By the volume of the company's advertising expenses
Posted: Sun Dec 22, 2024 8:19 am
By focusing on the company's advertising costs, it is also possible to evaluate the effectiveness of differentiation. If we assume that these investments are directly related to this strategy, then the indicator will be the share of brand advertising costs in the volume of their sales.
These two methods of differentiation have one significant drawback. The fact is that the parameters voiced (the number of brands and the volume of costs associated with the indonesian numbers advertising activities of the enterprise) indicate more the strategic behavior of sellers, and not the subjective attitude of the consumer to the products of different enterprises.
Using brand loyalty analysis based on consumer surveys
In this case, product differentiation is assessed by studying brand loyalty. This requires conducting consumer surveys. However, this method is limited by the general features of subjective statistics. In addition, there is a problem of the reliability of the results obtained by this method.
Measuring the effectiveness of differentiation
Using the cross elasticity of demand indicator
The level of differentiation can be assessed by determining the cross elasticity of demand. The higher this indicator, the closer the substitutes are for different brands from the consumer's point of view and the lower the degree of product differentiation. Accordingly, the lower the cross elasticity, the higher the effectiveness of the strategy. If there are many products on the market with a value greater than 0.5, then product differentiation can be considered strong enough.
Cross elasticity of demand is an indicator that is fully consistent with economic theory. The most significant drawback of this parameter is the complexity of measurement.
Through research on brand loyalty in consumer behavior
This method uses the entropy index. To calculate it, you can use the following formula:
n
e = ∑ qi (ln(1 / qi)),
i=1
In this formula, qi represents the share of the brand (product) in the total volume of purchased goods that is used to satisfy the needs of the client being studied.
n is the number of sellers (stores) where the consumer buys the given (i-th) product.
If e → 0 (i.e. the value of the indicator approaches zero), then consumers purchase all products from the same company. In this case, customer loyalty can be considered weak, and the degree of differentiation is minimal.
To make it clearer, let's look at a specific example:
Let's say there are two stores (n = 2) and two products on the market. The total volume of purchased goods reaches 5 units. To cover their needs, a person can come to any of the stores.
In this case, the share of products 1 and 2 in each of them is 100%, or q1 = q2 = 5 / 5 = 1. It turns out that e = 1 x ln(1 / 1) + 1 x ln(1 / 1) = 0. We can conclude that goods 1 and 2 are substitutes from the consumer's perspective.
If the entropy index tends to one (e ≈ 1), then consumers equally buy goods in different stores. If e = 1, then brand loyalty is at the highest level. In this case, the customer never buys products of a brand that is different from the one he prefers. The degree of differentiation is the highest.
These two methods of differentiation have one significant drawback. The fact is that the parameters voiced (the number of brands and the volume of costs associated with the indonesian numbers advertising activities of the enterprise) indicate more the strategic behavior of sellers, and not the subjective attitude of the consumer to the products of different enterprises.
Using brand loyalty analysis based on consumer surveys
In this case, product differentiation is assessed by studying brand loyalty. This requires conducting consumer surveys. However, this method is limited by the general features of subjective statistics. In addition, there is a problem of the reliability of the results obtained by this method.
Measuring the effectiveness of differentiation
Using the cross elasticity of demand indicator
The level of differentiation can be assessed by determining the cross elasticity of demand. The higher this indicator, the closer the substitutes are for different brands from the consumer's point of view and the lower the degree of product differentiation. Accordingly, the lower the cross elasticity, the higher the effectiveness of the strategy. If there are many products on the market with a value greater than 0.5, then product differentiation can be considered strong enough.
Cross elasticity of demand is an indicator that is fully consistent with economic theory. The most significant drawback of this parameter is the complexity of measurement.
Through research on brand loyalty in consumer behavior
This method uses the entropy index. To calculate it, you can use the following formula:
n
e = ∑ qi (ln(1 / qi)),
i=1
In this formula, qi represents the share of the brand (product) in the total volume of purchased goods that is used to satisfy the needs of the client being studied.
n is the number of sellers (stores) where the consumer buys the given (i-th) product.
If e → 0 (i.e. the value of the indicator approaches zero), then consumers purchase all products from the same company. In this case, customer loyalty can be considered weak, and the degree of differentiation is minimal.
To make it clearer, let's look at a specific example:
Let's say there are two stores (n = 2) and two products on the market. The total volume of purchased goods reaches 5 units. To cover their needs, a person can come to any of the stores.
In this case, the share of products 1 and 2 in each of them is 100%, or q1 = q2 = 5 / 5 = 1. It turns out that e = 1 x ln(1 / 1) + 1 x ln(1 / 1) = 0. We can conclude that goods 1 and 2 are substitutes from the consumer's perspective.
If the entropy index tends to one (e ≈ 1), then consumers equally buy goods in different stores. If e = 1, then brand loyalty is at the highest level. In this case, the customer never buys products of a brand that is different from the one he prefers. The degree of differentiation is the highest.