Consumer experiments
Another way of trying to discover the response of consumers to changes in price, advertising or product specification is to invite a group of people to a consumer clinic, or laboratory, and simulate situations in which their behaviour can be observed.Different groups may be shown varying price structures or different product configurations in comparison with existing products. Participants may, for example, be asked to spend ‘‘play’’ money in a shopping environment. They are asked to visit the shop and make purchases with di¡erent sets of prices in operation at each visit.
The results of such artificial experiments have to be assessed carefully because they not re£ect what the respondent would actually do in a real situation. They may just play the game, providing the organizers with the answers they are expecting,rather than their own true views. Nevertheless, they may provide useful information.
The Gabor^Granger Test is used to test the potential of new products by comparing a new product with an existing one: Half the group are shown the new product and asked whether they would buy it at various prices on a random price list. They are then shown the existing product. The other half are shown the original product, and the new product, second. The objective is not only to gain some idea of the acceptance of the product by consumers but also to eliminate bias by showing the products to the two groups in a di¡erent order.
MARKET STUDIES
Market studies involve testing real products in real markets with real people. For example,
a firm might select a region of the UK with its own regional or local commercial radio and television station to test-market a new chocolate bar or washing powder. If the new product sells sufficiently well against a competitor’s and is seen as indicating consumer acceptance and satisfaction, the producer may then decide to launch the product in other regions or to go nationwide. An existing product might be promoted in one area at a lower price, backed by advertising to again check consumer reactions.
STATISTICAL ANALYSIS
The traditional economic approach to estimating a demand function is for the ¢rm touse statistical methods, using data collected either by the ¢rm or other outside sources, such as industry associations or government agencies. Historic data can be of two types: first, time series data for sales and other variables over a period of time measured for a discrete time interval, such as monthly, quarterly or yearly; second, cross-sectional data, such as expenditure by di¡erent income groups on a product at the same point in time. Statistical procedures are applied to these data to look for meaningful relationships, the most commonly used methodology being linear regression analysis.
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