A Normative Methodology for Modeling Consumer Response to Innovation

Consumer response determines the success or failure of new products and services. This paper proposes a methodology that integrates knowledge in the fields of psychometrics, utility theory, and stochastic choice theory to improve the design of new products and services. The methodology consists of a consumer response and a managerial design process. The design process is one of idea generation, evaluation, and refinement, while the consumer response is based on consumer measurement, models of the individual choice process, and aggregation of predictions of individual choices. The individual response model processes the consumer measures by first reducing them to an underlying set of perceptual dimensions. Then the measures of perception are combined to produce a scalar goodness measure for each choice alternative through a process called “compaction.” Next, homogeneous segments are defined based on similar preferences. The goodness measures for each consumer or segment are linked to probability of choice for the new products and services and for competing products and services. In each step theoretical, empirical, and statistical issues are identified. Various techniques are introduced and described for each phase. Selected techniques are demonstrated based on the survey data collected at MIT to support the design of a health maintenance organization (HMO) and in the consumer market to evaluate a new deodorant.