SESSION 17

Experimental design
Research for marketing decisions
9/25/2014
Dr. Ashis Mishra, IIMB 1
Statistical Designs
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2
The purpose of randomization / completely
randomized design is to bring about
homogeneity in the test units / groups
All the test units / groups need to be the same
so far as the dependent variable is concerned
All test units need to have the same attitude
towards the product before the treatment (ad
campaign) is launched
Statistical Designs
9/25/2014 Dr. Ashis Mishra, IIMB
3
This is required to ensure low variability in the
available data (at the end of the research) so
that the hypothesis testing done to prove the
difference between the two sets of data is
more valid
If Randomization fails to remove the effects of
the extraneous variable, we go for
Randomized Block design
Statistical Designs
9/25/2014 Dr. Ashis Mishra, IIMB
4
Consider the following example.
Hypothesis : Change of price influences the sales
of personal care products
Three prices are available for any one type of
personal care product
If the sales (range) of the personal care
product in the retail outlets are different (in
various levels) from the very beginning ?
Statistical Designs
9/25/2014 Dr. Ashis Mishra, IIMB
5
Randomization of test units (retail outlets) will
not give us homogenous test units
Here it is better to segment the retail outlets
based on their sales (personal care products)
and within a range randomize
This process of experimentation is called
Randomized Block Design
Random selection &
assignment
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Random selection is how you draw the
sample of people for your study from a
population.
Random assignment is how you assign the
sample that you draw to different groups or
treatments in your study.

Random selection &
assignment
9/25/2014 Dr. Ashis Mishra, IIMB
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It is possible to have both random selection and
assignment in a study. Let's say you drew a
random sample of 100 clients from a population
list of 1000 current clients of your organization.
That is random sampling. Now, let's say you
randomly assign 50 of these clients to get some
new additional treatment and the other 50 to be
controls. That's random assignment.
Random selection &
assignment
9/25/2014 Dr. Ashis Mishra, IIMB
8
Random selection is related to sampling.
Therefore it is most related to the external
validity (or generalizability) of your results.
After all, we would randomly sample so that
our research participants better represent the
larger group from which they're drawn.

Random selection &
assignment
9/25/2014 Dr. Ashis Mishra, IIMB
9
Random assignment is most related to design.
In fact, when we randomly assign participants to
treatments we have, by definition, an
experimental design. Therefore, random
assignment is most related to internal validity.
After all, we randomly assign in order to help
assure that our treatment groups are similar to
each other (i.e., equivalent) prior to the
treatment.
RBD
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Randomized block designs are appropriate for
a situation in which there is one major external
variable (confounding variable total sales of
stores), that might influence the result of the
study
Pre-requisite
The external variable should be identified and
measured before the use of RBD
RBD
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Once the external variable is identified and
measured, the test units are blocked (grouped
/ segmented) based on this external variable
Hence, within each block, the test units have
minimum variability so far as the external
variable is concerned which is considered
negligible
Example RBD
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Researcher is faced with the problem of
selecting 3 groups from 27 retail stores with a
wide range of sales (personal care products)
Total sales is an confounding variable
RBD is an appropriate tool here as the stores
can be grouped based on sales
STEPS
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1. Stores are rank ordered in terms of sales
2. Determine the total number of blocks by
dividing the total number of test units with the
number of experimental groups required (27/3
= 9)
3. The test units are then systematically
assigned to the 9 blocks so that the top 3
ranked stores are assigned to the first block,
the second three to the next and so on
4. Finally, one unit from each block is randomly
chosen for treatment
RBD Example
Block
No.
Store
Rank
Treatment Groups
X
1
X
2
X
3
1 1,2,3 3 2 1
2 4,5,6 4 5 6
3 7,8,9 9 7 8
4 10,11,12 10 11 12
5 13,14,15 14 13 15
6 16,17,18 17 18 16
7 19,20,21 20 19 21
8 22,23,24 22 23 24
9 25,26,27 25 26 27
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Statistical Designs
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If there is more than one extraneous variable to
control and they are not interacting with each
other RBD will not be sufficient
In the previous example, if type of retail outlet
where the personal care product is available
and time of experimentation (season, festival
etc.) is also considered along with sales, RBD
would not suffice.
Statistical Designs
9/25/2014 Dr. Ashis Mishra, IIMB
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In such a case, Latin square is used involving
three type of retail outlets, three times of
experimentation (extraneous variables, non
interacting) and three pricing types
(independent variables)
But, in any case we require a square for such
a design (in terms of same number of
variables)
Latin Square design
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This design allows the researcher to control
statistically for two non-interacting major
extraneous variables who might confound the
result
The design requires that each extraneous
variable must be divided into an equal
number of blocks and then the independent
variable must be divided into the same
number of levels (treatments)
A Latin square is constructed in the form of a
table with the column representing one
extraneous variable and the row the other
Latin Square design
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The levels of independent variables are then
assigned to the cells in the table such that each
level appears once and only once in each row
and each column
Suppose we want to test the impact of decrease
of price (three different price points) on sales of
personal care products
Extraneous variables are type of store and time
of the experiment
Latin square example
Time
period
Store Type
Super
market
Category
killers
Discount
Stores
Dussera
Pongal
Regular
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Latin square example
Time
period
Store Type
Super
market
Category
killers
Discount
Stores
Dussera Price 2 Price 3 Price 1
Pongal
Regular
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Latin square example
Time
period
Store Type
Super
market
Category
killers
Discount
Stores
Dussera Price 2 Price 3 Price 1
Pongal Price 1
Regular
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Latin square example
Time
period
Store Type
Super
market
Category
killers
Discount
Stores
Dussera Price 2 Price 3 Price 1
Pongal Price 1
Regular Price 3
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Latin square example
Time
period
Store Type
Super
market
Category
killers
Discount
Stores
Dussera Price 2 Price 3 Price 1
Pongal Price 1 Price 2 Price 3
Regular Price 3 Price 1 Price 2
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Limitations
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1. Equal number of rows columns and
treatments may cause problem
2. It can only control 2 extraneous variables
simultaneously
3. It assumes that there is no carry over effect so
far as the 3 prices are applied to the same
(type) of store on three occasions
4. Extraneous variables can not interact with
each other
Statistical Designs
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If number of variables are not same (square
form) and they are interacting, Factorial design
is used
Factorial designs are used to measure the
effect of two or more independent variables at
various levels
They are particularly useful when there is
some reason to believe that interaction might
occur
Statistical Designs
9/25/2014 Dr. Ashis Mishra, IIMB
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Interaction occurs when the simultaneous
effect of two or more variables is different from
the sum of their effects taken one at a time
For example, your favorite color might be gray
and your favorite dessert might be ice cream.
However, it does not follow that you would prefer
gray ice cream
Statistical Designs
9/25/2014 Dr. Ashis Mishra, IIMB
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Assume that we .are testing a new carbonated
fruit drink designed for the pre-teenage
market.
We need to decide how much carbonation and
how much sweetener to put into the drink.
Five levels of carbonation and five levels of
sweetener cover the range of each of these
variables
Statistical Designs
9/25/2014 Dr. Ashis Mishra, IIMB
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How do we determine which combination of
carbonation and sweetener to use?
We could select one level of sweetener, add the
five levels of carbonation to this level of
sweetener, and have a group of pre-teenagers
taste-test the resulting five combinations to select
their favorite version.
Then we could repeat this operation in reverse to
determine the level of sweetener
Statistical Designs
9/25/2014 Dr. Ashis Mishra, IIMB
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Unfortunately, this approach does not take into
account any interaction between the level of
sweetener and the level of carbonation
It is possible that low-carbonation drinks should
be very sweet and high carbonation drinks
should not be very sweet
The most preferred combination might lie
somewhere between these extremes
Statistical Designs
9/25/2014 Dr. Ashis Mishra, IIMB
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A factorial design can uncover this type of
information
In depicting a factorial design in a table, each
level of one variable can represent a row and
each level of another variable can represent a
column. Factorial designs require a cell for
every possible combination of treatment
variables. Therefore, this example would require
a table with 5 x 5, or 25, cells
Factorial Design Table
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Carbon
ation
Level
Sweetness
1 2 3 4 5
1 2 4 7 10 12
2 2 3 4 7 8
3 4 6 8 5 5
4 10 15 11 6 4
5 13 9 6 3 2
Statistical Designs
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Statistically, an analysis of variance can
determine the effect on stated preference of
carbonation level, sweetness, and the
interaction between the two.
Obviously, this is of great value in many
research studies.
However, the increase in measurement
capabilities gained by using factorial designs is
purchased at the expense of greater complexity,
more measurements, and higher costs.
Statistical Designs
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For example, if a third variable were included in
the example, such as color or flavoring, with five
levels, the number of cells would increase to
125 and maintaining 25 observations per cell
would require a sample of 3,125!
The same three variables could be analyzed
experimentally by means of a Latin square
design with only 25 cells
However, the Latin square design will not detect
interaction. Therefore, in cases where interaction is
suspected, some form of a factorial design is required