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Economic valuation of product features

Author

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  • Greg Allenby
  • Jeff Brazell
  • John Howell
  • Peter Rossi

Abstract

We develop a market-based paradigm to value the enhancement or addition of features to a product. We define the market value of a product or feature enhancement as the change in the equilibrium profits that would prevail with and without the enhancement. In order to compute changes in equilibrium profits, a valid demand system must be constructed to value the feature. The demand system must be supplemented by information on competitive offerings and cost. In many situations, demand data is either not available or not informative with respect to demand for a product feature. Conjoint methods can be used to construct the demand system via a set of designed survey-based experiments. We illustrate our methods using data on the demand for digital cameras and demonstrate how the profits-based metric provides very different answers than the standard welfare or Willingness-To-Pay calculations. Copyright Springer Science+Business Media New York 2014

Suggested Citation

  • Greg Allenby & Jeff Brazell & John Howell & Peter Rossi, 2014. "Economic valuation of product features," Quantitative Marketing and Economics (QME), Springer, vol. 12(4), pages 421-456, December.
    • Handle: RePEc:kap:qmktec:v:12:y:2014:i:4:p:421-456
    DOI: 10.1007/s11129-014-9150-x
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    References listed on IDEAS

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    More about this item

    Keywords

    Product features; Conjoint; Equilibrium profits; Bayesian analysis; C11; C23; C25; C81; D12; D43; K11; L13; M3;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • C81 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Microeconomic Data; Data Access
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • K11 - Law and Economics - - Basic Areas of Law - - - Property Law
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • M3 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising

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