Simple Pricing Models with Monotonicity Constraints in Marketing Research

• Activity Number: 395
• Type: Topic Contributed
• Date/Time: Tuesday, August 2, 2011 : 2:00 PM to 3:50 PM
• Sponsor: Section on Statistics and Marketing
• Author(s): Joseph Retzer*+ and Patrick St. John
• Companies: MarketTools Inc. and MarketTools Inc.
• Keywords: Hierarchical Bayes ; Pricing models ; Van Westendorp ; Gabor Granger ; Monotonicity Constraints ; Discrete Choice

Abstract

Managerial decisions utilizing pricing research results are ubiquitous in marketing mix analysis. This presentation begins with a review of standard approaches designed to determine general price perceptions. The models discussed will include the Van Westendorp and Gabor Granger pricing models. While both models have certain strengths, they also suffer from the lack of elicitation of consumer intention in a competitive context. Subsequent analysis will focus on discrete choice pricing experiments via aggregate estimation both with and without monotonicity constraints. While this approach introduces a competitive context, it ignores respondent heterogeneity, which in turn limits predictive performance. Finally, we examine results generated by discrete choice experiments where price level utilities are approximated using hierarchical Bayesian estimation. The estimates will be generated with and without various monotonicity constraints. Data will be collected for all models using blocks of randomly assigned consumers surveyed on the same product(s). This approach will facilitate a general comparison and critique of each method.