: Commercial Experimentation. Part I

6 Election of the experimental design

 The researcher must control the causes (external variables) of:

Marketing Research. Topic 6: Commercial Experimentation. Part I

 Important to watch the process to ensure that all is done

Marketing Research. Topic 6: Commercial Experimentation. Part I

 Employ statistical methods to analyse the data, so that the results

The strategy of ANOVA: to estimate the variance of

Marketing Research. Topic 6: Commercial Experimentation. Part I

 To apply ANOVA models, the following 3 conditions are required:

Marketing Research. Topic 6: Commercial Experimentation. Part I

9 Conclusions and recommendations

 Once data are achieved, the researcher must extract conclusions

Marketing Research. Topic 6: Commercial Experimentation. Part I

Marketing Research. Topic 6: Commercial Experimentation. Part I

 The term ‘factor’ in a context of ANOVA is a synonym of independent

Marketing Research. Topic 6: Commercial Experimentation. Part I

 The term ‘randomization’ is used to determine the process consistent in

 Randomized block design – when we feel that there are external

 Latin square design – hen we need to control simultaneously two

Marketing Research. Topic 6: Commercial Experimentation. Part I

Marketing Research. Topic 6: Commercial Experimentation. Part I

Marketing Research. Topic 6: Commercial Experimentation. Part I

Yij = EG + ETj + EAij

Yij = sales of the testing units i with a treatment j

ETj = treatment effect j incremental regarding the global effect EG

EAij = randomized effect

i = testing unit i=1, 2, ….. 𝑛𝑗

j = treatment j=1, 2, ….. t

Marketing Research. Topic 6: Commercial Experimentation. Part I

(Y1j, Y2j, … Ynj) ഥ+ 𝒀

Total variance = treatment variance + residual (error) variance

F is the statistical prove, it is determined according to the following equation:

Marketing Research. Topic 6: Commercial Experimentation. Part I

Wisley Publishing wants to know if it sells more allocating its books on a