Using Laboratory Experimental Auctions in Marketing Research: A case study of new packaging for fresh beef

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Using Laboratory Experimental Auctions in
Marketing ResearchA case study of new packaging
for fresh beef

• Elizabeth Hoffman, Dale J. Menkahus, Dipankar
  Chakarvarta, Ray A. Field, Glen D. Whipple
• Marketing Science, 1993
• Presented by Jong Min Kim

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Introduction

• Introduce a new tool for use in laboratory
  pretest markets
• Illustrates its application in a laboratory
  pretest market for vacuum-packaged retail fresh
  beef
• First step in research on how laboratory
  experimental auctions can contribute to marketing
  research

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Laboratory Experimental Auction in Marketing
Research

• Advantages
• Allow an endogenous revelation of the prices
  consumers are willing to pay
• yield simultaneous estimates of the of units of
  the product that may be sold
• Data in lab. experimental auction pertain to
  actual purchases of the product

• Disadvantages
• Bidding mechanism does not naturally mimic how
  consumers reveal preference
• Correspondence between the theoretical incentive
  compatibility of an auction mechanism and actual
  participant behavior
• Consumers engage strategic learning strategies

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Incentive-compatible Auctions

• First-price, sealed-bid auction
• The highest bidder purchases the object and pays
  his bid price
• Dutch auction
• The price starts out very high and is
  progressively lowered until one bidder signals he
  will purchase
• English auction
• Bidder keep raising the price until only one
  bidder is left, that bidder pays marginally more
  than the second-highest bidders last bid
• Vickrey auction (uniform price, first-rejected
  bid auction)
• second-price, sealed-bid auction English
  auction
• incentive-compatible
• English clock auction

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Incentive-compatible Auctions

• Do bidders bid their true values in
  incentive-compatible auctions?
• The order of bids may very well represent the
  order of true vales (Coursey Smith, 1984)

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Background on the Product

• The market for the fresh beef
• Differentiation in PACKAGING
• Vaccum-skin packaging vs. overwrapped styrofoam
  tray
• VS packaged beef has not sold well in limited
  supermarket tests at comparable prices
• Basic goal of the research
• determine the impact of information pertaining to
  the benefits of VS packaging on the consumer
  values

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Experimental Design

• 8 participants in each session
• Auction mechanism
• Fifth-price, sealed-bid auction, with specific
  instruction, to sell 4 packages of beef to four
  different consumers
• 4 trials and six purchase auctions
• 3 basic experimental treatments
• No information about packaging
• With information-Discussion of the benefits of
  new packaging was included in instruction
• With information and Demonstration

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Experimental Design
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Experimental Results

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Confounding factors

• Sequence of purchase auctions
• Monitors
• Time of day
• Location
• Order of presentation

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Conclusion

• Laboratory experimental auctions can provide
  information useful to marketing professionals
  (particularly when incorporated in a research
  program with other traditional techniques)
• The challenge is to minimize both the incidence
  and impact of strategic behavior of bidders

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Conclusion

• Improve the behavioral properties of
  theoretically incentive-compatibility auctions
• By using terminology that deemphasizes strategic
  behavior
• By providing clear and concise explanations of
  the incentive compatibility rationale
• By allowing subjects the opportunity to learn

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Future Research

• Direct comparison between an incentive-compatible
  laboratory experimental auction the other
  established laboratory pretest market model
• Use of auctions in determining efficacy of
  potential advertising campaigns

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Critique

• This paper focuses more on illustration of the
  methodology - the specific results of the
  experiment were dealt less important
• Problems regarding the revelation of true value
  still remain
• Opens a way for implementing new methods, while
  contributing to marketing research

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• Thank you!