The Truth is Out There! How External Validity Can Lead to Better Marketing Decisions

Abstract

Marketing managers typically have to use and integrate many pieces of data and marketing intelligence when taking decisions such as whether to launch a product and, if so, at what price. Conjoint experiments and analysis remain popular marketing research tools with business practitioners to test and measure how the market will react to different actions. There is a growing body of work that focuses on, first, how to construct the experiments so that they better represent real market conditions and, second, the use of sophisticated model specifications that provide information on consumers’ responses. The market researcher typically uses internal validation for model validity – a comparison of model prediction and within-sample holdout data. We contend in this paper that customers and users of market research information need to adopt a different and wider meaning of validity, referred to as external validity, to facilitate improved decision making. In this research, a case study is used as an example to demonstrate how marketing managers can use the information from a choice-based conjoint derived choice model differently depending on the manner in which the model validation is carried out.