Product Design Strategies for Target-Market Positioning

8/9/2019 Product Design Strategies for Target-Market Positioning

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J PROD INNOV MANAG 189

1991 ;8:189-202

0000

Product D esign Strateg ies for Target-M arket Posi tioning

P a u l E . G r e e n a n d A b b a M . K r i e g e r

Designing optimal positioning strategies for tar-

get segments has become an area of intense re-

search interest over the pas t fe w years. This ar-

ticle examines a variety of strategies that can be

operationalized from conjoint analysis input

data. Paul Green and Abba Krieger discuss strat-

egies for modify ing buyer perceptions, ideal-level

preferences and attribute importances that are

attractive for a firm s existing brand(s). They

then consider longer run strategies for modifying

the current brand s attribute levels and develop a

case to illustrate applications of the techniques.

Address corres ponde nce to Paul E. Green, S.S. Kresge Profes-

sor of Marketing, Marketing Department, Suite 1400, The Wharton

School, University of Pennsylvani a, Steinberg-Dietrich Hall, Phila-

delphia, PA 19104-6371.

I n t r o d u c t i o n

Fe w ma r k e t e r s wo u l d d i s p u t e t h e c e n t r a l r o l e s

t h a t p r o d u c t p o s i t i o n i n g a n d ma r k e t s e g me n t a t i o n

p l a y i n t o d a y ' s e c o n o mi e s , n a t i o n a l o r g l o b a l .

T h e l a s t d e c a d e h a s w i t n e s s e d a s u r g e o f n e w

me t h o d o l o g i c a l a n d mo d e l i n g d e v e l o p me n t s f o r

o p t i ma l p o s i t i o n i n g . Re v i e ws o f t h e s e d e v e l o p -

me n t s a r e p r o v i d e d b y Gr e e n , Ca r r o l l a n d Go l d -

b e r g [ 2 ] , Se n [ 9 ] , Su d h a r s h a n , Ma y a n d Sh o c k e r

[ 1 2 ] , Ko h l i a n d Kr i s h n a mu r t i [ 7 ] , Su d h a r s h a n ,

Ma y a n d Gr u c a [ 1 1 ] , a n d Gr e e n a n d Kr i e g e r [ 3 ] .

Co n j o i n t a n a l y s i s [ 4 ] h a s b e e n c e n t r a l i n t h e

i mp l e me n t a t i o n o f ma n y o p t i ma l p o s i t i o n i n g

mo d e l s . T h e a d v e n t o f u s e r - f r i e n d l y p e r s o n a l

c o m p u t e r p a c k a g e s , s u c h a s th o s e o f He r ma n [ 5 ],

J o h n s o n [ 6 ] , a n d , mo s t r e c e n t l y , SPSS [ 1 0 ] , h a s

s e r v e d b o t h t o d e f i n e t h e s t a t e o f c o n j o i n t p r a c -

t i c e a n d t o ma k e t h e me t h o d o l o g y a c c e s s i b l e t o

wi d e r a u d i e n c e s .

He l p f u l a s t h e y a r e, h o w e v e r , c o m me r c i a l c o n -

j o i n t p a c k a g e s f o c u s l a r g e l y o n d a t a c o l l e c t i o n

a n d p a r t - wo r t h e s t i ma t i o n . W h i l e a l l t h r e e o f t h e

p a c k a g e s c i t e d a b o v e c o n t a i n b u y e r c h o i c e s i mu -

l a t o r s , n o n e d e a l s w i t h p r o d u c t o p t i mi z a t i o n a n d

r e l a t e d i s s u e s .

T h e p u r p o s e o f th e c u r r e n t a r t i c l e is to d i s c u s s

v a r i o u s e x t e n s i o n s o f c u r r e n t p r o d u c t p o s i t i o n i n g

p r a c t i c e . As i n t h e c a s e w i t h c o mme r c i a l p a c k -

a g e s , t h e me t h o d o l o g y d e s c r i b e d h e r e c o l l e c t s

c o n j o i n t p r e f e r e n c e s a n d r e s p o n d e n t b a c k g r o u n d

d a t a . A t t r i b u t e - le v e l p e r c e p t i o n s d a t a f o r e a c h r e -

s p o n d e n t ' s mo s t p r e f e r r e d b r a n d a r e a l s o c o l -

l e c t e d . ( Pe r c e p t i o n s d a t a c o l l e c t i o n r e p r e s e n t s a

d e p a r t u r e f r o m t h e c o mme r c i a l p a c k a g e s ' i n p u t

© 1991 Elsevier Science Publishing Co., Inc. 0737-6782/91/ 3.50

655 Avenue of the Americas, New York, NY 10010


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1 9 0 J P R O D I N N O V M A N A G P . E . G R E E N A N D A . M . K R I E G E R

1991 ;8 :189-202

B I O G R A P H I C A L S K E T C H E S

P a u l E . G r e e n i s th e S . S . K r e s g e p r o f e s s o r o f m a r k e t i n g a t

t h e W h a r t o n S c h o o l , U n i v e r s i t y o f P e n n s y l v a n i a . D r . G r e e n ' s r e -

s e a r c h e m p h a s i z e s q u a n t i t a t i v e m e t h o d s a n d n e w m e a s u r e m e n t t e c h -

n i q u e s i n m a r k e t a n a l y s i s a n d c o n s u m e r r e s e a r c h . H e h a s b e e n h o n -

o r e d f o r t h i s r e s e a r c h b y t h e A m e r i c a n M a r k e t i n g A s s o c i a t i o n , t h e

A m e r i c a n S t a t i s t i c a l A s s o c i a t i o n , t h e A m e r i c a n P s y c h o l o g i c a l A s s o -

c i a t i o n , t h e M a r k e t R e s e a r c h S o c i e t y , a n d t h e A s s o c i a t i o n f or C o n -

s u m e r R e s e a r c h.

D r . G r e e n i s t h e a u t h o r o r c o a u t h o r o f s e v e r a l b o o k s , i n c l u d i n g th e

w i d e l y u s e d t e x t Research for Marketing Decisions, now in i t s f i f th

e d i t i o n . H e i s a ls o a p r o l i f ic c o n t r i b u t o r t o m a r k e t i n g a n d b u s i n e s s

j o u r n a l s .

A b b a M . K r i e g e r i s p r o f e s s o r o f s t a t is t i c s a n d o p e r a t i o n s r e-

s e a r c h a t t h e W h a r t o n S c h o o l , U n i v e r s i t y o f P e n n s y l v a n i a . H e i s t h e

a u t h o r o r c o a u t h o r o f a r t i c l e s i n s t a t i st i c a l m e t h o d o l o g y a n d t h e i n t e r -

f a c e b e t w e e n s t a t i s t i c a l m e t h o d o l o g y a n d o p t i m i z a t i o n th e o r y . H i s

c u r r e n t r e s e a r c h i n t e r e s t s i n c l u d e t h e o r e t i c a l a n d e m p i r i c a l a n a l y s e s

o f t h e b o o t s t r a p r e s a m p l i n g t e c h n i q u e a n d a p p l i c a t i o n o f s t a t i s t i c a l

m e t h o d s a n d o p e r a t i o n s r e s e a r c h t o p r o b l e m s i n m a r k e t i n g re s e a r c h .

r e q u i r e m e n t s ; o t h e r w i s e , t h e m o d e l s w e d e s c r i b e

u s e t h e s a m e k i n d s o f d a t a t h a t a r e r o u t i n e l y c o l -

l e c t e d i n i n d u s t r y - b a s e d c o n j o i n t s t u d i e s . )

O u r a p p r o a c h d e e m p h a s i z e s t h e m e t h o d o l -

o g y ' s m a t h e m a t i c s i n f a v o r o f a m o r e m a n a g e r i a l

s l a n t t h a t f o c u s e s o n s t r a t e g i c q u e s t i o n s . W e u s e

a c a s e f o r m a t t h a t c o n s i d e r s a h y p o t h e t i c a l f i r m ,

t h e E p s i l o n C o m p a n y , t h a t i s i n t h e c o n s u m e r

c r e d i t c a r d b u s i n e s s . W h i l e a ll a t t r ib u t e l e v e l d e -

s c r i p t i o n s , c o s t d a t a , p r o d u c t p r o f i l e s , a n d b a c k -

g r o u n d v a r i a b l e s a r e d i s g u i s e d , t h e c a s e n o n e t h e -

l e s s h a s b e e n d e s i g n e d t o b e r e a l i s t i c i n t e r m s o f

t h e k i n d s o f s t r a t e g i c r e s e a r c h q u e s t i o n s t h a t a r e

r a i s e d i n t h is i n d u s t r y .

S t u d y B a c k g r o u n d

A s d e s c r i b e d i n Fortune m a g a z i n e [ 8 ] , t h e c r e d i t

c a r d i n d u s t r y i s f e e l i n g t h e h e a t o f n e w c o m p e t i -

t o r s , m o s t n o t a b l y S e a r s ' Discover Card a n d ,

e v e n m o r e r e c e n t l y , A T & T ' s

Universal Card.

S o m e m a j o r p l a y e r s , s u c h a s C i t i b a n k , a r e a ls o

r a i s i n g t h e a n t e b y b u y i n g o u t c r e d i t c a r d p o r t f o -

l i o s o f s m a l l e r f i n a n c i a l i n s t i tu t i o n s ; i t i s b e l i e v e d

t h a t C i t i b a n k p a i d t h e e q u i v a l e n t o f $2 68 p e r a c -

c o u n t ( o n e o f th e h i g h e s t p r i c e s e v e r ) , f o r it s p u r -

c h a s e o f B a n k o f N e w E n g l a n d ' s c a r d p o r t fo l io .

C r e d i t c a r d c o m p a n i e s a r e a l s o a d d i n g n e w

c o n s u m e r b e n e f i t s ( e . g . , r e t a i l p u r c h a s e i n s u r -

a n c e ) , c a s h b a c k b o n u s e s ( e . g . , t h e

Discover

Card) a n d o t h e r f e a t u r e s i n t h e b a t t l e f o r m a r k e t

s h a r e . W i t h n e w c u s t o m e r s g e t ti n g e v e r h a r d e r t o

c o r r a l , a t t e m p t s a r e b e i n g m a d e t o e x t e n d c a r d

u s a g e t o s u c h e s t a b l i s h m e n t s a s f a s t f o o d s , m o v -

i e s , a n d e v e n t o l l b o o t h s .

I n t h e c a s e d e s c r i b e d h e r e , E p s i l o n i s a r e l a -

t i v e l y s m a l l p l a y e r i n a g r o u p o f c o m p e t i t o r s t h a t

i n c l u d e A l p h a , B e t a , G a m m a , a n d D e l t a . A l p h a

a n d G a m m a a r e t h e g i a n t s i n t h e f i e l d ( w i t h m a r -

k e t s h a r e s o f 2 8 % a n d 4 5 % , r e s p e c t i v e l y ) . E p s i -

I o n ' s s h a r e i s o n l y 1 0 %.

Short Run Strategies

E p s i l o n ' s m a n a g e m e n t i s c o n c e r n e d w i t h b o t h

s h o r t r u n a n d l o n g e r r u n c o m p e t i t i v e s t r a t e g i e s .

I n t e r m s o f s h o r t r u n s t r a t e g y , t h e f o l l o w i n g q u e s -

t i o n s a r e r e l e v a n t :

1. A r e t h e c h a r a c t e r i s t i c s o f E p s i l o n ' s c a r d p r o -

f il e b e i n g m i s p e r c e i v e d b y i t s c u r r e n t u s e r s ? I f

s o , h o w c a n i t i m p r o v e i t s p o s i t i o n b y f o c u s i n g

o n t h o s e p a r t i c u l a r c a r d a t t r i b u t e s w h e r e t h e

c o r r e c t i o n o f m i s p e r c e p t i o n s is m o s t a d v a n t a -

g e o u s ?

2 . I s i t p o s s i b l e t o c h a n g e c u r r e n t c a r d u s e r s '

p r e f e r e n c e s f o r v a r i o u s p r o f i l e l e v e l s t h a t f a -

v o r E p s i l o n ' s o f f e ri n g ? I f s o , w h a t g a i n s m i g h t

b e a s s o c i a t e d w i t h m o v i n g a ll c a r d u s e r s ' i d e a l

l e v e l s c l o s e r t o t h e s p e c if i c l e v e l s p r o v i d e d b y

E p s i l o n ' s c a r d ?

3 . W h a t a r e t h e c u r r e n t s t r e n g t h s a n d w e a k -

n e s s e s o f E p s i l o n ' s c a r d ? W h i c h a t t r i b u t e s al i-

e n c e s ( i . e . , p e r c e i v e d a t t r i b u t e i m p o r t a n c e s )

s h o u l d b e s t r e s s e d i n o r d e r t o i n c r e a s e t h e

s h a r e / p r o f i t s o f it s c u r r e n t p r o d u c t ?

I t s h o u l d b e n o t e d t h a t a l l t h r e e s e t s o f q u e s -

t i o n s i n v o l v e a c t i o n s t h a t c o u l d b e t a k e n w i t h n o

c h a n g e i n t h e c u r r e n t c a r d ' s a c t u a l a t t r i b u t e l e v -

e l s . R a t h e r t h e i n t e n t ( t h r o u g h a d v e r t i s i n g ) i s t o

m o d i f y c o n s u m e r s ' p e r c e p t i o n s , i d e a l l e v e ls , o r

a t t r i b u t e s a l i e n c e s i n w a y s t h a t a r e d i f f e r e n t i a l l y

f a v o r a b l e t o E p s i l o n . O f c o u r s e , t h e

conse-

quences o f t h e a c t i o n s ( p a r t i c u l a r ly c h a n g i n g c a r d

h o l d e r s ' i d e a l a t t r i b u t e l e v e l s ) m a y b e v e r y l o n g

i n c o m i n g , i f a t a l l .

Longer-Run Strategies

I n c o n t r a s t , c h a n g e s i n E p s i l o n ' s p r o d u c t o f f e r -

i n g , i n c l u d i n g f e a t u r e s , u s e r b e n e f i ts , a n d p r i c e

a r e t y p i c a l l y l o n g e r t e r m ; e v e n c h a n g i n g t h e

c a r d ' s p r i c e ( a n n u a l b i l l i n g ) t a k e s t i m e . I n t e r m s


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1991 ; 8 :18 9- 20 2

o f t h e l o n g e r r u n , t h e f o l l o w i n g q u e s t i o n s a r e r e le -

v a n t :

1 . A s s u m i n g t h a t th e c u r r e n t E p s i l o n c a r d ' s a t-

t r i b u t e l e v e l s a n d p r i c e c o u l d b e c h a n g e d ,

w h a t is t h e o p t i m a l b u n d l e o f f e a t u r e s/ b e n e -

f i ts / p r ic e t o b e o f f e r e d , c o n d i t io n a l o n c o m p e t -

i t o r s ' c u r r e n t p r o f i l e s ?

2 . A s s u m i n g t h a t E p s i l o n c o u l d i n t r o d u c e a li n e

e x t e n s i o n ( a n e w c a r d i n a d d i t i o n t o it s c u r r e n t

c a r d ) , w h a t s h o u l d th e n e w c a r d ' s p r o fi le b e ?

3 . N e x t , a s s u m e t h a t E p s i l o n d o e s , i n f a c t , i n t r o -

d u c e t h e r e c o m m e n d e d li ne e x te n s i o n . B e t a

o b s e r v e s t h is e v e n t a n d d e c i d e s t o r e ta l ia t e b y

r e p l a c i n g its c u r r e n t c a r d w i t h a n e w p r o f i l e .

W h a t s h o u l d B e t a ' s n e w c a r d b e ?

N o t e t h a t t h e p r e c e d i n g s t r a t e g i e s m a k e v a r i -

o u s a s s u m p t i o n s a b o u t c o m p e t i t i v e b eh a v i o r. I n

t h e f ir st tw o q u e s t i o n s w e d o n o t t a k e u p t h e i s s u e

o f c o m p e t i t i v e r e t a l ia t i o n b u t d o c o n s i d e r E p s i -

l o n ' s c o m p e t i t i v e d r a w a n d c a n n i b a l i z a t io n . I n

t h e th i r d q u e s t i o n , h o w e v e r , w e c o n s i d e r th e c a s e

i n w h i c h B e t a r e s p o n d s t o t h e i n i t i a l l i n e e x t e n -

s io n m o v e o f E p s i l o n .

Target Marketing

U p t o t h i s p o i n t w e h a v e b e e n a s s u m i n g t h a t E p -

s i l o n ' s p r o d u c t p o s i t i o n i n g s t r a t e g y i s b a s e d o n

t o ta l m a r k e t c o n s i d e r a t i o n s . W e n o w f o c u s o n

p r o d u c t d e s i g n f o r s e l e c t e d ta r g e t s e g m e n t s . T h e

f o l l o w i n g q u e s t i o n s a r e a p p r o p r i a t e :

1. W e f ir st a s s u m e t h a t E p s i l o n m a n a g e m e n t

w i s h e s t o c o n s i d e r a l in e e x t e n s i o n f o r a p re s e -

l e c t e d t ar g e t s e g m e n t . W h a t s h o u l d th i s c a r d ' s

p r o f i l e b e ?

2 . W e n e x t a s s u m e t h a t E p s i l o n w i s h e s t o c h o o s e

t w o t a r g e t s e g m e n t s a n d r e p l a c e i t s c u r r e n t

c a r d w i t h t w o n e w c a r d s , o n e f o r e a c h s e g -

m e n t . W h a t s h o u l d t h e i r p r o f i l e s b e ?

T h e p r e c e d i n g p r o d u c t p o s i t io n i n g a n d t ar g e t

m a r k e t i n g a c t i o n s a r e o n l y i l lu s t r at i v e o f th e p o s -

s ib il it ie s fo r w h i c h t h e p r o p o s e d m e t h o d o l o g y is

d e s i g n e d . T h e y s h o u l d b e s u f f ic i en t , h o w e v e r , f o r

i l lu s t r a t i n g th e v e r s a t i l i ty o f th e a p p r o a c h .

T h e S u r v e y

E p s i l o n r e s e a r c h e r s n e x t d e s i g n e d a n d i m p l e-

m e n t e d a n a t io n a l s u r v e y o f c re d i t c a rd h o l d e r s ,

u s i n g a t e l e p h o n e - m a i l - t e l e p h o n e i n t e r v i e w i n g

p r o c e d u r e [4 ]. A t o t a l o f 48 0 r e s p o n d e n t s , a ll o f

w h o m u s e d a t le a s t 1 o f th e 5 c r e d it c a r d s , c o m -

p l e t e d th e i n t e r v i e w s . T h e i n t e r v i e w e m p l o y e d a

h y b r i d c o n j o i n t p r o c e d u r e [ 1] a n d c o n s i s t e d o f 12

a t t r i b u t e s ( T a b l e 1 ) . I n a d d i t i o n t o t h e c o n j o i n t

d a t a , i n f o r m a t i o n w a s a l s o o b t a i n e d o n r e s p o n -

d e n t s ' p e r c e p t i o n s o f t h e a t tr i b u t e l e v e ls o f th e i r

m o s t p r e f e r r e d c a r d ; t h i s w a s d o n e b y s i m p l y a s k -

i n g t h e m t o p i c k t h e a t t r i b u t e l e v e l s ( T a b l e 1) t h a t

m o s t c l o s e l y m a t c h e d t h e i r p e r c e p t i o n s o f t h e fe a -

t u r e s o f t h e ir m o s t p r e f e r re d c a r d . R e s p o n d e n t

b a c k g r o u n d i n f o r m a t i o n o n c a r d u s a g e , t r av e l ,

a n d s e l e c t e d d e m o g r a p h i c s w a s a l s o o b t a i n e d .

F o r b a c k g r o u n d p u r p o s e s , F i g u r e 1 s h o w s

p a r t - w o r t h s u m m a r i e s f o r e a c h o f th e 12 a tt r ib -

u t e s . A s m i g h t b e e x p e c t e d , t h e s e r v i c e s a re s u c h

t h a t th e m o r e e n h a n c e d l e v e l s a r e p r e f e r r e d t o t h e

m o r e b a s i c l e v e l s t h a t , in tu r n , a r e p r e f e r r e d t o n o

s e r v i c e s a t a l l .

Cost Data

O b t a i n i n g E p s i l o n ' s c o s t d a t a a t t h e a t t r i b u t e

l e ve l w a s a m u c h m o r e d i ff ic u lt j o b . O u r i n t e r e s t

w a s r e s t r i c t e d t o v a r i a b l e c o s t s o n l y ; e v e n a t th a t ,

c r u d e e s t i m a t e s h a d t o s u ff ic e . E a c h o f t h e n u l l

o r b a s e l e v e l s ( l o w e s t p a r t - w o r t h l e v e l s ) w a s

c o d e d a t z e ro c o s t , a n d c o s t s o f e n h a n c e d l ev e l s

w e r e e x p r e s s e d a s ( n e g a ti v e ) d e p a r t u r e s f r o m t h i s

b a s e . A n n u a l p r i c e w a s t r a n s l a t e d i n t o a n n u a l

g r o s s r e v e n u e f o r t h e b a s e p r o f i l e ; c o s t s f o r e n -

h a n c e m e n t s w e r e d e d u c t e d f r o m t h e ir r e v e n u e

e s t i m a t e s .

T h e r e s u l t s o f t h e s e e s t i m a t i o n p r o c e d u r e s p r o -

v i d e d E p s i l o n r e s e a r c h e r s w i t h a n a n n u a l c o n t r i -

b u t i o n t o o v e r h e a d a n d p r o f it , e s t i m a t e d o n a p e r-

c a r d l e v e l . ( T h e c o n t r i b u t i o n i n c l u d e s e s t i m a t e d

i n t e r e s t c h a r g e s . )

Current Competitive Profiles

B a s e d o n p u b l i s h e d d a ta , e a c h c o m p e t i t o r (A l p h a

t h r o u g h E p s i l o n ) w a s p r o f il e d in t e r m s o f it s

t r u e a t t ri b u t e l e v e ls . T h e s e p r o f il e s a r e s h o w n

i n T a b l e 2 , a l o n g w i t h i n d u s t r y - b a s e d c u r r e n t

m a r k e t s h a r e s f o r e a c h o f t h e f iv e c ar d s .

W e n o t e th a t A l p h a ' s o f f e r in g is a p r e s t i g e

c a r d - - h i g h e s t p r i c e d o f a ll c o m p e t i t o r s , w i t h e n-

h a n c e d l e v e l s o f m o s t s e r v i c e a t t ri b u t e s a n d w i t h

n o e n d - o f - y e a r c a s h r e b a t e . B e t a ' s o f f e r i n g e m -


4/14

192 J P R O D 1 N N O V M A N A G P . E . G R E E N A N D A . M . K R I E G E R

1 99 1 ; 8 : 1 8 9 - 2 0 2

T a b l e 1 . C a r d A t t r i bu t e L e v e l s U s e d i n C o n j o n t S u r v e y

Annual price

0

Cash rebate (end-of-year, on total purchases)

800 number for message forwarding

Retail purchase insurance

none

Common carrier insurance (death, injury)

none 50,000

Rental car insurance (fire, theft, collision, vandalism)

none 30,000

Baggage insurance (covers both carry-on and checked)

none 2,500 depreciated cost

Airport club admission (based on small entrance fee)

10 20 50 80 100

none 1/2% 1%

9-5pm weekdays 24 hours per day

none 90 days coverage

200,000

2,500 replacement cost

no admission 5/visit 2/visit

Card acceptance

air, hotel, rental cars; AHC and most restaurants; AHCR and most general retailers (AHCRG); AHCR and department

stores only (AHCRD)

Twenty-four hour medical/legal referral network

no yes

available at 20% discount

available at 20% discount

Airport limousine to city destination

800 number for emergency car service

not offered

not offered

Figure 1. Average part -worth values from hybrid mo del

Scale

Values

0 .5 -

0.4 $~ ~ *'o

0.3- ~

0 . 2 -

0 .1 - ~ S 0 J 1 % ~ 4 h r ~

N o n e

1 % No lle 9-5

rn

,~ . .~ ~ - , ~ i '~,

P r i c e R e b a t e M e s s a g e

F o r w a r d i n g

ays

P u r c h a s e

I n s u r a n c e

N o ~ n e$~ k~ 200k

l i

C a r r i e r

I n s u r a n c e

2

I

C a r

I n s u r a n c e

0 . 5 -

0.4-

0.3-

0.2-

0.1

A H CR G e l

~ ~ C R D

Baggage Airpo rt Acceptance Medical/

I n s u r a n c e Clubs Legal

Y u

/

Limousine

Ye~

/ ,

m e r g e n c y

C a r S e r v i c e


5/14

PRODUCT DESIGN STRATEGIES FOR POSITIONING J PROD INNOV MANAG 193

1991 ;8:189-202

T a b l e 2 . C a r d P r o f i l e s o f F i v e C o m p e t i t o r s

Attribute Alpha Beta Gamma Delta Epsilon

Price

Cash rebate

Message forwarding

Retail purchase insurance

Common carrier insurance

Rental c ar insurance

Baggage insurance

Airport clubs

Acceptance

Medical/legal

Airport

Limousine

Em ergen cy car serv.

Current mkt. share

$80 $20 $20 $0 $10

none none none 0.5% none

9-5 24 hou rs 9-5

weekd ays none daily none week days

90 days 90 days none 90 days 90 day s

$200,000 $200,000 $50,000 no ne no ne

$30,000 $30,000 non e non e no ne

$2,500 $2,500 $2,500

rep. rep. dep. none none

non e none $2/visit none $5/visit

AHCRG AHCRD AHCRD AHCR AHCRD

yes no yes no yes

yes yes yes

20% disc. none 20% disc. 20% disc. non e

yes yes yes

20% disc. none 20% disc. 20% disc. non e

28% 8% 45% 9% 10%

p h a s i z e s i n s u r a n c e c o v e r a g e ( w h e r e i t i s h e a d - t o -

h e a d w i t h A l p h a b u t i s m o r e m o d e s t l y p r ic e d ).

G a m m a ' s o f f e ri n g is p r i c e d t h e s a m e a s B e t a ' s

b u t it s p r of il e e m p h a s i z e s c o n s u m e r a m e n i t i e s - -

m e s s a g e f o r w a r d i n g , a i rp o r t c lu b s , m e d i c a l / l e g a l ,

a i r p o rt l i m o u s i n e , a n d e m e r g e n c y c a r s e r v ic e .

D e l t a is a b a r g a i n - b a s e m e n t e n t r y - - n o a n-

n u a l c o s t s p l u s a s m a l l r e b a t e o n c u m u l a t i v e a n -

n u a l p u r c h a s e s . I t o f f e r s v e r y f e w s e r v i c e s a n d

h a s s o m e w h a t l e ss l im i t e d a c c e p t a n c e t h a n t h e

o t h e r s . E p s i l o n ' s p r i c e is l e ss t h a n A l p h a ' s , B e -

t a ' s a n d G a m m a ' s b u t i t o f f e r s b o t h l i m i t e d

a m e n i t i e s a n d l im i t e d i n s u r a n c e s e r v i c e s .

A s n o t e d i n t h e l a s t r o w o f T a b l e 2 , t h e b i g g e r

p l a y e r s a r e A l p h a a n d G a m m a ; B e t a ' s , D e l t a 's

a n d E p s i l o n ' s s h a r e s a r e r o u g h l y eq u a l to e a c h

o t h e r a n d c o n s i d e r a b l y b e l o w t h o s e o f t h e b ig

t w o .

B u y e r C h o i c e R u l e

T h e i n d iv i d u a l c o u n t e r p a r t s t o t he a v e r a g e d p a r t-

w o r t h s o f F i g u r e 1, a l o n g w i t h t h e p r o f il e d e s c r i p -

t i o n s o f T a b l e 2 , a r e t y p i c a l l y e n t e r e d i n t o a c o n -

j o i n t c h o i c e s i m u l a t o r . T h e r e s e a r c h e r is t h e n

f a c e d w i t h t h e p r o b l e m o f w h a t c h o i c e r u l e to u s e .

T h e r e a r e t h r e e c h o i c e r u l e s c u r r e n t l y i n u s e i n

c o m m e r c i a l c o n j o i n t p a c k a g e s : ( 1) t h e m a x u ti l-

i t y c h o i c e r u l e ; ( 2 ) t h e l o g i t c h o i c e r u l e ; a n d ( 3 )

t h e B r a d l e y - T e r r y - L u c e ( s h a r e o f u t il it y ) ru l e.

E a c h o f t h e s e r u l es c a n b e m i m i c k e d b y w h a t w e

c a ll t h e a l p h a ru l e . S o m e w h a t m o r e f o r m a l l y , as -

s u m e t h a t a n y s p e c i f i e d s u p p l i e r ' s p r o f i l e c a n b e

r e p r e s e n t e d b y a v e c t o r j s ; s - - 1 , 2 . . . . . S .

G i v e n i n d i v i du a l k ' s v e c t o r o f p a r t -w o r t h s , w e

c a n c o m p u t e

Uk.s = U k( js ) (1)

a s t h e u t i l i t y o f i n d i v i d u a l k f o r s u p p l i e r s . T h e

m a r k e t s h a r e ( o r p r o b a b il i ty o f k c h o o s i n g su p -

p l i e r s ) i s

U~ (Js)

~'k,~ = s (2)

E U ~ (Js)

S=I

w h e r e t h e e x p o n e n t a is c h o s e n t o b e n o n - n e g a -

t i v e .

A s a l p h a a p p r o a c h e s i n f in i t y t h e p r e c e d i n g

c h o i c e r u l e m i m i c s t h e m a x u t i l i t y r u l e . S m a l l e r

v a l u e s o f a l p h a c a n m i m i c a lo g i t r u l e . I f a l p h a is

s e t t o 1.0 , w e h a v e t h e B r a d l e y - T e r r y - L u c e r u le .

A c o m p u t e r p r o g r am , c a l le d A L P H , h a s be e n

d e s i g n e d t o f i nd t h e v a l u e o f a l p h a t h a t , i f a p p l i e d

t o e a c h i n d i v i d u a l ' s u t i l i t i e s , o b t a i n s t h e c l o s e s t

o v e r a l l fi t t o a c t u a l m a r k e t s h a r e s f o r e a c h s u p -

p l ie r . E x h i b i t 1 p r o v i d e s a b r i e f d e s c r i p t i o n o f th e

p r o g r a m . W h e n a p p l ie d t o t h e c u r r e n t s u r v e y

d a t a , t h e b e s t f i t t i n g v a l u e o f a l p h a w a s 1 0 .4 . T h i s

i s t h e v a l u e u s e d i n a l l s u b s e q u e n t a n a l y s e s .


6/14


1991 ;8:189-202

E x h ib i t 1 . C h a r a c t e r is t ic s o f C o m p u t e r P r o g r a m s U s e d i n C a s e S t u d y

Program Input What the program does Output

A L P H • E a c h i n d i v i d u a l ' s u t i li t i es f o r • S o l v e s f o r o p t i m a l v a l u e o f • O p t i m a l v a l u e o f a l p h a

t h e p r o fi l e o f e a c h s u p p l i e r a l p h a w h i c h , i f a p p l i e d a t t h e • P r e d i c t i o n s o f s h a r e s f o r

• A c t u a l m a r k e t s h a r e f o r e a c h i n d i v i d u a l l e v e l, b e s t u s e r - s u p p l i e r a l p h a v a l u e s

s u p p l i e r r e p r o d u c e s a c t u a l m a r k e t

• I n d i v i d u a l 's i m p o r t a n c e s h a r e s

w e i g h t f i le • S o l v e s f o r i m p l i e d p r e d i c t i o n s

o f u s e r - s u p p l i e d a l p h a v a l u e s

• U s e s f o u r a l t e rn a t i v e

a l g o r i t h m s i n s o l v i n g f o r

o p t i m a l a l p h a v a l u e

P E R C E P T

• E a c h i n d i v i d u a l ' s c u r r e n t

b r a n d i d e n t i fi c a t i o n

• I n d i v i d u a l ' s i m p o r t a n c e

w e i g h t f i l e

• I n d i v i d u a l ' s p a r t - w o r t h s f il e

• I n d i v i d u a l ' s d e m o g r a h i c s fi le

• I n d i v i d u a l ' s p e r c e p t i o n v e c t o r

f o r c u r r e n t b r a n d

• F i n d s s u m m a r y , b y b r a n d s , o f

i n c i d e n c e o f e a c h p e r c e i v e d

a t t r i b u t e l e v e l a n d a s s o c i a t e d

a v e r a g e p a r t - w o r t h

• C o m p u t e s s e n s i ti v i t y o f

a v e r a g e p a r t - w o r t h s a s

p e r c e i v e d l e v e l s b e c o m e

i n c r e a s i n g l y s i m i l a r t o

t a r g e t e d l e v e l s

• C a n a n a l y z e d a t a f o r t h e

o v e r a l l p r o f i l e , s u b s e t s o f

a t t r i b u t e s , o r i n d i v i d u a l

a t t r i b u t e p e r c e p t i o n c h a n g e s

• A n a l y s i s c a n b e p e r f o r m e d a t

t o t a l - m a r k e t o r b y s e l e c t e d

d e m o g r a p h i c l e v e l

• S i ze o f d e m o g r a h i c s e g m e n t

• R e l a t i ve i n c i d e n c e o f b r a n d s

w i t h i n s e g m e n t

• A s s o c i a t e d b r a n d u t i li t y

c h a n g e s a s p e r c e p t i o n s

a p p r o a c h t a r g e t e d l e v e ls

• S e n s i t i v i t y a n a l y s i s b y

i n d i v i d u a l a t t r i b u t e s

• S u m m a r y t a b l e s o f

m i s p e r c e p t i o n s , b y a t t r ib u t e

a n d s u p p l i e r

I D E A L • I n d i v i d u a l p a r t - w o r t h s f il e

• T a r g e t e d l e v e l s f o r t h e i d e a l

p r o f i l e

• I n t e r p o l a t i n g c o n s t a n t :

p r o b a b i l i t y o f c h a n g i n g

c u r r e n t i d e a l t o t a r g e t e d i d e a l

• I f r e s p o n d e n t ' s i d e a l le v e l

a l r e a d y a g r e e s w i t h t a r g e t , n o

c h a n g e i s m a d e

• I f c u r r e n t i d e a l d o e s n o t e q u a l

t a r g e t , t a r g e t e d l e v e l i s

i n c r e a s e d p r o p o r t i o n a t e l y

t o w a r d c u r r e n t i d e a l , b a s e d o n

u s e r - s u p p l i e d i n t e r p o l a t i o n

v a l u e

• N e w m a t r i x o f i n d i v id u a l

p a r t w o r t h s

• T h i s n e w f i le is t h e n

p r o c e s se d b y S I M O P T f o r

c o m p a r i s o n w i t h o r i g in a l

p a r t w o r t h s f i l e

S A L I E N C E • I n d i v id u a l a t t ri b u t e

i m p o r t a n c e s a n d

a t t r i b u t e - l e v e l d e s i r a b i l i t i e s

• I n d i v i d u a l i m p o r t a n c e w e i g h t

f i le

• D e m o g r a p h i c ( b a c k g r o u n d )

f i le

• C u r r e n t m a r k e t s h a r e s o f a l l

s u p p l i e r s

• E a c h s u p p l i e r ' s p ro f i le

• V a l u e o f a l p h a a n d

d e m o g r a p h i c a t t r i b u te w e i g h t s

• A t t r i b u t e l ev e l c o s t / r e t u r n

d a t a

• P r o g r a m s h o w s , a t t r i b u t e b y

a t t r i b u t e , h o w s h a r e / r e t u r n f o r

a s e l e c t e d s u p p l i e r c h a n g e s a s

g r e a t e r i m p o r t a n c e i s

a s s o c i a t e d w i t h t h e a t t r i b u t e

• P r o g r a m c o m p u t e s o p t i m a l

d i s t r i b u t i o n o f e f f o r t a n d n e w

s e t o f i m p o r t a n c e w e i g h t s t h a t

m a x i m i z e s e l e c te d s u p p l i e r 's

s h a r e / r e t u r n

• A n a l y s i s c a n b e d o n e a t t h e

o v e r a l l m a r k e t o r s e l e c t e d

d e m o g r a p h i c l e ve l

• P r o g r a m a l s o a l l o w s u s e r to

r e a d i n e f f o r t s a n d o b t a i n t h e i r

i m p l i e d r e t u r n s

• N e w s e t o f a t t r i b u t e

i m p o r t a n c e s

• P r e d i c t e d s h a r e / r e t u r n i f n e w

i m p o r t a n c e s a r e u s e d

• N e w p a r t - w o r t h m a t r i x w i t h

m o d i f ie d i m p o r t a n c e w e i g h t s

f o r i n p u t to S I M O P T o r

c o n v e n t i o n a l s i m u l a t o r s


7/14

P RODU CT DES IGN S TRATEGIES F OR P OS ITIONING J P ROD INNOV MANAG 195

1991 ;8:189-202

E x h i b i t 1 . continued)

P r o g r a m I n p u t W h a t t h e p r o g r a m d o e s O u t p u t

S I M O P T • I n d i v id u a l p a r t - w o r t h s f il e • F o r a n y s e t o f c o m p e t i t i v e • M a r k e t s h a r e / r e t u r n f o r e a c h

• I n d i v i d u a l ' s i m p o r t a n c e p r o f i l e s , t h e p r o g r a m s u p p l i e r

w e i g h t f il e c o m p u t e s s h a r e / r e t u r n f o r • I n d i v i d u a l s u p p l i e r s e l e c t i o n

• D e m o g r a p h i c s ( b a c k g r o u n d ) e a c h s u p p l i e r , f il e

f il e • A l l s h a r e s / r e t u r n s a r e • O p t i m a l p r o d u c t d e s c r i p t i o n

• C u r r e n t m a r k e t s h a r e s f o r a l l a u t o m a t i c a l l y a d j u s t e d t o f o r t o t a l m a r k e t o r s e l e c t e d

s u p p l i e r s b a s e - c a s e c o n d i t i o n s s e g m e n t

• E a c h s u p p l i e r ' s p r o f il e • S e n s i t i v i t y a n a l y s e s c a n b e • S e n s i t i v i t y a n a l y s i s r e s u l t s , b y

• V a l u e o f a l p h a a n d p e r f o r m e d a t t h e i n d i v i d u a l l e v e l w i t h i n a t t r i b u t e

d e m o g r a p h i c a t t r i b u t e w e i g h t s a t t r i b u t e l e v e l

• C o n t r o l p a r a m e t e r s f o r • O p t i m i z a t i o n c a n b e c a r r i e d

o p t i m i z a t i o n o u t b y s u p p l i e r o r f o r g r o u p s

• A t t r i b u t e - l e v e l c o s t / r e t u r n o f s u p p l i e r s ; a t t r i b u t e l e v e l s

d a t a c a n b e f i x e d f o r c o n d i t i o n a l

o p t i m i z a t i o n

• A n a l y s e s c a n b e c o n d u c t e d a t

t h e t o t a l m a r k e t o r s e l e c t e d

t a r g e t s e g m e n t l e v e l

S E G U E

• I n d i v i d u a l p a r t - w o r t h s f i le

• I n d i v i d u a l ' s i m p o r t a n c e

weigh t f i l e

• D e m o g r a p h i c s ( b a c k g r o u n d )

file

• S e g m e n t a t t r i b u t e w e i g h t s

• F o r a n y t ar g e t s e g m e n t

c o m p o s a b l e f r o m t h e

b a c k g r o u n d v a r i a b l e s ( w i t h

w e i g h t s s u p p l i e d b y t h e u s e r ) ,

t h e p r o g r a m c o m p u t e s s i z e o f

s e g m e n t , i d e a l l e v e l s , a t t r i b u t e

i m p o r t a n c e s , a n d a t t r i b u te

l eve l des i r ab i l i t i e s

• B o t h a d d i ti v e a n d c o n j u n c t i v e

s e g m e n t s c a n b e c r e a t e d

• T h e u s e r c a n a l s o i n p u t a n y

t r i a l p r oduc t p r o f i l e and f i nd

i t s t o t a l u t i l i t y c o m p a r e d t o

t h e b e s t p r o f i l e

• A r e s p o n d e n t w e i g h t s f i le i s

p r e p a r e d f o r l a t e r u s e i n

S I M O P T

• A t t r i b u t e i m p o r t a n c e , l e v e l

d e s i r a b i l i t i e s , a n d i d e a l l e v e l s ,

b y s e l e c t e d s e g m e n t

• P r o f i le u t i li t ie s b y s e l e c t e d

s e g m e n t

• R e s p o n d e n t w e i g h t s fi le

s u m m a r i z i n g e a c h i n d i v i d u a l ' s

r e l e v a n c e t o t h e t a r g e t

s e g m e n t ( i n p u t t o S I M O P T )

S h o r t R a n g e S t r a t e g i e s

C h a n g i n g a c t u a l p r o d u c t a t tr i bu t e le v e l s m a y t a k e

s o m e t i m e t o a c c o m p l i s h a n d i s a s s o c i a t e d w i t h

b o t h t e c h n i c a l a n d m a r k e t u n c e r t a i n t y r e g a r d i n g

s u c c e s s f u l i m p l e m e n t a t i o n . I n t h e s h o r t r u n t h e

f ir m m a y e l e c t t o m a i n t a i n i ts c u r r e n t p r o d u c t a n d

a t t e m p t t o :

l . C o r r e c t c o n s u m e r s m i s p e r c e p t i o n s o f i ts a t-

t r i b u t e l e v e l s .

2 . M o d i f y c o n s u m e r s a t tr i bu t e l e v e l p r e f e r e n c e s

i n w a y s f a v o r a b l e t o t h e p r o d u c t .

3 . C h a n g e c o n s u m e r s p e r c e i v e d a t tr i bu t e i m p o r -

t a n c e s i n w a y s t h a t i n c r e a s e t h e r e l a t i v e a t -

t r a c t i v e n e s s o f t h e f i r m s p r o d u c t .

W e d i s c u s s e a c h o f t h e s e a c t i o n s , i n t u rn .

Modifying Consumers Perceptions

T h e P E R C E P T p r o g r a m ( E x h i b i t 1) h a s b e e n d e-

s i g n e d t o e x a m i n e c o n s u m e r s p e r c e p ti o n s o f

p r o d u c t a t t r i b u t e le v e l s f o r t h e i r c u r r e n t (o r m o s t

p r e f e r r e d ) b r a n d a n d t o f i n d t h o s e a t t r i b u t e s t h a t


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1991 8:189-202

T a b l e 3 . S u m m a r y o f P r o b a b i li ti e s o f C o r r e c t P e r c e p t i o n s o f A l p h a , G a m m a a n d E p s i l o n

Attributes

1 2 3 4 5 6 7 8 9 10

11 12 Mean

Alpha .58 .76 .53 .75 .82 .73 .90 .50 ,73 .57 .69 .92 .71

Ga mm a .84 .64 .63 .70 .60 .67 .82 .73 .53 .67 .66 .91 .70

Epsi lon .93 .76 .66 .87 .73 .95 .90 .90 .80 .78 .88 .80 .83

Mean .78 .72 .61 .77 .72 .78 .87 .71 .69 .67 ,74 .88

Comparative Average Utility gains for Correcting Misperceptions:

Alpha 9.8%

Gamma 10.8

Epsilon 7.8

Best Attributes for Epsilon

Attributes 9 (card acceptance) and 10 (medical/legal network)

o f f e r t h e g r e a t e s t g a i n s i n u t il i ty f o r m o v i n g p e r -

c e p t i o n s t o t h e c o r r e c t l e v e l s o f t h e f i rm ' s

b r a n d . I n p u t d a t a c o n s i s t o f e a c h r e s p o n d e n t ' s

m u l t i p l e c h o i c e d a t a r e p r e s e n t i n g t h e l e v e l w i t h i n

e a c h a t t r i b u t e t h a t i s p e r c e i v e d t o m a t c h m o s t

c l o s e ly t h e c o n s u m e r ' s p e r c e p t i o n o f h i s / h e r c u r -

r e n t b r a n d .

P E R C E P T p l a y s tw o r o l e s. F i r s t, i t p r o v i d e s

s u m m a r y d e s c r ip t i o n s , b y b r a n d , o f c o n s u m e r

p e r c e p t i o n s v e r s u s r e a l i t y l e v e l s. I n t h is w a y ,

o n e c a n c o m p a r e b r a n d e f fi c ie n c ie s w i t h r e g a r d to

h o w o n e ' s a d v e r t i s i n g m e s s a g e s a r e g e t t i n g

a c r o s s . A l t e r n a t i v e l y , o n e c a n c o m p a r e a t tr i b u te s

( a c r o s s b r a n d s ) i n te r m s o f t h e a c c u r a c y w i t h

w h i c h t h e ir l e v e l s a re p e r c e i v e d .

S e c o n d , P E R C E P T c a n be u s ed t o e x a m i n e th e

d i f f e r e n t i a l a t t r a c t i v e n e s s o f c o r r e c t i n g c o n s u m e r

m i s p e r c e p t i o n s , s o t h a t t h e f i r m c a n f o c u s o n

t h o s e a t t r i b u t e l e v e l s t h a t c a r r y t h e h i g h e s t p a y o f f

i n c o n s u m e r u t i l it y ( a n d , o t h e r t h i n g s b e i n g e q u a l ,

b r a n d c h o i c e ) . F o r i l l u s t r a t i v e p u r p o s e s , w e s e -

l e c t t h r e e o f t h e f iv e s u p p l ie r s : A l p h a , G a m m a

a n d E p s i l o n . T a b l e 3 s u m m a r i z e s t h e r e s u l t s .

W e f i r s t n o t e t h a t , o n a v e r a g e , E p s i l o n u s e r s

s h o w t h e h i g h e s t i n c i d e n c e o f a c c u r a t e p e r c e p -

t io n s ; 8 3 % o f th e t i m e t h e y c o r r e c t l y p e r c e i v e t h e

l e v e l s o f E p s i l o n ' s t r u e p r o fi le . T h i s c o m p a r e s t o

7 1 % f o r A l p h a a n d 7 0 % f o r G a m m a . I n a ll t h r e e

c a s e s , h o w e v e r , t h e p e r c e i v e d m o d a l p ro f il e s c o r -

r e s p o n d e d t o t h e t r u e p r o f il e s o f e a c h s u p p l i e r.

W e a l s o n o t e f r o m T a b l e 3 t h a t , o n a v e r a g e , a t -

t r i b u t e 1 2 ( e m e r g e n c y c a r d s e r v i c e ) a n d a t t r i b u t e

7 (b a g g ag e i n s u r a n c e ) w e r e m o s t o f te n p e r c e i v e d

c o r r e c t l y , w h i l e a t t r i b u t e 3 ( m e s s a g e f o r w a r d i n g )

w a s l e a s t o f t e n p e r c e i v e d c o r r e c t l y .

I n a d d i t i o n , T a b l e 3 i n d i c a t e s t h a t t h e a c h i e v e -

m e n t o f p e r f e c t a g r e e m e n t b e t w e e n t r u e a n d p e r -

c e i v e d a t t r i b u t e l e v e l s w o u l d i n c r e a s e a v e r a g e

u t il it i es b y o n l y 8 - 1 1 % . W e a l s o n o t e t h a t t h e t w o

m o s t a t t r a c t i v e a t t r i b u t e s f o r E p s i l o n t o w o r k o n

a r e c a r d a c c e p t a n c e a n d m e d i c a l / le g a l n e t w o r k .

T h e s e t w o a t t r i b u t e s a l o n e c o u n t f o r a l m o s t a l l o f

E p s i l o n ' s p o t e n t i a l u t i l it y i n c r e a s e o f 7 .8 % .

A l l i n a l l, w e c o n c l u d e t h a t p e r c e p t i o n s a r e r e a -

s o n a b l y a c c u r a t e , p a r t i c u l a r l y f o r E p s i l o n . M o r e -

o v e r , t h e g a i n i n a v e r a g e s u p p l i e r u t i l i t y f o r c o r -

r e c t i n g m i s p e r c e p t i o n s i s r e l a t i v e l y s m a l l

( 8 - 1 1 % ) . F i n a l l y , if E p s i l o n ' s a d v e r t i s i n g e m p h a -

s i z e s i ts b r e a d t h o f a c c e p t a n c e a n d a v a i l a b i l it y o f

m e d i c a l / l e g a l s e r v i c e s , u t i l i t y g a i n s c o u l d b e

f o r t h c o m i n g i n t h e f u t u r e . F i n a l l y , i t i s w o r t h n o t -

i ng t h a t n o n e o f th e c o m m e r c i a l c o n j o i n t p a c k -

a g e s d e a l s w i t h t h e a n a l y s i s o f p e r c e p t i o n s d a t a .

T h e i r s i m u l a t o r s a l l a s s u m e t h a t e a c h c o n s u m e r

c o r r e c t l y p e r c e i v e s e a c h s u p p l i e r ' s p r o f il e , a s d e -

f in e d b y t h e p r o g r a m ' s u s e r .

Changing Ideal Attribute Levels

I n t h e s a m e s p i r i t w e c a n e x a m i n e t h e s e n s i t i v i t y

o f E p s i l o n ' s m a r k e t s h a r e / r e t u r n i f m o d i f i ca t io n s

( t h r o u g h a d v e r t i s i n g , p a c k a g i n g , e t c . ) c o u l d b e

m a d e t o c o n s u m e r s ' i d e a l (m o s t p r e f e r re d ) a t tr ib -

u t e le v e l s. F o r e x a m p l e , s u p p o s e a c o n s u m e r c u r-

r e n t l y d o e s n o t c a r e f o r e i t h e r r e t a i l p u r c h a s e i n -

s u r a n c e o r m e d i c a l / l e g a l r e f e r r a l s e r v i c e s .

S u p p o s e E p s i l o n c o u l d i n d u c e c o n s u m e r s t o

m o d i f y t h e i r c u r r e n t i d e a l l e v e l s ( o b t a i n e d f r o m

t h e i r p a r t - w o r t h s ) t o a g r e e w i t h i t s c a r d ' s c u r r e n t

l e v el s . W h a t w o u l d b e t h e i m p a c t o f t h is c h a n g e ?


9/14

PRODUCTDESIGN STRATEGIESFOR POSITIONING J PROD INNOV MANAG

197

1991 8:189-202

Alpha

~

I I

0 2 0 4 0

G amma

i

6 0

•

~ Bas e case condi t ions

8 0 1 0 0

Alpha

~

G a m m a

I

I I ~ " I E p s l l ° n

I DE AL w it h P = 0 . 5

F i g u r e 2. S t a c k e d b a r c h a rt s h o w i n g

m a r k e t s h a r e c h a n g e s r e l a te d t o v a r i o u s

s t r a t e g i e s ( t o t a l ma r k e t )

I I I

Alpha

I

G a m m a

t~ ~

V

Alpha

t

G a m m a ~ " ( ~ *

I D E A L w i t h P = 0 .1 5

Replacement for ( ~ ,

denoted

~ *

Alpha

/ ~ G a m m a ~ " ~ ~ * *

I

Addi t ion to

~ ,

denoted

( ~ * *

V I

Alpha

0

i /~* I G a m m a ~ " ( ~

2 0 4 10 6 0 8 0

* *

Replacement for

~ ,

d e n o t e d ~

1 0 0

M o r e r e a l i s t i c a l l y , s u p p o s e t h a t o n e c o u l d

m o v e c o n s u m e r s ' c u r r e n t i d e a l l e v e l s t o a s e t o f

p r e s p e c i f i e d t a r g e t l e v e l s w i t h a 5 0 % p r o b a b i l i t y .

W h a t w o u l d b e t h e r e s u l t o n E p s i l o n ' s s h a r e / r e -

t u r n ? T h e I D E A L p r o g r a m ( E x h i b it 1 ) i m p le -

m e n t s t h i s o b j e c t i v e . T h i s p r o g r a m s o l v e s f o r a

n e w m a t r i x o f p a r t - w o r t h s f o r th e t o t al s a m p l e o f

r e s p o n d e n t s ( n o t j u s t E p s i l o n p r e f e r r e d u s e r s )

t h a t r e f le c t s a u s e r - s u p p l i e d p r o b a b i l i t y o f m o v e -

m e n t f r o m c u r r e n t t o t a r g e t e d i d e a l l e v e ls .

I l l u s t r a t i v e l y , w e f i r s t c h o o s e a p r o b a b i l i t y o f

0 .5 o f m o v i n g e a c h r e s p o n d e n t ' s v e c t o r o f id e a l

a t t r i b u t e l e v e l s f r o m t h e i r c u r r e n t v a l u e s t o t h o s e

o f t h e t a r g e t e d E p s i l o n p r o f i l e ( T a b l e 2 ). H a v i n g

d o n e t h i s , w e u s e a c o m p u t e r c h o i c e s i m u l a t o r

( w i t h a n a l p h a c h o i c e r u l e o f a = 1 0.4 ) to f in d a

n e w s e t o f m a r k e t s h a r e s. F i g u r e 2 s h o w s t h e

r e s u l t s .

T h e f i r st s t a c k e d b a r c h a r t o f F i g u r e 2 s h o w s

t h e in i ti a l m a r k e t s h a r e s ( T a b l e 2 ). T h e s e c o n d

s t a c k e d b a r c h a r t s h o w s t h e e f f e c t o n s h a r e s o b -

t a i n e d f r o m a p p l i c a t io n o f t h e I D E A L p r o g r a m ,

w i t h P = 0 . 5 . A s n o t e d , E p s i l o n ' s s h a r e i n c r e a s e s

f r o m 1 0% t o 3 1 % . O f c o u r s e , a p r o b a b i l i t y o f 0 . 5

i s s t i l l unrea l i s t i c .

A m o r e c o n s e r v a t i v e v a l u e o f P = 0 . 15 w a s

t r i e d n e x t . T h e t h i r d b a r c h a r t s h o w s a n i n c r e a s e

i n E p s i l o n ' s s h a r e o f 1 4 % ( v e r s u s t h e b a s e c a s e

s h a r e o f 1 0 %) . T h i s i s m u c h m o r e r e a l i s t i c . I n a

s i m i l a r m a n n e r , o t h e r v a l u e s o f P c o u l d b e t ri e d

t o g e t s o m e f e e l fo r t h e s e n s i t i v i t y o f E p s i l o n ' s

s h a r e t o th i s t y p e o f p a r t - w o r t h c h a n g e .

Changing Attribute Importances

T h e t h i rd a v e n u e f o r r e d i re c t i n g E p s i l o n a d v e r t is -

i n g i s c h a n g i n g c o n s u m e r s ' e v a l u a t i o n s o f a t tr ib -

u t e i m p o r t a n c e s . T h e o p t i m i z a t i o n p r o c e d u r e e m -

p l o y e d i n t h i s s t r a t e g y i s c o n s i d e r a b l ) ; m o r e

c o m p l e x . T o c a r r y o u t t h i s s t r a t e g y w e a p p l y a n

a l g o r it h m c a ll e d S A L I E N C E ( E x h i b it 1 ).

T h e p r i n c i p a l i n p u t s t o S A L I E N C E c o n s i s t o f

a t t r i b u t e d e s i r a b i l i t i e s , a t t r i b u t e i m p o r t a n c e s

( b o t h o b t a i n e d f r o m a h y b r i d c o n j o i n t m o d e l ) ,

c o m p e t i t i v e p r o f i l e s ( s h o w n i n T a b l e 2 ) , a n d t h e

a l p h a e x p o n e n t ( 1 0 . 4 , i n t h i s e x a m p l e ) . S A L I -


10/14


1 9 9 1 : 8 : 1 8 9 - 2 0 2

E N C E c o n t a i n s a n o n - li n e a r o p t i m i z a t io n r o u t in e

t h a t f in d s a n e w s e t o f i m p o r t a n c e w e i g h t s fo r

m a x i m i z i n g E p s i l o n ' s s h a r e / r e t u r n .

I n t h is e x a m p l e w e f i rs t u s e S A L I E N C E t o

i d e n t i f y t h o s e a t t r i b u t e s w h e r e E p s i l o n h a s a d i f -

f e r e n t i a l a d v a n t a g e o v e r o n e o r m o r e c o m p e t i -

t o r s - t h a t i s, w h e r e a n i n c r e a s e i n t h e sa l ie n c e o f

t h e a t t ri b u t e p r o d u c e s a h i g h e r r e t u r n f o r E p s i l o n ,

o t h e r t h i n g s r e m a i n i n g e q u a l . O n l y f iv e a tt r ib u t e s :

• P r i c e

• C a r d a c c e p t a n c e

• M e s s a g e f o r w a r d i n g

• M e d i c a l / l e g a l re f e rr a l n e t w o r k

• R e t a il p u r c h a s e i n s u r a n c e

m e t t h i s c o n d i t i o n .

N e x t , w e a p p l i e d t h e o p t i m i z a t i o n r o u t i n e t h a t

f in d s t h e b e s t a l l o c a t i o n o f n e w a d v e r t i s i n g e f f o rt

a c r o s s t h e f i v e c a n d i d a t e a t t r i b u t e s . T h e a l g o -

r i t h m i n d i c a t e d t h a t new ( i n c r e m e n t a l ) a d v e r t i s -

i n g e f f o r t s h o u l d b e a l l o c a t e d a c r o s s o n l y t w o o f

t h e f iv e a t tr i b u t e s : p r i c e a n d t h e m e d i c a l / l e g a l r e -

f e r r a l s y s t e m .

U n d e r t h e c u r r e n t s i t u a t i o n r e s p o n d e n t s '

j u d g e d i m p o r t a n c e s o f th e a t t ri b u t es , p r ic e a n d

m e d i c a l / l e g a l , w e r e 1 7 .3 % a n d 9 . 6 % o u t o f a to t a l

o f 1 00 % . U n d e r t h e o p t i m i z e d a l l o c a t io n o f n e w

e f fo r t th e s e i m p o r t a n c e s s h o u l d e x p a n d t o 40 . 0%

a n d 2 0 . 8 % , r e s p e c t i v e l y , o u t o f a t o t a l o f 1 00 % .

T h e s e t w o a t t r ib u t e s c o n s t i t u t e it s p r i n c ip a l l e v -

e r a g e a t t r i b u t e s .

Some Caveats

A l l t h r e e o f t h e p r e c e d i n g a l g o r i t h m s , P E R C E P T ,

I D E A L , a n d S A L I E N C E a r e e s se n ti a ll y se n si ti v-

i ty a n a l y s is a p p r o a c h e s . T h e y d o n o t te l l u s h o w

w e s h o u l d g o a b o u t i m p l e m e n t i n g t h e d e s i re d

c h a n g e s , h o w l i k el y w e w i ll be a b l e t o a c c o m p l i s h

t h e t a s k , a n d w h a t t h e e f f o r t w i l l c o s t . R a t h e r ,

t h e y f o r e c a s t t h e s t a k e s ( o r p a y o f f s ) i f t h e t a s k

c a n b e a c c o m p l i s h e d . I f t h e p a y o f f is re l a t i v e l y

s m a l l ( a s w a s t h e c a s e f o r P E R C E P T ) , t h e m a n -

a g e r m a y e l e c t t o d i s r e g a r d t h e s t r a t e g y . O n t h e

o t h e r h a n d , a l a rg e p o t e n t i a l p a y o f f c o u l d j u s t i f y

f u r t h e r s t u d y o f t h e m e a n s a n d a s s o c i a t e d c o s t s o f

p u r s u i n g t h e s t r a t e g i c o b j e c t i v e . O f c o u r s e , f u r -

t h e r s t u d y w o u l d a l s o c o n s i d e r a d d i t i o n a l f a c t o r s

r e l a t e d t o p a y o f f e s t i m a t i o n a n d c o s t o u t l a y s .

Longer R an ge S trateg ies

W e n o w t u r n t o l o n g e r r a n g e s t r a t e g i e s a v a i l a b l e

t o E p s i l o n . I l l u s t r a t i v e l y , we f i r s t c o n s i d e r v a r i -

o u s s t r a te g i e s i n t h e c o n t e x t o f t h e t o ta l m a r k e t .

T h e n w e d e s c r i b e c o u n t e r p a r t s t r a t e g i e s a t t h e

t a r g e t m a r k e t l e v e l .

Optimal Product Design

T h e S I M O P T p r o g r a m ( E x h i b i t 1 ) i s t h e a l g o r i th m

t h a t w e u s e f o r f in d i n g o p t i m a l p r o d u c t p r o fi le s i n

t h e c o n t e x t o f c o m p e t i t i v e o f f e r in g s . S I M O P T [3 ]

i s a c o n j o i n t - b a s e d a l g o r i t h m t h a t s o l v e s f o r a n

a t t r i b u t e - le v e l c o n f i g u r a t i o n t h a t o p t i m i z e s s h a r e /

r e t u r n f o r a s p e c i f i e d s u p p l i e r . I t u s e s t h e a l p h a

c h o i c e r u l e ( s e t a t 1 0 . 4 i n t h i s e x a m p l e ) a n d a

d i v i d e - a n d - c o n q u e r h e u r is t ic t h a t b r e a k s d o w n

t h e o v e r a l l o p t i m i z a t i o n t a s k i n t o s u b s e t p r o b -

l e m s t h a t a r e t h e n s o l v e d i t e r a t i v e l y . L i k e m o s t

h e u r i s t i c s , h o w e v e r , o p t i m i z a t i o n i s n o t g u a r a n -

t e e d . F o r t u n a t e l y , i f t h e n u m b e r o f p o s s ib l e a t-

t r i b u t e - l e v e l c o m b i n a t i o n i s l e s s t h a n a m i l l i o n ,

S I M O P T u t i l i z e s a c o m p l e t e e n u m e r a t i o n r o u -

t i n e . ( I n t h e s a m p l e p r o b l e m t h e r e o n l y 1 8 6 , 6 2 4

c o m b i n a t i o n s . )

I n t h e p r e s e n t p r o b l e m w e f i r s t s o l v e f o r t h e

b e s t ( in t h e s e n s e o f m a x i m i z i n g c o n t r i b u t io n

t o o v e r h e a d a n d p r o f it s) p r o d u c t p r o f il e f o r E p s i -

I o n , g i v e n t h e s p e c i f i e d p r o f i le s ( T a b l e 2 ) o f i ts

c o m p e t i t o r s . I n i ti a l s h a r e s f o r a l l f iv e c o m p e t i t o r s

a p p e a r i n t h e b a r c h a r t o f p a n e l I o f F i g u r e 2 .

E p s i l o n ' s c u r r e n t s h a r e i s 1 0 % .

P a n e l I V o f F i g u r e 2 s h o w s t h a t t h e b e s t r e -

p l a c e m e n t ( d e n o t e d e * ) f o r E p s i l o n ' s c u r r e n t

p r o d u c t r e s u l t s i n a n i n c r e a s e i n E p s i l o n ' s s h a r e

t o 2 2 % . I t s a s s o c i a t e d c o n t r i b u t i o n t o o v e r h e a d /

p r o fi t i n c r e a s e s 8 2 % o v e r t h a t o f t h e b a s e c a s e . l

T a b l e 4 s h o w s t h e c h a n g e s t h a t t a k e p l a c e i n o p ti -

m i z i n g E p s i l o n ' s c o n t r ib u t i o n . N o t e t h a t E p s i l o n

m o v e s t o a h i g h p r i c e , a l o n g w i t h a c a s h r e b a t e ,

i n c r e a s e d i n s u r a n c e c o v e r a g e , i n e x p e n s i v e a c -

c e s s t o a i r p o r t c l u b s , a n d e m e r g e n c y c a r s e r v i c e .

t F o r r e a s o n s o f c o r p o r a t e c o n f i d e n t i a l i t y , w e a r e u n a b l e t o re -

p o r t a c t u a l p r o f i t c o n t r i b u t i o n s .


11/14

P R O D U C T D E S I G N S T R A T E G I E S F O R P O S I T IO N I N G J P R O D I N N O V M A N A G 199

1 9 9 1 : 8 : 1 8 9 - 2 0 2

T a b l e 4 . N e w C a r d P r o f i le s A s s o c i a t e d w i t h A l t e r n a t iv e S t r a t e g ie s

Replaced or

Current eps ilo n ext end edpsilon Current beta Replacementeta

Price 10 100 20 20

Cash Rebate none 1% none none

Message Forwarding 9-5 weekdays 9-5 weekdays none 9-5 weekdays

Retail Purchase Insurance 90 days 90 days 90 days none

Common Carrier Insurance none 200,000 200,000 200,000

Rental Car Insurance none none 30,000 none

Baggage Insurance none 2,500 dep 2,500 rep 2,500 dep

Airport Clubs 5/visit 2/visit none 2/visit

Acceptance AHCRD AHCRD AHCRD AHC

Medical/legal yes yes no yes

Airport Limousine none none none none

Emergency Car yes yes

Service none (20% disc) none (20% disc)

In all, half of the original 12 attribute levels are

changed.

What happens if we keep the present Epsilon

card and add a line extension (denoted e**). SI-

MOPT solves for the optimal extension and,

some what surprisingly, it turns out to be the same

profile as e*. Panel V of Figure 2 shows that the

combined share ofe and e** is 8% + 21% = 29%.

Thus, the loss due to cannibalism is only two per-

centage points. Most o f the business picked up by

e** is from competitive products. M oreover, the

overhead/profit contribution for the combined of-

ferings (e and e**) is 38% higher than the contri-

bution of e* as a replacement for e. Hence, as-

suming that the costs of adding the line extension

are not excessive it is better in this instance to

line extend than to replace e.

Suppose Epsilon does, in fact, add the new

product e** to its line. The Beta Company ob-

serves this event and notes (panel V in Figure 2)

that its share decreases slightly from 8% to 7%.

Beta considers the prospect of replacing

i t s

cur-

rent card with a new profile--one that optimizes

its contribution, conditional on the changes that

Epsilon has already made.

Panel VI shows that Beta's best retaliatory

move increases its share from 7% to 18%. Epsi-

Ion's combined share decreas es by only two per-

centage points. Most of Beta's new business

comes at the expense of Gamma. Table 4 shows

that Beta's replacement profile involves eight at-

tribute changes. (Illustratively, this optimization

was carried out, conditional on Beta's price and

cash rebate policy remaining unchanged.)

S o m e C a v e a t s

Although SIMO PT is a very flexible algorithm for

finding optimal product positionings, it should be

borne in mind that the mechanism underlying the

model does n o t consider the gestation period over

which share changes take place. SIMOPT also

takes into consideration existing products' shares

and an opportunity to optimize, conditional on

some attribute levels remaining fixed; however , it

does not explicitly deal with the costs of product

proliferation and the possible dynamic actions

that competitors might take even before new

products are introduced. Thus, in practice, fore-

cast conditions might never be reached, due to a

variety of market factors not under the firm's

control.

Finally, the SIMOPT model assumes that con-

sumers' part-worths remain stable over the plan-

ning horizon, that all releva nt attributes ap pear in

the model, that costs are accurately measured at

the attribute level, and that each firm enjoys a

rough parity with respect to advertising and dis-

tribution levels. Clearly, these are important as-

sumptions; their recognition underscores the

need to consider SIMOPT (and our approach in

general) as a set of planning models whose out-

puts need to be checked against other indepen-

dent information sources and manageme nt judg-

ment.

T a r g e t M a r k e t P r o d u c t D e s i g n

Up to this point all of our analytical excursions

have entailed the total market. We now consider


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200 J PROD INNOV MANAG P. E. GREEN AND A. M. KRIE GER

1991:8:18%202

T a b l e 5. N e w C a r d P r o f i le s A s s o c i a t e d w i t h T a r g e t - M a r k e t P r o d u c t P o s i t i o n i n g

Psychographic Psychographic

Current epsilon Up-scale market segment 1 segment 2

Price 10 100 100 80

Cash Rebate none none none none

Message Forwarding 9-5 weekdays 24 hours/day 24 hours/day 9-5 weekdays

Retail Purchase Insurance 90 days 90 days 90 days none

Common Carrier Insurance none 200,000 200,000 50,000

Rental Car Insurance none 30,000 30,000 30,000

Baggage Insurance none 2,500 rep 2,500 rep 2,500 rep

Airport Clubs 5/visit 2/visit 2/visit 5/visit

Acceptance AHCRD AHCRG AHCRD AHC

Medical/legal yes yes yes yes

Airport yes

Limousine none (20% disc) none none

Emergency Car yes yes

Service none (20% disc) (20% disc) none

various strategies that can be directed towards

specific target segments, selected by the re-

searcher. Survey data were available for several

background attributes:

• Income level (moderate, higher, highest)

• Psychographic clusters (four groups)

• Travel frequencies (low, high)

• Gender (male, female)

• Multiple card use (low, high).

We use a program, called SEGUE (Exhibit 1),

for forming various target segments from these

building blocks. After the segment is formed re-

spondents are differentially weighted by their re-

semblance to the target. We can then use SI-

MOPT to find optimal replacement or extension

products for the target segment.

Illustratively, assume that Epsilon manage-

ment is intere sted in a target segme nt that entails

one or more of the following categories:

• Highest income

• Male

• High travel frequency

• Heavy user of multiple credit cards.

Mana geme nt weights the attributes with values of

3, 2, 1, and l, respectively. An individual who

respects all four categories receives the highest

weight (viz, a weight of 7). Individuals who fall

into none of the categories receive a zero weight,

and so on. (As it turned out, 384 out of 480 re-

spondents fell into at least one of the fou r catego-

ries shown above.)

SEGUE first prepares a respondent weights

file that s ummar izes the target s egment specifica-

tions. SIMOPT is then run to find the best line

extension that would appeal to this segment,

given that the parent product, Epsilon, remained

in the line.

The co lumn labeled up-scale mar ket in Table 5

shows the best profile for the target segment just

selected. As note d, this profile repre sents a major

shift (9 out of 12 attribute s) from the curr ent Epsi-

lon card. Mar ket share for Epsilon in the up-scale

segment increases almost 40% with the addition

of this card.

Next, we consider two of the four groups ob-

tained from the psychographic clustering. Group

1 was identified as active travelers, socially ori-

ented, and gregarious, while group 2 was charac-

terized as active travelers, but less extroverted

and socially oriented. There were 121 respon-

dents in group 1 and 105 respondents in group 2.

We used SIMOPT to find the optimal profile for

each of these two psychographic segments.

The columns labeled Psychographic Segments

1 and 2, respectively, show the optimal product


13/14

PRODU CT DESIGN STRATEGIES FOR POSITIONING J PROD INNOV MANA G 201

1991 8:189-20 2

p r o f i l e s f o r e a c h c l u s t e r . B o t h p r o f i l e s d i f f e r

m a r k e d l y f r o m t h e c u r r e n t E p s i l o n c a r d . W e a l s o

n o t e t h a t t h e f i r s t t a r g e t s e g m e n t i s v e r y c l o s e t o

t h e u p - s c a l e s e g m e n t ( d e s c r i b e d a b o v e ) . P s y c h o -

g r a p h i c s e g m e n t 2 s h o w s l e s s i n t e r e s t i n s o m e o f

t h e a m e n i t i e s a n d l e s s c o n c e r n w i t h w i d e r c a r d

a c c e p t a n c e ( in r e s t a u r a n t s a n d d e p a r t m e n t

s t o r e s ) . M a r k e t s h a r e s i n c r e a s e 3 0 % o v e r t h e c u r -

r e n t E p s i l o n c a r d s h a r e i n t h e s e t w o p s y c h o -

g r a p h i c s e g m e n t s .

O t h e r t a r g e t s e g m e n t s c o u l d a l s o b e s e l e c t e d

b y t h e u s e r a n d v a r i o u s w e i g h t s c o u l d b e a p p l ie d

t o a t t r i b u t e s , a n d l e v e l s w i t h i n a t t r i b u t e s , t o r e -

f le c t t a r g e t m a r k e t s i z e a t t r a c t i v e n e s s , c o h e s i v e -

n e s s , r e a c h a b i l i t y , a n d c o m p a t i b i l i t y w i t h c u r r e n t

E p s i l o n o f f e r i n g s . I n s h o r t , t h e c o m b i n a t i o n o f

t a r g e t m a r k e t s e l e c t i o n a n d p r o d u c t o p t i m i z a t i o n

w i t h i n t a r g e t p r o v i d e s E p s i l o n w i t h f le x i b il it y f o r

d e s i g n i n g s p e c i a l i z e d p r o d u c t s f o r s e g m e n t

n e e d s , o n e i t h e r a r e p l a c e m e n t o r l i n e e x t e n s i o n

b a s i s .

C o n c l u s i o n s

B y w a y o f a c a s e e x a m p l e , w e h a v e t r i e d to il lu s -

t ra t e h o w c o n j o i n t i n p u t d a t a ( a n d r e s p o n d e n t a t -

t r ib u t e l e v e l p e r c e p t io n s ) c a n b e a n a l y z e d f r o m a

v a r i e t y o f v i e w p o i n t s , e n t a i l in g b o t h s h o r t t e r m

s t r a t e g i e s ( m a i n t a i n i n g t h e c u r r e n t o f f e r i n g ' s p r o -

f il e) a n d l o n g e r t e r m s t r a t e g i e s ( c h a n g i n g t h e c u r -

r e n t o f f e r i n g ' s p r o f i l e ) . E m p h a s i s c e n t e r e d o n o p -

t i m a l p r o d u c t d e s i g n a n d t a r g e t m a r k e t s e l e c t i o n .

T h e h e a r t o f th e p r o p o s e d s y s t e m i s t h e

S I M O P T m o d e l f o r p r o d u c t d e s ig n a n d s e g m e n ta -

t i o n . T h e m o d e l c o n s i d e r s :

1. M a r k e t s h a r e a n d / o r p r o f i t- r e t u r n o p t i m i z a t i o n

2 . T o t a l m a r k e t a n d / o r i n d i v i d u a l s e g m e n t f o r e -

c a s t s

3 . S e n s i t i v i t y a n a l y s i s a s we l l a s o p t i m a l p r o f i l e

s e e k i n g

4 . C a n n i b a l i z a t i o n i s s u e s r e l a t e d to p r o d u c t c o m -

p l e m e n t a r i t y a n d l in e e x t e n s i o n s t ra t e g ie s

5 . C a l i b r a t i o n o f re s u l t s t o e x is t i n g m a r k e t c o n d i -

t i o n s

6 . C o n s t r a i n e d o p t i m i z a t i o n , t h r o u g h f i x i n g s e -

l e c t e d a t t r i b u t e l e v e l s f o r a n y o r a l l s u p p l i e r s

7 . A d e c i s i o n p a r a m e t e r ( a l p h a ) t h a t c a n b e u s e d

t o m i m i c a n y o f th e p r i n c i p a l c o n j o i n t c h o i c e

r u l e s ( m a x u t i l i t y , l o g i t , B T L )

8 . S e q u e n t i a l c o m p e t i t i v e m o v e s , s u c h as l in e e x -

t e n s i o n s o r c o m p e t i t o r a c t i o n s / r e a c t io n s .

L i k e a n y m o d e l , S I M O P T n o d o u b t w i ll b e m o d i -

f ie d a n d e x t e n d e d a s f u r t h e r i n f o r m a t i o n a b o u t i t s

p e r f o r m a n c e a n d u s e r r e c e p t i o n is o b t a i n e d . S ti ll ,

t h e m o d e l p r o v i d e s a n e x a m p l e o f h o w c u r r e n t

c o n j o i n t - b a s e d s i m u l a t o r s c a n b e e x t e n d e d w e l l

b e y o n d t h e i r tr a d i t i o n a l a p p l i c a t i o n s t o e s t i m a t i n g

m a r k e t s h a r e s f o r a f e w u s e r - s e l e c t e d p r o f i l e s .

Concluding Caveats

T h r o u g h o u t , w e h a v e a l s o d i s c u s s e d v a r i o u s c a -

v e a t s i n t h e u s e o f t h e p r o p o s e d t e c h n i q u e s , s u c h

a s d i f f i c u l t i e s i n m o d e l i n g t h e t i m e t r e n d s o v e r

w h i c h v a r i o u s p r e d i c t e d o u t c o m e s t a k e p l a c e , th e

p o s s i b l e o m i s s i o n o f i m p o r t a n t p r o d u c t a t t ri b -

u t e s , a n d v a r i o u s a s p e c t s o f c o m p e t i t i v e r e t a li a -

t ion .

M a n y o f t h e s e l i m i t a t i o n s s t e m f r o m t h e r el ia -

b i l i ty / v a l i d i ty o f c o n j o i n t i n p u t i ts e lf . 2 G r e e n a n d

S r i n i v a s a n [4 ] s t r e s s t h e i m p o r t a n c e o f c o n j o i n t

v a l i d a t i o n e x p e r i m e n t s a n d r e p o r t s o m e r e c e n t

f i n d i n g s a t t h e a c a d e m i c a n d i n d u s t r y l e v e l s .

A s s i m u l a t o r s ( a n d o p t i m i z e r s ) r o u t i n e l y y i e l d

m a r k e t s h a r e f o r e c a s t s , t h e r e i s a l w a y s t h e d a n -

g e r o f s p u r io u s p r e c i s i o n . O u r o w n e x p e r i e n c e

s u p p o r t s t h e v a l u e o f u s i n g c a l i b r a t i o n ( e . g . , c u r -

r e n t) m a r k e t s h a r e s , a s i s d o n e i n th e S I M O P T

m o d e l . T h e m o d e l ' s f o r e c a s t s a r e t h e n a n c h o r e d

t o t h e s e b a s e l e v e l s , s o t h a t t h e r e s e a r c h e r i s , i n

e f f e c t , r e p o r t i n g r e l a t i v e ( r a t h e r t h a n a b s o l u t e )

l e v e l s .

W e a l so n e e d w a y s t o i n s u r e t h a t all i m p o r t a n t

a t t r i b u t e s a r e m e a s u r e d , t h a t c o s t s c a n b e a c c u -

r a t e l y e s t i m a t e d a t t h e a t t r i b u t e l e v e l , t h a t m a r -

k e t i n g m i x v a r i a b l e s ( e . g . , d i s t ri b u t i o n l e v e l s ) c a n

b e a c c o m m o d a t e d , a n d t h a t d y n a m i c c o m p e t i ti v e

e f f e c t s c a n b e e s t i m a t e d a n d i n c l u d e d i n t h e

m o d e l s . C l e a r l y , t h e r e i s m u c h w o r k l e f t t o b e

d o n e .

T h e a u t h o r s w o u l d l i k e t o a c k n o w l e d g e s u p p o r t o f t he C i t i-

b a n k F e l l o w s h i p f r o m t h e S o l C . S n i d e r E n t r e p r e n e u r i a l

C e n t e r a n d t h e S E I C e n t e r f o r A d v a n c e d S t u d ie s i n M a n a g e -

m e n t , b o t h a t t h e W h a r t o n S c h o o l .

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Product Design Strategies for Target-Market Positioning

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