data,

information technology,
Analytics is the use statistical analysis,

of: quantitative methods,

and
mathematical or
computer-based models

What is to help managers gain improved

Analytics? insight about their business
operations and

make better, fact-based decisions.

1-1
 Importance of Business
Analytics
• There is a strong relationship of BA
with:
• - profitability of businesses
What is Analytics? • - revenue of businesses
• - shareholder return
• BA enhances understanding of data
• BA is vital for businesses to remain
competitive
• BA enables creation of informative
reports
1-2
Decision Models

Model:
} An abstraction or representation of a real system, idea, or object
} Captures the most important features
} Can be a written or verbal description, a visual display, a
mathematical formula, or a spreadsheet representation

1-3
 Predictive Decision Models often incorporate
uncertainty to help managers analyze risk.

Aim to predict what will happen in the

future.
Decision
Models Uncertainty is imperfect knowledge of what
will happen in the future.

Risk is associated with the consequences of

what actually happens.

1-4
Decision Models

Prescriptive Decision Models help decision makers identify the best

solution.
} Optimization - finding values of decision variables that minimize (or
maximize) something such as cost (or profit).
} Objective function - the equation that minimizes (or maximizes) the
quantity of interest.
} Constraints - limitations or restrictions.
} Optimal solution - values of the decision variables at the minimum (or
maximum) point.

1-5
 Retail Markdown Decisions
• Most department stores clear seasonal inventory by
reducing prices. The question is:

Scope of When to reduce the price and by how much?

Business • Descriptive analytics: examine historical data for
Analytics similar products (prices, units sold, advertising, …)

• Predictive analytics: predict sales based on price

• Prescriptive analytics: find the best sets of pricing and

advertising to maximize sales revenue 1-6
 Four Types
Data Based
on
Categorical (nominal) data
Measurement
Scale:

Ordinal data
Data for
Analytics Interval data

Ratio data

1-7
Data for } Data placed in categories according to a
specified characteristic
Analytics - } Categories bear no quantitative
Categorical relationship to one another
} Examples:
(nominal) Data - customer’s location (America, Europe,
Asia)
- employee classification (manager,
supervisor,
associate)
1-8
 Data for Analytics - Ordinal Data

} Data that is ranked or ordered according to some relationship with one another
} No fixed units of measurement
} Examples:
- college football rankings
- survey responses
(poor, average, good, very good, excellent)

1-9
 } Ordinal data but with constant
differences between observations
Data for } No true zero point
Analytics - } Ratios are not meaningful

Interval Data } Examples:

- temperature readings
- SAT scores

1-10
Data for } Continuous values and have a
natural zero point

Analytics - } Ratios are meaningful

} Examples:

Ratio Data - monthly sales

- delivery times

1-11
A common reorder policy in a supply chain is to produce enough to have a
low percent chance, say, a 5 percent, of running out of a product.

Suppose the retailer wanted to know how many cakes to order to reduce
stock out chances.

For cakes, demand for cakes that exceed x or a 95 percent chance of

demand materialising. This would imply that you should produce x cakes,
where there is a 5 percent chance of stock out situation.
Understanding
Regression –A
refresher on
your past
knowledge
Uses of Modelling Trend and Seasonality
• Using a 12-month or 4-quarter period enables marketing managers to
easily see the trend in a product’s sales and forecast forward.
• Separate the monthly de-seasonalised sales trend from the influence
of seasonality
• Quantify the seasonal surge or dip of each month/season on sales.
• Assist functions of demand and supply management
• Plan promotions, distribution, and pricing strategies on the basis on
anticipated surge due to seasonality
Modelling Trend and Seasonality
An Additive Model
Objective: Identify the seasonal influence of each month on sales.
Equation: Predicted Period t Sales = Base + Trend*Period Number + Seasonal
Index for Month t
■ Base: The base is the best estimate of the level (without seasonality) of
monthly airline miles at the beginning of the observed time period.
■ Trend: The trend is the best estimate of the monthly rate of increase in
airline miles traveled.
■ Seasonal Index: Each month of the year has a seasonal index to reflect
if travel during the month tends to be higher or lower than average.
A Multiplicative Model with Trend and
Seasonality
Predicted Period t Sales = Base * (Trend^t) * (Seasonal Index for Month t)

■ Trend: The trend now represents the percentage monthly increase in the level
of airline miles.
1.03 = means monthly air travel is increasing 3 percent per month,
0.95 = means monthly air travel is decreasing at a rate of 5 percent per month.

■ Seasonal Index: The seasonal index for a month now represents the percentage
by which airline travel for the month is above or below an average month.
1.16 = means July has 16 percent more air travel than an average month,
0.83 = means February has 17 percent less air travel than an average month.

Note: multiplicative seasonal indices must average to 1.

Additive vs multiplicative model – select the
one with lower sum of squared errors.
additive multiplicative
• . If per period growth is • . On the other hand, if period
independent of the current growth is an increasing function
sales value, the additive of current sales, the
trend model will probably multiplicative trend model will
outperform the probably outperform the
multiplicative trend model additive trend model.
 Understanding the concept of exponential
smoothing
Simple moving average - the past observations are weighted equally,

Exponential functions are used to assign exponentially decreasing weights over

time.

The weights assigned to recent past may be different from far past

Current forecast est = alpha*current obs forecast(t) + (1-alpha)*(Smoothened estimate(t-1)

Winters method of forecasting
• The base, trend and seasonal
indices are not constant but
continuously evolving. They
are exponentially smoothened
versions of themselves.

• The Base is called level of

Series and after observing data
through the end of the month
t you can estimate the level,
trend and seasonal index.
Winters
method
(cond)

• C equals the number of periods in a seasonal cycle(c = 12 for a month)

•
Winters method (contd)
Ft,k as your forecast (F) after period t for the period t + k. The
equation to compute estimated base k periods forward.
Method to develop forecasts using Ratio to
Moving average Method
■ Estimate the de-seasonalized level of the series during each period
(using centered moving averages).
■ Fit a trend line to your de-seasonalized estimates .
■ Determine the seasonal index for each quarter and estimate the
future level of the series by extrapolating the trend line.
■ Predict future sales by re-seasonalizing the trend line estimate.
Understanding Conjoint
 Terms in a Conjoint Analysis

Attributes – characteristics Attribute levels – degree to which

Bundles – set of attributes in the
consumer consider when attribute is present, or attribute
product or service
evaluating products types

Part-worths – Conjoint analysis

Conjoint Analysis – examine
decomposes overall preference
tradeoffs consumers make to
into values that show Profile – specific bundles
determine marketable
utilities(usefulness) of particular preferred by customer segment
combinations( or bundles) of
level of attribute. These utilities
attributes at different levels
are called part-worth.
 Prepare for conjoint

Collect Preference data

Process of
Conjoint Code data for analysis

Analysis
Calculate part-worths

Apply conjoint analysis results

Prepare for Conjoint – Know the imp
attributes
• Interview customers, conduct an importance survey, read customer reviews,
trade information >> to sense key attributes that customers value
• Avoid the unimportant or hygiene attributes and for the motivators, identify
levels of attributes
• The total number of cards is level^attributes. So if there are 2 attributes with
3 levels you need 3^2 or 9 cards.. Exponentially increase!!!
• Apply fractional factorial techniques or orthogonal arrays

Not at all Less imp neutral Somewhat

important important
Screen Size X

Battery Life
Collect Preference Data
• Pairwise Comparison – easier than ranking, too many comparisons
required for relative comparison.
• Rank Ordering – see all bundles at a time. Easy to rank the best and
worst, the middle may get muddled
• Rating Scale – each bundle gets rated on a scale (1-100, 1-10, 1-9,1-
7). Easy to rate each alternative independently, easy to compute.
Some respondents are unable to distinguish for fine rating scales.
• Also explore self segmentation by the consumer on a behavioural or
important segment descriptor. Collect demographic profiling data
Understanding Logistic regression
Calibrating regular vs logistic regression model
• The probability of all the observed phenomena being repeated
• Maximizing the Likelihood of
P(a) Ո P(b) Ո P(c) Ո P(d) = P(a) x P(b) x P( c) x P(d)
P(a) 20 0
Solver will maximise
P(b) 23 0
P( c) 24 0
P(d) 25 1
The interpretation is for any age, 1 year increase in age increases the odds
ratio by e0.1281 = 13.7 %
Interpretation of Logit regression

Suppose the slope =0.1281

and intercept=-5.661.

Hence for a 44 year old ,

prediction of subscription is

The interpretation is for any

age, 1 year increase in age
increases the odds
ratio by e0.1281 = 13.7 %
Quotes by researchers -When conjoint and
when discrete choice
“Conjoint analysis makes the most sense in categories where the decision to buy is defined as rational,
and you can categorize the features,”

“It doesn’t make sense for image products, like Coke vs. Pepsi, where the buying decision is most likely
emotional.

But for products and services such as medical devices, high-tech products like cell phones, automobiles,
insurance and financial services – things where the features can be clarified – conjoint analysis done right
is uncanny in its ability to predict consumer behavior.

"The difference between discrete choice models and conjoint models is that discrete choice models
present experimental replications of the market with the focus on making accurate predictions regarding
the market, while conjoint models do not, using product profiles to estimate underlying utilities (or
partworths)
Why or When discrete choice analysis
• A discrete choice analysis helps the marketing analyst determine
what attributes matter most to decision makers and how levels of
each attribute are ranked by decision makers.
• For calibrating model, finding brand weights and price sensitivity of
brand
• For finding brand equity
• For making a market simulator to find profit maximising price
• For finding Nash equilibrium
Process
• To begin a discrete choice analysis, decision makers are shown a set of alternatives and asked to choose their most preferred
alternative.
• The analyst must determine a model that is used to “score” each alternative based on the level of its attributes.
• The fraction of decision makers that choose alternative j is assumed to follow the multinomial logit model:

• eVi , where Vj = score for alternative j

• Maximum Likelihood is used to estimate the parameters (such as brand equity and price sensitivity) in the scoring equation.
• In a discrete analysis, a Chi Square Test based on the change in the Log Likelihood Ratio can be used to assess the significance of a
changing cell.
• The Independence of Irrelevant Alternatives (IIA) that follows from Equation 2 implies that the ratio of the probability to choose
alternative i to the probability to choose alternative j is independent of the other available choices.
• The multinomial logit version of discrete choice enables you to easily compute price elasticities using the following equations:
• (8) Price Elasticity for Product j = (1 – Prob(j)) * Price(j) * β(j)
• (9) E(k,j) = – Prob(j) * Price(j) * β(j)
 Multinomial Logit Model –
Read about the analytic technique behind Discrete Choice Theory
Random Utility Theory
The concept of random utility theory provides the theoretical basis for discrete choice analysis. Suppose a decision maker
must choose among n alternatives. You can observe certain attributes and levels for each alternative.
• The decision maker associates a utility Uj with the jth alternative. Although the decision maker knows these utilities,
the marketing analyst does not. The random utility model assumes the following:

• Here Vj is a deterministic “score” based on the levels of the attributes that define the alternative, and the εj ’s are
random unobservable error terms. The decision maker is assumed to choose the alternative j (j = 1, 2, …, n) having the
largest value of Uj. The εj ’s are independent Gumbel (also known as extreme value) random variables, each having the
following distribution function: F(x)=Probability εj <= x)= , then the probability that the decision maker chooses
alternative j (that is, Uj = max k=1,2,,....,nUk) is given by the following:

• The above equation is analogous to the logit model and is often called the multinomial logit model. It is of crucial
importance because it provides a reasonable method for transforming a customer’s score for each product into a
reasonable estimate of the probability that the person will choose each product. In the rest of this chapter you will be
given the alternative chosen by each individual in a set of decision makers. Then you use this equation and the method
of maximum likelihood (introduced in the slide on calibrating logistic regression) to estimate the importance of each
attribute and the ranking of the levels within each attribute.
 Steps of discrete choice analysis
• For calibrating model, finding brand weights and price sensitivity of brand
• Score àExp àprobabilitiesà log of probabilities à log of probabilities*frequency
of occurence àmaximum likelihood à solver à brand/attribute/price weights
àmarketing analysis
• For finding brand equity
• Score àExp àprobabilities-à log of probabilities à log of probabilities*frequency
of occurence maximum likelihood à solver àcontrol price weights by using similar
price weights à brandweights àmarketing analysis
• For making a market simulator to find profit maximising price
• Probabilities à Prob*100 =demand à Profit = R – C à max price in solver by
changing price
What happens when companies reduce
prices
Why S curves
• To forecast new product sales cycle from early sales data
• To schedule the R&D investments
• Strategic planning of new product innovation cycles
Two methods of technology forecasting using
s curves to forecast sales of a new product
• Pearl curve

• Inflection point

• Gompertz Curve

• Inflection point
Bass Model Forecasting – Why
• forecast product sales before the product comes to market.
• an explanation of how knowledge of new products spreads throughout the market place.
• determine the relative importance of innovators and imitators in driving the spread of the product.
Bass Model - Assumptions

• n(t) = Product sales during period t.

• N(t) = Cumulative product sales through period t.
• N = Total number of customers in market; assume that all of them eventually adopt the product.
• P = Coefficient of innovation or external influence.
• Q = Coefficient of imitation or internal influence.
The Bass Model Equation Component
Q*

the number of interactions between previous

adopters (N(t − 1)) and people who have yet to
number of people (N − N(t − 1)) who have not adopt (N − N(t − 1))
yet adopted the product.
P is called the coefficient of innovation or This imitation or internal influence component
external influence. reflects that previous adopters tell nonadopters
about the product and thereby generate new
adoptions.
Segmentation and
Positioning
 How STP Creates Value
Positioning
Segmentation Targeting
Create competitive
Identify segments Select segments
advantage

Marketing resources are focused to better meet customers

needs and deliver more value to them

Customers develop preference for brands that better meet

their needs and deliver more value

Customers become brand/supplier loyal, repeat purchase,

communicate favorable experiences

Brand/supplier loyalty leads to increased market share and

creates a barrier to competition

Fewer marketing resources needed over time to maintain

share due to brand or supplier loyalty

Profitability (value to the firm) increases

Market Segmentation

• Market segmentation is the subdividing

of a market into distinct subsets of
customers.

Segments

• Members are different between

segments but similar within.

49
 Markets are Dynamic

§ Segments may be unstable over time

• Buyer behavior changes
• Competitors change
• The business environment changes

§ This means that it is important to view segmentation as . . .

• A process to support business decisions
• Not a static classification of the market

50
 A Four-Phase Process for Successful
Segmentation Analysis Project
Phase I Phase II Phase III Phase IV
Planning and Design Qualitative Assessment Quantitative Measurement Analysis and Implementation

Internal Assessment Qualitative Quantitative

& Planning Research Survey
Ÿ Objective(s) of
Interview Materials Sample Design
segmentation
Development •
Ÿ Resources • •
• •
Ÿ Constraints
Qualitative Data
Collection Implementation
• Questionnaire Segmentation Through
Database • Development Analysis Database Tools
Review •
“Deep needs” Ÿ Cluster Analysis
• Ÿ Call Center
Ÿ Primary data Identification
• Ÿ Portfolio Analysis
already available • Ÿ Web
• Ÿ Positioning Analysis
Ÿ Secondary data Ÿ Sales call
Decision-Making patterns
Ÿ … Data Collection
Process
• Ÿ Promotion
Assessment
•
• Ÿ ….
•
Prototype •
Implementation
Exercises
Ÿ What ifs?
Ÿ Relevant groups
involved?
Ÿ …..
Bases or Response Variables
( alt view)

52
 Primary Characteristics
of Segments
• Bases—characteristics that tell us why segments
differ (e.g., needs, preferences, decision
processes).
• Descriptors—characteristics that help us find and
reach segments.
(Business markets) (Consumer markets)
Industry Age/Income
Size Education
Location Profession
Organizational Life styles
structure Media habits

53
Descriptor or Identifier variables for
consumer and business markets. (alt
view)

How to serve

How to communicate
54
 Managing Segmentation

1. Define segmentation problem

2. Conduct market research
3. Build segmentation database
4. Define market segments
5. Describe market segments
6. Implement results!

55
1. Define Segmentation Problem

• View market segmentation problem as a

series of hierarchical stages -- for example
• Identify broad strategic “macro-segments” that
effectively define market structure
• Industry groups
• Product usage (rate of usage, application, etc.)
• Geographic location, etc.
• Within macro-segments, conduct research to
find “micro-segments” for competitive
advantage
• Segmentation on buyer needs and value
• Segmentation on product benefits
56
 2. Conduct Market Research

Phase 1 Phase 2 Phase 3

Segment
Market Implement
Exploratory Response
Segmentation Marketing
Study Analysis &
Study Program
Planning

Market research supports the segmentation process

57
 4. Define Market Segments

• Assume the following data matrix includes the responses

from six customers on four key components of value (10
point rating scale of importance)
• How would you segment this “market”?

Importance
Importance Importance of Ease of Importance Cluster
Customer of Durability of Service Use of Price Assignment
1 9 4 5 6
2 3 5 10 5
3 4 5 5 10
4 10 6 7 6
5 5 5 7 10
6 6 3 9 5
“Market” 6.2 4.7 6.3 7.0 X

58
 5. Describe Market Segments
• Suppose the market for 300 users of industrial adhesives
were represented by the table below

Organization size Segments based

as a descriptor on needs

Organization Price Durability Service

size sensitive sensitive sensitive
Large 30 20 50

Medium 50 20 30
• What can we conclude from this table?
Small 20 60 20

59
Segmentation: Methods Overview
Segmentation – Analytic Techniques
 Cluster Analysis Issues

• Defining a measure of similarity (or distance) between

segments.
• Identifying “outliers.”
• Selecting a clustering procedure
• Hierarchical clustering (e.g., Single linkage, average
linkage, and minimum variance methods)
• Partitioning methods (e.g., K-Means)
• Cluster profiling
• Univariate analysis
• Multiple discriminant analysis

63
Interpreting Cluster Analysis
Results

• Select the appropriate number of clusters:

• Are the bases variables highly correlated? (Should we
reduce the data through factor analysis before
clustering?)
• Are the clusters separated well from each other?

• Should we combine or separate the clusters?

• Can you come up with descriptive names for each
cluster (eg, professionals, techno-savvy, etc.)?
• Segment the market independently of your ability to
reach the segments (i.e., separately evaluate
segmentation and discriminant analysis results). 64
Use of Dendograms in segmentation

• Dendograms provide graphical representations of the loss of information generated by grouping

different clusters (or customers) together. The dendogram is generated only if you choose the
Hierarchical Clustering
• At one extreme (upper part of the dendogram), all customers group into one cluster, and the loss
of information is maximum, because they all receive undifferentiated treatment, regardless of
their characteristics.
• At the other extreme (lower part of the dendogram), customers appear in separate, small
clusters, and only those customers very similar to one another group together (“similar” or
“close” in this context refers to the distance between two customers in terms of the segmentation
variables).
• When reviewing a dendogram, look for significant distances or “jumps” in the distances. Grouping
these three clusters into two generates a significant loss of information; in other words, it results
in grouping within the same cluster customers who are very dissimilar.

65
Profiling Clusters

Two Cluster Solution for PC Data: Need-Based Variables

1
Design

Means of
Variables
0

Business
–1
size power office LAN color storage wide periph. budget
use needs connect.
66
 Managerial Uses of
Segmentation Analysis
• Select attractive segments for focused effort
• Develop a marketing plan (4P’s and positioning)
to target selected segments.
• In consumer markets, we typically rely on
advertising and channel members to selectively
reach targeted segments.
• In business markets, we use sales force and direct
marketing. You can use the results from the
discriminant analysis to assign new customers to
one of the segments.

67
Checklist for Segmentation

1. Is it values, needs, or choice-based? Whose values and needs?

2. Is it a projectable sample?

3. Is the study valid? (Does it use multiple methods and multiple

measures)

4. Are the segments stable?

5. Does the study answer important marketing questions (product

design, positioning, channel selection, sales force strategy, sales
forecasting)

6. Are segmentation results linked to databases?

7. Is this a one-time study or is it a part of a long-term program?

68
Segmentation Summary

In summary,

• Use needs variables to segment markets.

• Select segments taking into account both the

attractiveness of segments and the strengths of the
firm.

• Use descriptor variables to develop a marketing plan

to reach and serve chosen segments.

• Develop mechanisms to implement the segmentation

strategy on a routine basis (one way is through
information technology).
69
Which Segments to Serve?
—Segment Attractiveness
Criteria
Criterion Examples of Considerations

I. Size and Growth

1. Size • Market potential, current market penetration
2. Growth • Past growth forecasts of technology change

II. Structural Characteristics

3. Competition • Barriers to entry, barriers to exit, position of
competitors, ability to retaliate
4. Segment saturation • Gaps in the market
5. Protectability • Patentability of products, barriers to entry
6. Environmental risk • Economic, political, and technological change

III. Product-Market Fit

7. Fit • Coherence with company’s strengths and image
8. Relationships with • Synergy, cost interactions, image transfers,
segments cannibalization
9. Profitability • Entry costs, margin levels, return on investment
70
Positioning recognises that
• Attention span of the customer is small
• Customers way or highway
• you cannot be everything to everyone

Perceptual Maps for Positioning

• The need for positioning maps – the value of visualisation

• Understanding customers perceptions
• Building and understanding positioning maps
human brain is not very good at visualising numbers, hence
it helps to have a method of graphically represent complex
patterns
Positioning: Some Key Concepts
• Differentiation: Creation of differences on key dimensions between a
product and its main competitors.

• Positioning: Strategies to ensure that the main differences between

the focal product and its competitors occupy a distinct position in the
minds of customers.

• Mapping: Techniques (using customer-data) that enable managers to

develop differentiation and positioning strategies by helping them to
visualize the competitive structure of their markets as perceived by
their customers.
Perceptual Map of Airlines Data
 Perceptual Map of Beer Market
(This slide shows only the attributes)

Heavy Popular
Full Bodied Heavy with Men

Special
Occasions
Blue Collar Dining Out Premium
Good Value

Budget Premium

Popular
Pale Color with
Women
On a
Budget Light Less Filling
Light
 Perceptual Map of Beer Market
(This slide includes both products and attributes)

Heavy Popular
Full Bodied Heavy with Men
Old Milwaukee
•
Budweiser
• Beck’s •
Meister Brau Special • Heineken
• Miller • Occasions
Blue Collar
Good Value • Dining Out Premium
•
Stroh’s
Coors
Budget Premium
• Michelob
• Coors Popular
Pale Color
Miller
Lite
• Light with

On a
• Women
Old
Budget Milwaukee Light Light Less Filling
Light
Perceptual Maps Using
Attribute Ratings
• Generate a matrix of inputs for the analysis consisting of each customer’s (C1,
C2,...) ratings of each brand on each of the attributes (A1, A2, A3,....)
A1 A2 A3 A4............... A15
Audi 90 6 3 7 2 2
C1
Toyota Supra 4 3 4 1 5
New G20 3 6 2 7 7
..
Audi 90
C2 Toyota Supra
New G20
• Compute average ratings of each car on each attribute. Submit data to a
suitable perceptual mapping technique (e.g., Factor Analysis).
• Interpret the underlying key dimensions of the map using the directions of the
individual attributes.
• Articulate the implications of how customers’ view the competing products and
concepts.
Perceptual Maps Using
Attribute Ratings
Example: Positioning of a new car concept
§ Select a set of cars which are of interest to the target group of customers (including the new
product/concept of interest).
§ Identify a set of key attributes on which these cars are evaluated by the target group (e.g.,
through focus groups).
§ Ensure that customers are familiar with all the products of interest (e.g., through video
presentation).
§ Have customers evaluate each car on the chosen set of attributes.

Unattractive ...........................… Attractive (A1)

Quiet ..............…............. Noisy (A2)
Unreliable …........................... Very reliable (A3)
Uninteresting …………………... Interesting (A4)
Low prestige ...........…............… High prestige (A5)
.
..
Definitely would
not buy ......................…..... Definitely would buy (Preference)
Mapping Techniques
• Mapping perceptions
• Attribute-ratings methods (particularly useful for
functional products)
• Overall-similarity methods (particularly useful for
image-oriented products)
• Mapping preferences
• Include an overall preference vector in a perceptual
map
• “External” analysis to fit preferences of individuals on
a common perceptual map
 Mapping Methods in Marketing

Joint Space Maps

Perceptual Maps Preference Maps (includes both
perception &
preference)

Similarity-based Ideal-point model External analysis

methods (unfolding model) using PREFMAP-3

Attribute-based Vector model Simple “joint space

methods maps” using
modified perceptual
mapping methods

Italicized items are included in the text/software (Coming soon: Ideal Point Model)
Guidelines for Interpreting Perceptual Maps
• The arrow indicates the direction in which that attribute is increasing
(The attribute is decreasing in the direction opposite to the arrow).
Thus, cars positioned farther in the West direction offer more
prestigious and those positioned in the East direction are less
prestigious.
• The length of the line from the origin to the arrow indicates the
variance of that attribute explained by the 2D map. The longer this
line, the greater is the importance of that attribute in helping you to
interpret the map.
• Attributes that are both relatively important and close to the
horizontal (vertical) axis help determine the meaning of the axis.
• To position a car on each attribute, draw an imaginary perpendicular
line from the location of that car onto that attribute. (These are
shown by dashed lines on the map).
Mapping Preferences
Objective—Introduce customer preferences into perceptual maps:

• A simple ideal point method: Introduce an “ideal” brand as an

additional stimulus evaluated by customers.

• A simple vector method: Introduce “preferences” as an

additional variable in the attribute ratings data
Two Preference Models

Ideal-Point Preference Model Vector Preference Model

Increasing
Preference

Preference Preference

Decreasing
Preference

Ideal Point
Attribute Attribute
(eg, sweetness) (eg, service speed)
Interpreting Preference Maps
Ideal-Point Map Vector Map
Ideal
Point (I)
Preference
dIA Vector
dIB
A A
dAC
B dAB
C
B

(a) (b)
A is preferred twice as much as B. A is preferred to B and B is preferred to C.
(dIB = 2dIA) With reference to A, C is preferred half as
much as B.
(dAC = 2dAB)
Uses of Ideal Point Maps
• The ideal point map is useful to understand gaps in the market for
future launches or brand extension exercises.
• It also explains the relative position of current brands in the market
from an ideal brand from the consumers perspective.
• It provides instructions to managers for inclusion of attributes and
association in future brand equity building exercises.

84
Limitations
• Provides a static model - ignores dynamics of
customer perceptions.
• Interpretation is sometimes difficult.
• Does not incorporate cost or likelihood of
being able to achieve a desired positioning.
• Does not incorporate a “probability model” to
indicate goodness of a map.
• Generally, need about 6 to 8 products in a
category to make the technique useful.
Some Uses of Mapping Techniques
• Check how customer perceptions of client products
compare to perceptions of competitors.
• Identify product strengths and weaknesses.
• Select competitors to compete against.
• Determine how much change is needed on key
product attributes to move products to more
favorable positions.
• Visually determine impact of communications
programs on market perceptions.
Strengths and Weakness of Perceptual Maps

Strengths Weaknesses
1. The ability to get a visual snap-shot of brand competition as 1. The need to identify all relevant attributes, and all relevant
perceived by customers. competitors.
2. The ability to “name” dimensions of the map based on the 2. The need for data collection from relevant customers. In other
relevant attributes that “load” on the dimensions. words, the customers must belong to the same segment; or
else we could have the possibility of producing an “average”
3. The ability to identify how each brand is perceived on each ideal positioning, when there are really multiple ideal
attribute, and on each dimension. positionings.
4. The ability to identify what re-positioning strategies are 3. The need for appropriate sample size.
practical, and what are not.
4. Maps are a static representation of the marketplace.
5. The ability to engage multiple decision makers/stakeholders in
a common view of the marketplace as seen from the 5. Maps do not explain why customers perceive brands the way
customers’ perspective they do.
6. Maps address perceptions (and preferences as well here, in
terms of the ideal brand) but no not directly reflect likely
customer choice