Using Laboratory Experimental Auctions in Marketing Research:

A case study of new packaging for fresh beef

Elizabeth Hoffman, Dale J. Menkahus, Dipankar Chakarvarta, Ray A. Field, Glen D. Whipple

Marketing Science, 1993

Presented by Jong Min Kim

Introduction

Introduce a new tool for use in laboratory pretest markets

Illustrates its application in a laboratory pretest market for vacuum-packaged retail fresh beef

First step in research on how laboratory experimental auctions can contribute to marketing research

Laboratory Experimental Auction in Marketing Research Advantages1. Allow an endogenous

revelation of the prices consumers are willing to pay

2. yield simultaneous estimates of the # of units of the product that may be sold

3. Data in lab. experimental auction pertain to actual purchases of the product

Disadvantages1. Bidding mechanism

does not naturally mimic how consumers reveal preference

2. Correspondence between the theoretical incentive compatibility of an auction mechanism and actual participant behavior

3. Consumers engage strategic learning strategies

Incentive-compatible Auctions

First-price, sealed-bid auction The highest bidder purchases the object and pays his bid price

Dutch auction The price starts out very high and is progressively lowered until one

bidder signals he will purchase

English auction Bidder keep raising the price until only one bidder is left, that bidder

pays marginally more than the second-highest bidder’s last bid Vickrey auction (uniform price, first-rejected bid auction)

second-price, sealed-bid auction = English auction incentive-compatible

English clock auction

Incentive-compatible Auctions

Do bidders bid their true values in incentive-compatible auctions?

The order of bids may very well represent the order of true vales (Coursey & Smith, 1984)

Background on the Product

The market for the fresh beef Differentiation in PACKAGING Vaccum-skin packaging vs. overwrapped styrof

oam tray VS packaged beef has not sold well in limited super

market tests at comparable prices Basic goal of the research

determine the impact of information pertaining to the benefits of VS packaging on the consumer values

Experimental Design

8 participants in each session Auction mechanism

Fifth-price, sealed-bid auction, with specific instruction, to sell 4 packages of beef to four different consumers

4 trials and six purchase auctions 3 basic experimental treatments

No information about packaging With information-Discussion of the benefits of new

packaging was included in instruction With information and Demonstration

Experimental Design

Experimental Results

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Confounding factors

Sequence of purchase auctionsMonitorsTime of dayLocationOrder of presentation

Conclusion

Laboratory experimental auctions can provide information useful to marketing professionals (particularly when incorporated in a research program with other traditional techniques)

The challenge is to minimize both the incidence and impact of strategic behavior of bidders

Conclusion

Improve the behavioral properties of theoretically incentive-compatibility auctions

By using terminology that deemphasizes strategic behavior

By providing clear and concise explanations of the incentive compatibility rationale

By allowing subjects the opportunity to learn

Future Research

Direct comparison between an incentive-compatible laboratory experimental auction & the other established laboratory pretest market model

Use of auctions in determining efficacy of potential advertising campaigns

Critique

This paper focuses more on illustration of the methodology - the specific results of the experiment were dealt less important

Problems regarding the revelation of true value still remain

Opens a way for implementing new methods, while contributing to marketing research

Thank you!