MGT 511: Hypothesis Testing and Regression Lecture 9: Applications

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MGT 511 Hypothesis Testing and
RegressionLecture 9 Applications

• K. SudhirYale SOM-EMBA

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What we did

• Hypothesis Testing
• When you cant do a census, you have to sample to
  get best estimates of the population. Systematic
  Approach to figure out if sample result is due to
  just chance occurrence or really true.
• Regression Analysis
• To quantify relationships between variables.
• How much does sales change with prices,
  advertising and sales force effort ?
• How do long term interest rates (10 year treasury
  bonds) relate to short-term interest rates
  (overnight federal funds and 3 month treasury
  bills)?
• Hypothesis Testing used to see if these
  relationships truly exist.

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Hypothesis Testing Key Issues

• One Sample Means and Proportions
• Two Sample Difference Paired Samples
• Two Sample Difference Independent Samples

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Hypothesis Generation and Testing

• Freakonomics
• Abortion Debate
• Teacher Cheating
• RBC--Mortgage Promotion
• Capital One

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Regression Applications

• Prediction
• Forecast of Sales
• Forecasting who are likely prospects for catalog
  purchases
• Forecasts of who are likely to default on a bank
  loan
• Forecasts of who are likely to succeed in an MBA
  program
• Benchmarking
• How much should a firm donate to charity?
• What should a newspaper charge for
  advertisements?
• How much should a realtor recommend as the
  selling price for a home?
• What should be a reasonable salary for an
  employee with certain qualifications and job
  requirements
• Deciding on the quotas/bonuses for a salesperson
• What should be your insurance rates?

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Regression Applications

• Describe the relationships between variables
• Relative Volatility of a stock (beta)
• Relationship between EPS and Stock Prices
• Relationship between rate of return and maturity
  period for short-term bond fund
• Using the estimated equations to help make
  decisions
• What should be the optimal price and advertising
  given demand equation?
• How should I price my product given the
  experience curve?

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The Impact of AutobyTel on Car Pricing(Fiona
Scott Morton)

• Sample Research Questions
• How much do consumers who use AutobyTel gain in
  terms of prices?
• Does the presence of an AutobyTel Franchise
  reduce prices for consumers?
• Do cowboys or cowards save more by using
  AutobyTel?

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Regression Equation

• Bunch of other control variables were used
• Car Related Variables
• Car Model Dummies
• Month of Sale Dummies
• Region Dummies
• Model Year (To account for recency)
• Whether consumer traded-in a vehicle
• Dealers cost of car
• Demographic Variables of individual
• Income, Education, Gender

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Main Result

• Partial Regression Equation
• Ln(Price) Intercept -0.98AutobyTelUsed
  -0.49AutobyTelPresent.
• How much does a consumer who used AutobyTel gain?
• How much does the presence of AutobyTel in an
  area help in terms of prices to all consumers

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Some Additional Results involving more
Complicated Analysis

• Actually, here we only get the average relative
  gain for all AutobyTel consumers
• Would the gain be greater for people who do not
  like to bargain? (Cowards)
• Would the gain be greater for people who like to
  haggle? (Cowboys)
• Additional Analysis showed that it is the
  cowards who gain more. Their gain is actually
  close to 2.
• In additional analysis they show that African
  Americans and Hispanics pay 2 more for cars, but
  with the use of Internet they pay roughly the
  same prices as Whites and Asians.

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The reality check

• Welcome Canine User 39
• Mutt, mostly black lab, enjoys pepperoni,
  fetching, and sniffing other dogs heinies
• Updating profile

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Why do manufacturers pay slotting allowances to
retailers? (Sudhir)

• Slotting Allowances
• Lump-sum advance payments made by manufacturers
  to retailers to stock new products
• A third of new product marketing budgets (about
  9 billion)
• Slotting allowances are controversial
• Subject to Congressional Investigation in 1999
• Small business owners testified in masks for fear
  of retaliation with electronically altered voices
• Bureau of Alcohol, Tobacco and Firearms banned
  slotting allowance
• Federal Trade Commission allows slotting
  allowances

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Sample Research Questions

• Is it to compensate retailers for the opportunity
  cost of shelf space?
• Do manufacturers pay this voluntarily or
  retailers force them to pay slotting allowances?
• Are manufacturers using this to signal their
  products likelihood of success?
• Slotting Allowances and Retail Competition
• Do slotting allowances decline when more
  retailers have accepted the product?
• Do slotting allowances increase when more
  retailers have accepted the product in order to
  reduce retail competition?

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Results

• Dependent Variable Probability(Slotting
  Allowances)

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Rating and Likelihood of Slotting
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Differences between Large and Small Manufacturers
of the Effect of Competing Stores
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Key Findings

• Slotting allowances are offered
• More when the opportunity costs of shelf space is
  higher
• most by manufacturers with medium reputations
  this is where there is the greatest uncertainty
• more when manufacturers are sure about potential
  success of product (they are signaling to
  retailers)
• More when more retailers have accepted the
  product (Very surprising to me)
• However differences between large and small
  retailers.

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How does Word of Mouth affect TV Show Ratings?
(Dina Mayzlin)

• Word of Mouth is hard to measure
• Internet Chat Rooms provide records of a subset
  of such conversations
• Can we develop measures of buzz to serve as a
  leading indicator of TV Show Ratings?

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Regression Equation

• Carefully controlled for all other types of
  effects such as show timings, network effects

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Key Findings

• Past Ratings are quite significant
• Surprise
• Past of Posts are not significant
• Dispersion of Posts are very significant and have
  an important impact on ratings
• Important Finding
• Because people usually think of WOM as volume of
  Buzz
• Dina shows this is the wrong variable to focus
  on!!!

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Conclusion

• Regression can be used for a wide range of
  managerially useful applications
• Great at forecasting, benchmarking, description
  of relationships and helps in managerial decision
  making
• Usefulness and Relevance of Course
• Ready access to data with the availability of
  computers, the use of quantitative methods in
  decision making keeps rising
• As a manager and decision maker, comfort with
  regression should help you appreciate
  quantitative results provided to you and ask the
  right questions

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THANK YOU