Perceptor Model

Model-Based Procedures for Product DesignRohan Arora12020241132Perceptor ModelUrbans (1975)IntroductionMotiveDevelop model for designing and positioning of new frequently purchased consumer products.Model structureTrial and repeat process that produces an estimate of long- run share for a new brand.Main ideaModel the distance from the ideal brand to brand trial and repeat purchase estimates for a new product in an existing market.OutputsUnderstanding of perceptions, preference and purchase process underlying product positioning decision.Tool for estimating the market share for alternate new brand designs.Model StructureLong Run Market Share Model:m = ts . (1)m= long run market share,t= fraction of the target market that ever tries the new brand (0 t 1)s= share of purchases of new brand among those who have ever tried the brand (0 s 1)Now, Urban further developed this t or the ultimate trial fraction on the basis of the Trial ModelModel Structure (Contd.)Ultimate Trial Model:t = qwv ..... (2)q = ultimate probability of trial given awareness and availabilityw = long run awareness of the new brandv = long run availability of the new brand (volume weighted percentage of stores carrying the brand)The market share of those who have used the brand is modeled as the equilibrium of a two- state Markov processModel Structure (Contd.)Steady- state Share Process:S = P21/ (1+ P21 P11) .. (3) for those who have tried the new brandPij = Probability of purchase of brand j at next purchase opportunity when brand i was purchased last, 0 Pij 1.0,i or j = 1 refers to new brand,i or j = 2 refers to all other brands.This Markov formulation assumes that the frequency of purchase of the new brand is the same as existing brands.Purchase at T+1New BrandOther BrandsPurchase At TNew BrandP111-P11Other BrandsP211-P21Model Structure (Contd.)Perception and Preference MappingXby = A=1fyarba (4)xby, = coordinates of brand b on dimension y for the perceptual map of those who have not tried our brand, but who are aware of concept (b = 1, 2, . . . B, where B = new brand; y = 1,2,. . .Y)fya = factor score coefficient for dimension y and attribute scale a (a = 1,2,. . . A)rba = standardized average rating of brand b on scale a.Iy = coordinates of average ideal point of dimension y for map of those who have not tried our brand but are aware of the concept. This Iy would be used subsequentlyModel Structure (Contd.)Probability of Purchase (Trial)q= 0 + 1dB2 (5) q = as defined in (2)dB2 = squared distance from ideal point to the new brand on map for those who are aware but have not yet used the new brand0 , 1 = coefficients to be determined empiricallyModel Structure (Contd.)In case of a perceptual space having z dimensions where the new brand occupies the position Xz and ideal position is Iz, then: dB2 = zz=1hz(Xz-Iz)2 .. (6)Hz = importance weights for dimension z

Model Structure (Contd.)Probability of RepeatP11 = 0 + 1d2B (7)pll = probability of repeat purchase if new brand was purchased last. (0 p11 1.0)d2B = distance squared from ideal point to new brand after use perceptual map for those who have used the brand)0 , 1 = coefficients to be determined empiricallyThe probability of repeat purchase if the new product is not chosen (p21)is empirically determined.

Model Structure (Contd.)Sources of New Brand ShareAfter substituting the trial (5) and repeat (7) probabilities in (2) and (3) an estimate of the share of the new brand is obtained by (1).It is assumed that share will come from the brands that are perceptually most similar to the new brand (i.e. nearest to it on the map) and from the brands that are most widely evoked. A brand is defined as evoked by a consumer if it has been used, if it would be considered at the next purchase, or if it is rejected as a purchase alternative.

Model Structure (Contd.)Sources of New Brand Share (contd.)Kb = m [(eb/D2bB) / B=1B-1(eb/D2bB)] .. (8)kb = loss in market share of existing brand bm = market share of new brandeb = fraction of people who have brand b in their evoked setD2bB = distance squared from brand b to new brand B in users mapThis completes the model description. Attached is Question 5.3. Click MeDEFENDER ModelHauser and Shugan, 1983IntroductionMotiveTo study how a brand should adjust its marketing efforts, pricing and positioning in a competitive environmentModel structureThe model uses a per-dollar map i.e. brand positions on attributes are scaled by price. The model takes these positions and translates them into market shares by considering the Taste distribution function of the intended marketMain ideaResponse to the new competitionModel StructureThe model incorporates the following assumptions:Existing brands can be repositioned in a multi attribute space where brand positions are ratio scaled.Consumers choose their utility-maximizing brandsConsumers utility functions are linearAwareness and distribution are concave functions of advertising and distribution spending, respectively.Model Structure (Contd.)Notation for the Model

Pj = price of brand jXij = position of brand j on attribute I, i=1,2Wik = Individuals Ks importance weight for attribute IUjk = w1kx1k+w2kx2kak = tan-1(w2k/w1k)F(a) = distribution of the taste functionmj = market share of brand j

Model Structure (Contd.)Since all customers do not evoke all brands, we define :Al = a subset of all brands, A, l =1,L andsl = probability that a randomly chosen customer selects from choice set Al

Market share:

Mj|l = Pr[ ( X1j/pj ) (X1i/pi) ]Where, mj|l is the market share of brand j among customers with evoked set lDefensive StrategiesA new product can enter the market in the following ways :If it is inefficient within the shell of the existing brandsIf it exactly matches a competitorNot adjacent to brand under studyA direct attach on a brandLINMAP ModelShocker and SrinivasanIntroductionMotiveTo identify new product alternatives that address specific firm objectivesModel structureTrial and repeat process that produces an estimate of long- run share for a new brand.Main ideaModel the distance from the ideal brand to brand trial and repeat purchase estimates for a new product in an existing market.OutputsUnderstanding of perceptions, preference and purchase process underlying product positioning decision.Tool for estimating the market share for alternate new brand designs.Model Structure4 stages of the model:Identification of relevant marketRepresentation of brands in attribute spaceEstimate consumer response i.e. estimate utility functions and likely product choicesIdentify the best new opportunity

xp and wp are solved via LINMAP

Sj = p(yjp-xp)2 wpDistance functions:Model Structure (Contd.)Minimize zjk

Subject toSk Sj + zjk >= 0and (sk-sj) = 1

Model Structure (Contd)Q1 = ( ir + ij ) (ir + ij )

Where = a/sjb

Also, Incremental revenue := (qi-hi)ViModel Structure (Contd.)Considering all variables, new brand position :

Z = (qi-hi)Qi[P-c(yr1.yrt)]

Where,Q = annual volumeP = Unit Pricec = incremental manufacturing cost

Thank YouRohan AroraSIIB