Techniques for Understanding

Consumer Demand and

Behavior

Chapter 4
 Marketing Approaches to Studying
Consumer Demand

 Expert opinion
 Consumer surveys
 Test marketing and price experiments
 Analyses of census and other historical data
 Unconventional methods

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 Expert Opinion

 An approach to analyzing consumer behavior

that relies on developing a consensus of
opinion among sales personnel, dealers,
distributors, marketing consultants, and trade
association members.

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 Consumer Surveys
 Direct consumer  Conjoint analysis is an
surveys is an approach approach to analyzing
to analyzing consumer consumer behavior that
behavior that relies on asks consumers to rank
and choose among
directly asking different product
consumers questions attributes, including
about their response to price, to reveal their
prices, price changes, or valuation of these
price differentials. characteristics.

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 Test Marketing and Price
Experiments
 Test marketing is an  Price experiments is an
approach to analyzing approach to analyzing
consumer behavior that consumer behavior in
involves analyzing which consumer reaction to
consumer response to different prices is analyzed
products in real or in a laboratory situation or
simulated markets. a test market environment.

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 Analysis of Census and Other
Historical Data

 Targeted marketing involves selling that

centers on defining different market segments
or groups of buyers for particular products
based on the demographic, psychological, and
behavioral characteristics of the individuals.

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 Unconventional Methods
 For example, in designing its “Whassup?” campaign for
Budweiser, Anheuser-Busch executives had
employees attend underground film festivals and
examine new art forms to determine what factors would
appeal to the company’s target audience, composed
primarily of 20- to 30-year-old men. The resulting
information on current language, styles, and attitudes
was then incorporated into new advertising campaigns.

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 Pitfalls with Marketing Methods of
Evaluating Consumer Demand

 Are the participating groups truly

representative of the larger population?
 Do the answers given in these formats
represent actual market behavior?
 Can we isolate the effects of different variables
that influence demand?

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 Economic Approach to Studying
Consumer Demand

 Economists typically use the statistical

technique of multiple regression analysis to
estimate the effect of each relevant
independent variable on the quantity
demanded of a product, while statistically
holding constant the effects of all other
independent variables.

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 Regression Methodology

 Regression analysis involves the use of

historical data to develop relationships among
the variables and to predict how changes in
these variables will affect consumer demand.

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 Types of Data

 Cross-sectional data is collected on a sample

of individuals with different characteristics at a
specific point in time.
 Time-series data is collected on the same
observational unit at a number of points in
time.
 Panel data is cross-sectional data observed at
several points in time.

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 Simple Regression Analysis
 Simple regression
analysis focuses on the
relationship between two
variables, like, quantity
demanded and price.

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 Simple Regression Analysis

 Regression analysis is a technique that

produces an equation the “fits” the data better
than any other. “Best fit” means minimizing the
sum of the squared deviations of the sample
data points from their mean or average value.

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 Simple Regression Example

 When price is 0,
Q = 210.444 - 1.578P quantity demanded is
where
210.444 units. A one
unit increase in price
Q = quantity demanded,
and will reduce quantity
P = price per unit demanded by 1.578
units.

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 How Well Does the Regression
Equation Explain the Relationship?

 The t-test is used to  The goodness of fit

test the hypothesis of the entire
that a coefficient is estimating equation
significantly different to the data set is
from zero. shown by the
coefficient of
determination (R2).

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 Multiple Regression Analysis

 Multiple regression analysis estimates the

relationship between a single dependent
variable and multiple independent variables.

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 Multiple Regression Example
 For a given level of
advertising expenditure, a
Q = 116.157 - 1.308P one unit increase in price
+ 11.246ADV causes a fall in quantity
demanded of 1.308 units.
where
For a given price, a one
Q = quantity demanded unit increase in advertising
P = price per unit, and expenditure causes an
ADV = advertising 11.246 unit increase in
expenditure quantity demanded.

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 Demand Estimation Issues

 The variables included in a multiple regression

analysis may be influenced by data availability,
as well as by the underlying economic theory.
 Large-scale data collection can be very
expensive and time-consuming.

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