Model-Based

Procedures for
Product Design
Rohan Arora
12020241132
Perceptor Model
Urbans (1975)
Introduction
Motive
o Develop model for designing and positioning of new
frequently purchased consumer products.
Model structure
o Trial and repeat process that produces an estimate of
long- run share for a new brand.
Main idea
o Model the distance from the ideal brand to brand trial and
repeat purchase estimates for a new product in an existing
market.
Outputs
o Understanding of perceptions, preference and purchase
process underlying product positioning decision.
o Tool for estimating the market share for alternate new
brand designs.
Model Structure
Long Run Market Share Model:
o m = ts . (1)
m= long run market share,
t= fraction of the target market that ever tries the new brand (0 t 1)
s= share of purchases of new brand among those who have ever
tried the brand (0 s 1)
Now, Urban further developed this t or the ultimate
trial fraction on the basis of the Trial Model
Model Structure (Contd.)
Ultimate Trial Model:
o t = qwv ..... (2)
q = ultimate probability of trial given awareness and availability
w = long run awareness of the new brand
v = long run availability of the new brand (volume weighted
percentage of stores carrying the brand)
The market share of those who have used the
brand is modeled as the equilibrium of a two- state
Markov process
Model Structure (Contd.)
Steady- state Share Process:
o S = P
21
/ (1+ P
21
P
11
) .. (3) for those who have
tried the new brand
P
ij
= Probability of purchase of brand j at next purchase opportunity
when brand i was purchased last, 0 P
ij
1.0,
i or j = 1 refers to new brand,
i or j = 2 refers to all other brands.
This Markov formulation assumes that the frequency
of purchase of the new brand is the same as
existing brands.
Purchase at T+1
New Brand Other Brands
Purchase At T New Brand P
11
1-P
11
Other Brands P
21
1-P
21
Model Structure (Contd.)
Perception and Preference Mapping
o X
by
=
A
=1
f
ya
r
ba
(4)
x
by
, = coordinates of brand b on dimension y for the perceptual map
of those who have not tried our brand, but who are aware of
concept (b = 1, 2, . . . B, where B = new brand; y = 1,2,. . .Y)
f
ya
= factor score coefficient for dimension y and attribute scale a (a =
1,2,. . . A)
r
ba
= standardized average rating of brand b on scale a.
I
y
= coordinates of average ideal point of dimension
y for map of those who have not tried our brand
but are aware of the concept. This I
y
would be used
subsequently
Model Structure (Contd.)
Probability of Purchase (Trial)
o q=
0
+
1
d
B
2
(5)
q = as defined in (2)
d
B
2
= squared distance from ideal point to the new brand on map for
those who are aware but have not yet used the new brand

0
,
1
= coefficients to be determined empirically
Model Structure (Contd.)
In case of a perceptual space having z dimensions
where the new brand occupies the position X
z
and
ideal position is I
z
, then:
o d
B
2
=
z
z=1
h
z
(X
z
-I
z
)
2
.. (6)
H
z
= importance weights for dimension z


Model Structure (Contd.)
Probability of Repeat
o P
11
=
0
+
1
d
2
B
(7)
p
ll
= probability of repeat purchase if new brand was purchased last.
(0 p
11
1.0)
d
2
B
= distance squared from ideal point to new brand after use
perceptual map for those who have used the brand)

0
,
1
= coefficients to be determined empirically
The probability of repeat purchase if the new
product is not chosen (p
21
)is empirically
determined.

Model Structure (Contd.)
Sources of New Brand Share
o After substituting the trial (5) and repeat (7) probabilities in (2) and (3) an
estimate of the share of the new brand is obtained by (1).
o It is assumed that share will come from the brands that are perceptually
most similar to the new brand (i.e. nearest to it on the map) and from the
brands that are most widely evoked.
o A brand is defined as evoked by a consumer if it has been used, if it would
be considered at the next purchase, or if it is rejected as a purchase
alternative.

Model Structure (Contd.)
Sources of New Brand Share (contd.)
o K
b
= m [(e
b
/D
2
bB
) /
B=1
B-1
(e
b
/D
2
bB
)] .. (8)
k
b
= loss in market share of existing brand b
m = market share of new brand
e
b
= fraction of people who have brand b in their evoked set
D
2
bB
= distance squared from brand b to new brand B in users map
This completes the model description. Attached is
Question 5.3. Click Me
DEFENDER
Model
Hauser and Shugan, 1983
Introduction
Motive
o To study how a brand should adjust its marketing
efforts, pricing and positioning in a competitive
environment
Model structure
o The model uses a per-dollar map i.e. brand positions on
attributes are scaled by price.
o The model takes these positions and translates them
into market shares by considering the Taste distribution
function of the intended market
Main idea
o Response to the new competition
Model Structure
The model incorporates the following assumptions:
1. Existing brands can be repositioned in a multi attribute
space where brand positions are ratio scaled.
2. Consumers choose their utility-maximizing brands
3. Consumers utility functions are linear
4. Awareness and distribution are concave functions of
advertising and distribution spending, respectively.
Model Structure (Contd.)
Notation for the Model

o P
j
= price of brand j
o X
ij
= position of brand j on attribute I, i=1,2
o Wik = Individuals Ks importance weight for attribute I
o Ujk = w
1k
x
1k
+w
2k
x
2k
o a
k
= tan
-1(
w
2k
/w
1k
)
o F(a) = distribution of the taste function
o m
j
= market share of brand j

Model Structure (Contd.)
Since all customers do not evoke all brands, we
define :
o Al = a subset of all brands, A, l =1,L and
o sl = probability that a randomly chosen customer selects from choice set
Al


o Market share:

M
j|l
= P
r
[ ( X
1j
/p
j
) (X
1i
/p
i
) ]
Where, m
j|l
is the market share of brand j among
customers with evoked set l
Defensive Strategies
A new product can enter the market in the
following ways :
1. If it is inefficient within the shell of the existing brands
2. If it exactly matches a competitor
3. Not adjacent to brand under study
4. A direct attach on a brand
LINMAP Model
Shocker and Srinivasan
Introduction
Motive
o To identify new product alternatives that address specific
firm objectives
Model structure
o Trial and repeat process that produces an estimate of
long- run share for a new brand.
Main idea
o Model the distance from the ideal brand to brand trial and
repeat purchase estimates for a new product in an existing
market.
Outputs
o Understanding of perceptions, preference and purchase
process underlying product positioning decision.
o Tool for estimating the market share for alternate new
brand designs.
Model Structure
4 stages of the model:
1. Identification of relevant market
2. Representation of brands in attribute space
3. Estimate consumer response i.e. estimate utility functions
and likely product choices
4. Identify the best new opportunity




x
p
and

w
p
are solved via LINMAP


Sj =
p
(y
jp
-x
p
)
2
w
p
Distance functions:
Model Structure (Contd.)

Minimize


z
jk


Subject to
S
k
S
j
+ z
jk
>= 0
and


(s
k
-s
j
) = 1

Model Structure (Contd)


Q1 =
(
ir
+
ij
)


(
ir
+

ij
)


Where = a/s
j
b

Also, Incremental revenue :
= (q
i
-h
i
)V
i
Model Structure (Contd.)
Considering all variables, new brand position :

Z =

(q
i
-h
i
)Q
i
[P-c(y
r1
.y
rt
)]

Where,
Q = annual volume
P = Unit Price
c = incremental manufacturing cost


Thank You
Rohan Arora
SIIB