statwizards for managers

Discrete-Choice Wizards 10/2/2013

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Microsoft Excel add‐ins that facilitate discrete‐choice projects

What Are StatWizards®?Quantitative tools for solving critical business problems.

For example …


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Take Some Common Business Questions1. What features should we include in our products?

2. Given present and future competition, how should we price our products?

3. Should we re‐brand our product?

4. Do our customers fall into segments based on differing needs from our products?

5. What will adoption look like?

1. What features should we include? Alternative form factors

Re‐branding

Styling

Functional options

Bundling options

Payment plans

Advertising messages

Rebate programs

We can include anything that affects the customer’s choice:

To buy your product vs. a competitor’s product

To buy any product at all

To buy now or later


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2. What price should we charge?What price would maximize revenues?

What price would maximize profits?

Should we price to gain market share?

Which of these strategies should we follow?

3. Should we re‐brand? How much is our brand worth?

What are customers willing to pay for competing brands?

Does this vary by feature set or customer group?


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4. Do Customers Fall into Segments? Do different groups want different things from our products?

Do our customers fall into segments with different price sensitivities and purchase behavior?

Do different advertising messages resonate with different types of people?

Would designing new products for different segments cannibalize existing products?

5. What will adoption look like?

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An Excel market simulator helps answer these questions

Solution to 1. Feature Evaluation

The impact of adding fax reception to Phone A...


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Solution to 1. Feature Evaluation

The impact of adding fax reception to Phone A...

… is to boost share but generate losses.

Solution to 2. Pricing

Description of Marketplace A B C DPackage name: Phone A Phone B Phone C Phone D

Phone type: Standard Flip b&w Touch screen Flip colorBrand: Motorola Nokia Ericsson QualComm

Send fax: Send fax Send fax Send faxReceive fax: Rec fax Rec fax

E-mail: E-mail E-mail E-mailDevice price: $100 $200 $499 $426

Monthly fee, services: $20.00/mo. $25.00/mo. $35.00/mo. $35.00/mo.Adjustment factor:

Potential share: 13.7% 10.7% 16.7% 17.8%

… and calculate potential market share

Describe a competitive situation ...


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Solution to 2. Pricing

Description of Marketplace A B C DPackage name: Phone A Phone B Phone C Phone D

Phone type: Standard Flip b&w Touch screen Flip colorBrand: Motorola Nokia Ericsson QualComm

Send fax: Send fax Send fax Send faxReceive fax: Rec fax Rec fax

E-mail: E-mail E-mail E-mailDevice price: $100 $200 $499 $200

Monthly fee, services: $20.00/mo. $25.00/mo. $35.00/mo. $35.00/mo.Adjustment factor:

Potential share: 11.6% 9.1% 14.3% 30.2%

… and immediately see the impact

Change an assumption ...

Solution to 2. Pricing Strategy

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A built-in feature conducts price simulations,revealing that the price that maximizes revenues is not the same as that which maximizes profits.

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Yet maximizing profits sacrifices market share.

The simulator helps you evaluate these strategic tradeoffs.


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Motorola

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Sony

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Solution to 3. Measuring Brand Equity

We can make similar charts for other attributes.

Solution to 4. Identifying Market SegmentsIn building the model, we identified 5 segmentation variables.

The simulator lets us see


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Solution to 4. Identifying Market SegmentsIn building the model, we identified 5 segmentation variables.

The simulator lets us seehow segment preferences differ.

Solution to 5. Product Roll‐out


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Discrete‐Choice Models

Positioning products in a competitive marketplace

Developing strategic and tactical pricing strategies

Sizing markets for new products

Determining the optimal mix of product features

Isolating market segments based on product preferences

In recent years, discrete-choice analysis has emerged as a powerful tool in the market-research arsenal. Based on consumers’ hypothetical or real-world choices, discrete-choice models help guide product managers’ critical tasks:


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All transactions involve choice.

We decompose customer choices into systematic and non‐systematic components, …

…then we model the systematic components

First, describe the marketplace Break the product or service into attributes, including brand and price.

Include features and pricing from competitive products.

Attributes: Brand Weight Configuration Key size Key feel Display Talk time Display size Battery type Charger type Color PriceMotorola Lighter Flip square Small Soft LCD 1 hour Small NiCad Internal Black FreeNokia Average Flip round Medium Hard LED 2 hours Average Li External Gray $30AudioVox Heavier Std. square Large 4 hours Large NiMH N/A Colors $100Sony Std. round Alkaline $200NEC $300EricssonToshibaMitsubishiPanasonic

Levels:


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Then create store visits We generate choice sets by constructing hypothetical products whose attributes vary in a way that makes them uncorrelated.

Then for respondents we create shopping exercises like the one below.

Next Steps: Estimate a statistical model

Build the simulator


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A Typical DCM Project ScheduleDescribeproduct

attributes andlevels

Constructexperimental

design

Recruitsample and

generatequestionnaire

Send to fieldSet up data

and estimatemodel

Buildsimulator

Key sources of time, cost and complexity

StatWizards® Accelerate and Simplify the Process Design Wizard ‐ An Excel add‐in that takes a list of product attributes and generates an experimental design

Data Wizard – A second add‐in that takes a spreadsheet of respondent data and configures it for the most popular discrete‐choice estimation packages

Simulator Wizard ‐ A third add‐in that reads the output from a statistical package and builds a market simulator in Excel


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An Excel add‐in that generates an experimental design and choice sets based on a list of product attributes

Recruitsample and


Send to field Set up dataBuild

simulatorEstimate

model

Describeproduct


DesignWizard

Design Wizard Features Automatic selection of best design

Designs are fully customizable

Permits blocked and unblocked designs

Supports up to 13 attribute levels

Suggests values for choices per store

Recommends blocking factor, if needed

Uses Solver to maximize efficiency and minimize overlap

Permits extremely complex designs

Translates choice exercises into other languages

Employs best‐practice defaults at every step


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Design Wizard Benefits Greatly reduced time in design construction

High‐quality, optimal designs

Elimination of error

Flexibility to meet most needs

Facilitation of very complex designs

Ease of learning and use

Typically pays for itself in one project

Design Wizard Requirements A list of product attributes, e.g.,

Brand

Price

Key features

A list of levels or level ranges for each attribute, e.g.,

$100 ‐ $500

Bundled vs. unbundled

Sony, Motorola, Ericsson


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Design Wizard Walkthrough ‐ 1

Attribute name: Model Brand Meter shelf priceMfr.

RebateTrade-in

allowance

Glucose test strip quantity

Glucose test

speed

Glucose test strip unit price

CheckIt Instant X $16.88 $0.00 $0.00 25 5 sec $0.50CheckIt Simple X $109.99 $40.00 $40.00 100 15 sec $0.85King None 30 sec2In1 Ours 40 secExactlyRight YOneDrop ZTakeControl OursLightTouch Big

Test values:

1. Start with a simple list of product attributes and levels in Excel.

2. Run the wizard from Excel’s Tools menu.

Design Wizard Walkthrough ‐ 23. The wizard adds some information and directions to your workbook…

Automatically generates variable names

Comments provide help

Directions are attached to the sheet


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Design Wizard Walkthrough ‐ 34. It spreads attribute ranges and assigns unique variable names…

Calculates equal intervals for levels

Renames duplicate variables

Recommends number of stores and products per store

Design Wizard Walkthrough ‐ 45. …then in seconds builds an experimental design, …


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Design Wizard Walkthrough ‐ 56. …complete with printer- or Web-ready shopping excursions, …

Design Wizard Walkthrough ‐ 67. … and a data set ready for export to most statistical packages.


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The Design Wizard

Turbo‐charges the generation of efficient experimental designs,

making the processEASY

An Excel add‐in that converts a spreadsheet of participant responses into data sets and control files accepted by major statistical programs

Describeproduct


DesignWizard

Recruitsample and


Send to fieldData

WizardBuild

simulatorEstimate

model


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Data Wizard Features Starts with a spreadsheet of responses – the simplest data form

Automatically distinguishes between continuous, categorical, binary and choice variables.

Handles both stated‐preference (SP) and revealed‐preference (RP) data

Can incorporate design data from other spreadsheets

Generates data sets and starting command files for most popular statistical estimation packages Latent GOLD Choice

Limdep

R

Biogeme

Gauss (Kenneth Train’s mixed logit programs)

Data Wizard Benefits Eliminates the most tedious portion of a discrete‐choice project: Data setup

Removes a common source of error:

The lengthy customized data manipulation routines needed to sort and merge design and response data.

Cuts at least a day off a discrete‐choice project’s schedule



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Data Wizard Requirements A spreadsheet of response data, with respondents in rows and variables in columns

Optional: a separate worksheet containing design elements

A supported statistical package that can estimate discrete‐choice models

Latent GOLD Choice

LIMDEP’s NLOGIT

R’s mlogit library

Biogeme

Gauss + Kenneth Train’s Mixed Logit routine

Data Wizard Walkthrough ‐ 11. Start with a simple spreadsheet containing survey responses.

2. Run the wizard from Excel’s Tools menu.


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Data Wizard Walkthrough ‐ 23. The wizard adds some additional information to your workbook…

Automatically determines variable type

Automatically generates variable names

Data Wizard Walkthrough ‐ 34. It recognizes discrete variables and sets up categories, …

5. … then allows the user to designate category names.

(It will import any names in an SPSS file)


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Data Wizard Walkthrough ‐ 46. The wizard then reformats the data for export to most statistical packages.

Data Wizard Walkthrough ‐ 57. Next, it asks the user to select from a number of statistical packages….


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Data Wizard Walkthrough ‐ 68. Finally, it combines socio-demographic with design data (e.g., from the

Design Wizard) to produce a data set ready for input into the chosen statistics program…

9. …and generates a command file needed to load the data set.

Data Wizard Limitations Current release does not cover all estimation packages. Does not yet include:

SAS

S Plus

SYSTAT

Dan Steinberg’s LOGIT program

Kenneth Train’s Probit program in Gauss

Support for these packages will be added on request


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The Data Wizard

Makes organizing even large data sets for discrete‐choice

estimation EASY

An Excel add‐in that reads output files from statistical estimation programs (and StatWizard spreadsheets, if they exist), then builds a market simulator in Excel

Describeproduct


DesignWizard

Recruitsample and


Send to fieldData

WizardSimulator

WizardEstimate

model


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Simulator Wizard Features Quickly translates statistical output to a powerful tool that product managers can use.

Can be easily customized and extended. Examples: Inclusion of production cost data Calculation of contribution margins

Users don’t have to deal with underlying statistics Easily handles individual‐level coefficients Automatically generates presentation‐ready charts

Price curves Feature importance Willingness to pay

Simulator Wizard Benefits Translates statistical output into a form that product managers can use to make critical decisions

Gives managers a powerful tool for pricing and positioning their product or service in a competitive marketplace

Use of Excel allows extensive customization to suit individual requirements

Fast construction saves time



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Simulator Wizard Requirements Text file containing output from a discrete‐choice estimation

Latent GOLD Choice

LIMDEP

R’s mlogit library

Biogeme

Gauss

Optional: data spreadsheet created with the Data Setup Wizard

Optional: design spreadsheet created with the Experimental Design Wizard

Simulator Wizard Walkthrough ‐ 11. Start with output file from a program that estimates discrete-choice models.


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Simulator Wizard Walkthrough ‐ 22. Run the wizard from Excel’s Tools menu.

Simulator Wizard Walkthrough ‐ 33. The Wizard prompts for some additional information, …


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Simulator Wizard Walkthrough ‐ 44. … links the originating data and design sheets, …

Simulator Wizard Walkthrough ‐ 55. … and builds a market simulator, …

Enter assumptions for features and price, …

… and see the impact on market share.


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Simulator Wizard Walkthrough ‐ 5…complete with a diffusion model …

Simulator Wizard Walkthrough ‐ 6…and a price curve

generator.


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Simulator Wizard Limitations Does not yet handle dynamic discrete‐choice models, where parameters vary over time.

This is a future release

Requires calibration to be effective.

Revealed preference data can be used here

Let a market expert apply factor adjustments

The program includes reasonable defaults for calibration

Some complex specifications may require manual intervention.

Describeproduct


DesignWizard

Recruitsample and


Send to fieldData

WizardSimulator

WizardEstimate

model


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Suite Features Each wizard can stand alone, yet benefits from the other wizards The Data Wizard can automatically incorporate designs produced by the Design Wizard

The Simulator Wizard can automatically incorporate information from both Data and Design Wizards

Common look and feel resemble Microsoft wizards, making them easy to learn and use.

Payback is immediate Cost savings from just one project can exceed the cost of the entire suite

Summary StatWizards® are Excel add‐ins that facilitate the execution of discrete‐choice projects.

Each wizard can either stand alone or integrate with others.

Combined, the suite cuts days off projects, reduces costs, and improves the accuracy of the results.

Return on investment is immediate.


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Conclusion

Design Wizard

Data Wizard

Simulator Wizard

If you do serious market research, the StatWizards® modules,

will improve the quality of your staff’s work and make your life EASY

Contact Information

100 Tunapuna LaneCoronado, CA 92118-3506USA

(619) [email protected]://www.statwizards.com

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