Lan Luo, P.K. Kannan, and Brian T. Ratchford
Executive Summary
Consumers often use both objective and subjective criteria to evaluate a product. For example, power tool users may evaluate a power tool on the basis of not only its objective attributes, such as price and features, but also its subjective characteristics, such as ease of use and feel of the tool. Industrial designers and marketing researchers have long recognized that consumers’ perceptions of the subjective characteristics exert an important influence on their product evaluations. However, in general, the existing literature in new product design has focused only on the objective attributes. Currently, there is no formal model that accounts for the impact of subjective characteristics in the design of new products.
Thus, the focus of this article is to provide an effective way to incorporate subjective characteristics in new product design. In particular, the authors develop a formal model that helps the product designer to understand the impact of the subjective characteristics on consumer’s product preference and to incorporate such impact into the selection of optimal product design. The proposed model has the form of a hierarchical Bayesian structural equation model, in which the subjective characteristics are treated as latent constructs that are determined partly by objective attributes and partly by consumers’ idiosyncratic evaluations. In this model, overall product evaluations are a function of both objective attributes and latent subjective characteristics. Unlike most existing research in new product design, the authors present customer-ready prototypes to consumers and incorporate their ratings for the subjective product characteristics into the estimation procedure. The authors also propose a Bayesian forecasting procedure in which the estimated relationships are used to improve the out-of-sample prediction.
The authors illustrate the proposed approach in two empirical studies. The first study was conducted jointly with a U.S. manufacturer in the development project of a new power tool. The second study, conducted in the toothbrush category, further explores the validity and generality of the model. Through two empirical applications, the authors demonstrate that the traditional conjoint models may not be sufficiently information rich for product designers. With the creation of several customer-ready prototypes and the collection of additional data on subjective characteristics, the model provides the product designer with (1) a better understanding of the causal relationships between the objective attributes and the subjective characteristics, (2) insights into how the objective attributes and the subjective characteristics jointly contribute to consumer’s purchase decision, and (3) an improvement in out-of-sample prediction when used to forecast consumer’s purchase likelihood and choice compared with using the traditional conjoint models. Therefore, the model proves to be valuable in both providing diagnostics and improving prediction.
Biography
Lan Luo is Assistant Professor of Marketing in the Marshall School of Business at the University of Southern California. She holds a PhD in Marketing from the University of Maryland. Her research has been sponsored by National Science Foundation, and her research interests include new product development, consumer preference models, and marketing implications of new product introductions. She has published in Marketing Science, Journal of Product Innovation Management, and Journal of Mechanical Design (see http://www-rcf.usc.edu/~lluo).
P.K. Kannan is Harvey Sanders Associate Professor of Marketing and the director of the Center for Excellence in Service in the Robert H. Smith School of Business at the University of Maryland. He holds a PhD in Management from Purdue University, a Master of Science degree in Industrial Engineering from the National Institute of Industrial Engineering, and a Bachelor of Science degree in Engineering from Banaras Hindu University, India. His current research focuses on new product development, pricing digital products and product lines, e-service, customer relationship management, and choice models. He has received several grants from the National Science Foundation and the Mellon Foundation for his work in these areas. His research has been published in Marketing Science, Management Science, Journal of the Academy of Marketing Science, and International Journal of Electronic Commerce, among other sources. He is on the editorial boards of Marketing Science, Journal of Marketing, and Journal of the Academy of Marketing Science.
Brian T. Ratchford is Charles and Nancy Davidson Professor of Marketing at the University of Texas at Dallas. He has an MBA and a PhD from the University of Rochester. His research interests are in economics applied to the study of consumer behavior, information economics, marketing productivity, and the Internet as a marketing institution. He has published more than 50 articles in marketing and related fields, including Journal of Consumer Research, Marketing Science, Management Science, and Journal of Marketing Research. He was editor of Marketing Science from 1998 to 2002; is currently an associate editor of Journal of Consumer Research; and is currently on the editorial review boards of Journal of Marketing Research, Journal of Marketing, Journal of Retailing, Journal of Interactive Marketing, and Journal of Service Research.
Journal of Marketing Research, Vol. XLV, No. 2, April 2008
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