2007 by Oxford University Press, Inc. (Adapted by OUP India, 2008) Slide 1

PowerPoint Slides Prepared by Robert F. Brooker, Ph.D.
Copyright
2007 by Oxford University Press, Inc. (Adapted by OUP India, 2008)
Slide 1
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Slide 2
Marketing Research Approaches to

Demand Estimation
Consumer Surveys
data from survey questions
Observational Research
data from observed behavior
Consumer Clinics
data from laboratory experiments
Market Experiments
data from real market tests
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Regression Analysis
Year
10
44
40
11
42
12
46
11
48
12
52
13
54
13
58
14
56
10
15
60
Scatter Diagram
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Regression Analysis
Regression Line: Line of Best Fit
Regression Line: Minimizes the sum of
the squared vertical deviations (e t) of
each point from the regression line.
Ordinary Least Squares (OLS) Method
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Ordinary Least Squares (OLS)

Model:
Yt a bX t et
Yt a bX
t
et Yt Yt
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Objective: Determine the slope and
intercept that minimize the sum of
the squared errors.
n
t 1
t 1
t 1
2
2
)2
(
Y
Y
)
(
Y
bX
t t t t
t
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Estimation Procedure
n
(X
t 1
X )(Yt Y )
2
(
X
X
)
t
a Y bX
t 1
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Estimation Example
Time
Xt
1
2
3
4
5
6
7
8
9
10
10
9
11
12
11
12
13
13
14
15
120
n 10
44
40
42
46
48
52
54
58
56
60
500
t 1
X t 120
12
n
10
-6
-10
-8
-4
-2
2
4
8
6
10
n
Yt 500
(X
t 1
t 1
Yt 500
50
10
t 1 n
Yt Y
-2
-3
-1
0
-1
0
1
1
2
3
X t 120
t 1
Xt X
Yt
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t 1
( X t X )2
12
30
8
0
2
0
4
8
12
30
106
4
9
1
0
1
0
1
1
4
9
30
X ) 2 30
106
b
3.533
30
X )(Yt Y ) 106
a 50 (3.533)(12) 7.60
(X
( X t X )(Yt Y )
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Estimation Example
n
n 10
n
X
t 1
t 1
t 1
Y
t 1
500
Yt 500
50
10
t 1 n
X ) 30
X )(Yt Y ) 106
a 50 (3.533)(12) 7.60
(X
120
106
b
3.533
30
(X
t 1
X t 120
12
n
10
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Tests of Significance
Standard Error of the Slope Estimate
sb
(Yt Y )
(n k ) ( X t X )
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e
(n k ) ( X
2
t
X )2
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Example Calculation
Yt
et Yt Yt
et2 (Yt Yt ) 2
( X t X )2
44
42.90
1.10
1.2100
40
39.37
0.63
0.3969
11
42
46.43
-4.43
19.6249
12
46
49.96
-3.96
15.6816
11
48
46.43
1.57
2.4649
12
52
49.96
2.04
4.1616
13
54
53.49
0.51
0.2601
13
58
53.49
4.51
20.3401
14
56
57.02
-1.02
1.0404
10
15
60
60.55
-0.55
0.3025
65.4830
30
Time
Xt
Yt
10
e (Yt Yt )2 65.4830
t 1
2
t
t 1
(X
t 1
(Y Y )
( n k ) ( X X )
2
X ) 30
2
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sb
65.4830
0.52
(10 2)(30)
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Example Calculation
n
t 1
t 1
2
2
(
Y
Y
)
t t t 65.4830
2
(
X
X
)
30
t
t 1
(Yt Y )
65.4830
sb
0.52
2
( n k ) ( X t X )
(10 2)(30)
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Calculation of the t Statistic
b 3.53
t
6.79
sb 0.52
Degrees of Freedom = (n-k) = (10-2) = 8

Critical Value at 5% level =2.306
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Decomposition of Sum of Squares
Total Variation = Explained Variation + Unexplained Variation
2
2
(Yt Y ) (Y Y ) (Yt Yt )
2
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Coefficient of Determination
R2
Explained Variation
TotalVariation
(
Y
Y
)
2
(
Y
Y
)
t
373.84
R
0.85
440.00
2
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Coefficient of Correlation
r R 2 with the sign of b
1 r 1
r 0.85 0.92
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Multiple Regression Analysis
Model:
Y a b1 X 1 b2 X 2 L bk ' X k '
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Adjusted Coefficient of Determination
(n 1)
R 1 (1 R )
(n k )
2
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Analysis of Variance and F Statistic
F
Explained Variation /(k 1)

Unexplained Variation /(n k )
R 2 /(k 1)
F
(1 R 2 ) /(n k )
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Problems in Regression Analysis

Multicollinearity: Two or more
explanatory variables are highly
correlated.
Heteroskedasticity: Variance of error
term is not independent of the Y
variable.
Autocorrelation: Consecutive error
terms are correlated.
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Durbin-Watson Statistic
Test for Autocorrelation
n
2
(
e
e
)
t t 1
t 2
2
e
t
t 1
If d = 2, autocorrelation is absent.
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Steps in Demand Estimation
Model Specification: Identify Variables

Collect Data
Specify Functional Form
Estimate Function
Test the Results
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Functional Form Specifications

Linear Function:
QX a0 a1 PX a2 I a3 N a4 PY L e
Power Function:
ln QX ln a b1 ln PX b2 ln PY
QX a( PXb1 )( PYb2 )
Estimation Format:
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Chapter 4 Appendix
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Getting Started
Install the Analysis ToolPak add-in from
the Excel installation media if it has not
already been installed
Attach the Analysis ToolPak add-in
From the menu, select Tools and then AddIns...
When the Add-Ins dialog appears, select
Analysis ToolPak and then click OK.
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Entering Data
Data on each variable must be entered
in a separate column
Label the top of each column with a
symbol or brief description to identify
the variable
Multiple regression analysis requires
that all data on independent variables
be in adjacent columns
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Example Data
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Running the Regression

Select the Regression tool from the
Analysis ToolPak dialog
From the menu, select Tools and then
Data Analysis...
On the Data Analysis dialog, scroll down
the list of Analysis Tools, select
Regression, and then click OK
The Regression tool dialog will then be
displayed
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Select the Data Ranges

Type in the data range for the Y variable
or select the range on the worksheet
Type in the data range for the X
variable(s) or select the range on the
worksheet
If your ranges include the data labels
(recommended) then check the labels
option
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Select an Output Option

Output to a selected range
Selection is the upper left corner of the
output range
Output to a new worksheet

Optionally enter a name for the worksheet
Output to a new workbook

And then click OK
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Regression Output
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Multiple Regression Data
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Regression Output
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PowerPoint Slides Prepared by Robert F. Brooker, Ph.D.