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
surveys is an approach
to analyzing consumer
behavior that relies on
directly asking
consumers questions
about their response to
prices, price changes, or
price differentials.

Conjoint analysis is an
approach to analyzing
consumer behavior that
asks consumers to rank
and choose among
different product
attributes, including
price, to reveal their
valuation of these
characteristics.

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Test Marketing and Price

Experiments

Test marketing is an
approach to analyzing
consumer behavior that
involves analyzing
consumer response to
products in real or
simulated markets.

Price experiments
is an approach to
analyzing consumer
behavior in which
consumer reaction to
different prices is
analyzed in a
laboratory situation or
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 companys 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.

10

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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.
11

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Simple Regression Analysis

12

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.

13

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Simple Regression Example

When

Q = 210.444 - 1.578P
where
Q = quantity demanded,
and
P = price per unit

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price is 0,
quantity demanded is
210.444 units. A one
unit increase in price
will reduce quantity
demanded by 1.578
units.

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How Well Does the Regression

Equation Explain the Relationship?
The

t-test is used to
test the hypothesis
that a coefficient is
significantly different
from zero.

15

The

goodness of fit
of the entire
estimating equation
to the data set is
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.

16

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Multiple Regression Example

Q = 116.157 - 1.308P
+ 11.246ADV
where
Q = quantity demanded
P = price per unit, and
ADV = advertising
expenditure

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For a given level of

advertising expenditure, a
one unit increase in price
causes a fall in quantity
demanded of 1.308 units.
For a given price, a one
unit increase in advertising
expenditure causes an
11.246 unit increase in
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.

18

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