22/03/2023

Quantitative Methods
in Marketing

BBA 3

Today’s Session

 Fundamentals of Hypothesis Testing

 Hypothesis testing for one variable

 Choosing the right statistical test

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Fundamentals of
Hypothesis
Testing

Hypothesis testing in Marketing:

A/B Test of App Design

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Lego use Product Development Testing to find more

inclusive product ideas

Retailers use testing to optimize sales

Does the shelf display influence the amount of time it takes for
shoppers to find the product?

 Finding Post Bran Flakes

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With 2 shelf facings, it takes on average 3.3 seconds

for shoppers to find the product.

With 4 shelf facings, it takes on average 2.1 seconds

for shoppers to find the product.

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How straight the things are on the shelf can influence

the shopper’s ability to find things.

 Finding Golden Grahams

With messy shelves, it takes on average 8,2 seconds,

20 fixations, for a shopper to find the product.

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By straightening the shelves, it reduces the time to 5.7

seconds, 16 fixations.

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Hypothesis Testing

 Hypothesis Testing is an application of statistical

inference

• Assumption (hypothesis) made about a population parameter (not

sample parameter)

• Evidence has to be evaluated statistically before arriving at a

conclusion regarding the hypothesis.

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Inferential Statistics (Estimation Process)

Estimate the population
Population parameter (e.g., parameter from sample statistic
mean μ) is unknown.

Calculate the sample

statistic (e.g. Sample
mean 𝑿 = 50)

Sample

Population

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 What is the average age of Chanel No.5 users?

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 We use hypothesis testing when we want to know about

an unknown population parameter.

 Hypothesis testing procedure:

 1. State the hypotheses (the null hypothesis and the alternative
hypothesis)

 2. Decide upon the criteria to be used in making the decision

whether to “reject” or "not reject" the null hypothesis.

 3. Gather evidence (collect data=draw a sample)

 4. Calculate the test statistic

 5. Draw conclusion (reject or not reject the H0)

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Possible Outcomes of Hypothesis Testing

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The analogy between judge’s decisions and statistical tests

Judge’s decision Statistical test

Innocence: The defendant did not
commit crime
Guilt: The defendant did commit
the crime
Standard for rejecting innocence:
beyond a reasonable doubt
Null hypothesis
Alternative hypothesis
Standard for rejecting null
hypothesis: level of statistic
significance α

α α

β β

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What does it mean the significance level?

H o :   25
H a :   25

Significance level:
The maximum allowable probability of committing a Type 1 error
(α).

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The Logic of Hypothesis Testing

 The average age of Chanel No.5 users is 50.

H0: μ = 50, H1: μ ≠ 50
 Sample the population and find the sample mean. This
is our evidence.
Population

Sample

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Hypothesis Testing Process

Problem Definition

Clearly state the null and alternative

hypotheses

Choose the relevant test and the Decide if one-or two-

appropriate probability distribution tailed test

Choose the level of significance α

Collect data and calculate test

statistic

Determine the probability associated

with the test statistic (P value)

Is the P value No
smaller than level Do not reject null
of significance α ?

Yes
Reject null

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The Logic of Hypothesis Testing

 If the sample mean is close to the stated

population mean, the null hypothesis is not
rejected.

 If the sample mean is far from the stated

population mean, the null hypothesis is rejected.

 How far is “far enough” to reject H0?

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The Logic of Hypothesis Testing

 Let’s say we collect the data. X = 38

 This evidence is different from what we’ve hypothesized (mean
population age = 50).

What is the probability of getting a sample mean age of 38, if the true
mean age is 50?

 If the null hypothesis were true, the probability of getting such a different sample mean
would be very small, so you reject the null hypothesis .

 In other words, getting a sample mean of 38 is so unlikely if the population mean was
50, you conclude that the population mean must not be 50.

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The Central Limit Theorem

Key Concepts:
• Regardless of population distribution shape
• If sample size is “sufficiently” large (n>=30), sampling
distribution of the sample means will be approximately normal
• The greater the sample size, the better the approximation.

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The Central Limit Theorem

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The Logic of Hypothesis Testing

Setting the significance level determines where we draw the line for rejecting or not
rejecting the H0.

Reject the H0 Do not reject H0 Reject the H0

Sampling
α/2
Distribution of 𝑥̅
α/2

Critical Critical X
20 μ = 50
value value
If H0 is true ... then you reject the
If it is unlikely that you
null hypothesis that
would get a sample mean
μ = 50.
of this value (say 20) ... ... When in fact this were
the population mean…

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The Logic of Hypothesis Testing

 How far is “far enough” to reject H0?

Before doing the hypothesis testing, researchers

set the level of significance of the test α.
(0.05, 0.10, 0.01 are commonly used significance levels.)

The critical value of a test statistic is thus

determined by the level of significance

The critical value of a test statistic creates a

“line in the sand” for decision making -- it
answers the question of how far is far enough.

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Level of Significance, Critical Values

and the Rejection Region

H0: μ = 50 Level of significance = a

H1: μ ≠ 50

Region of a /2 a /2 Region of
Rejection Rejection
Region of
Non-Rejection

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Critical Values

“Too Far Away” From the Mean of Sampling Distribution

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The P Value
A P-value is the probability that the observed data (or more extreme data)
would have occurred if we assume that the null hypothesis is true.

Rejeter H0 Ne pas rejeter H0 Rejeter H0

Sampling
Distribution of 𝑥̅
P/2
P/2

Critical Critical X
20 μ = 50
value value
If H0 is true
If the P value is smaller than
a, we reject H0.
A very small P value means that it’s very unlikely to
observe such extreme data when H0 is true.

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Type I & II Error

 Type I Error:
 Reject a true null hypothesis.
 A type I error is a “false alarm.”
 The probability of a Type I Error is a.
 Called level of significance of the test.
 Set by researcher in advance.
 Type II Error:
 Failure to reject a false null hypothesis.
 Type II error represents a “missed opportunity.”
 The probability of a Type II Error is β.

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Type I & II Error Relationship

 Type I and Type II errors cannot happen at

the same time.
 A Type I error can only occur if H0 is true.
 A Type II error can only occur if H0 is false.

If Type I error probability (a) , then

Type II error probability (β)

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Type I & II Error Relationship

Type I and Type II errors cannot happen at the same time.

 A Type I error can only occur if H0 is true. α = 0.05

 A Type II error can only occur if H0 is false.

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Type I & II Error Relationship

Type I and Type II errors cannot happen at the same time.

 A Type I error can only occur if H0 is true. α = 0.05

 A Type II error can only occur if H0 is false. α = 0.01

Do not reject H0 Reject H0

If Type I error probability (a) ,

then Type II error probability (β)

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How to reduce both Type 1 & 2 Error

?

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How to reduce both Type 1 & 2 Error

?
Increase the sample size!

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Statistical Significance
vs. Practical Significance

 Statistically significant results (rejecting the null

hypothesis) are not always of practical
significance.
 This is more likely to happen when the sample size
gets very large.
 Practically important results might be found to be
statistically insignificant (failing to reject the null
hypothesis.)
 This is more likely to happen when the sample size
is relatively small.

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Stating the hypotheses

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Hypothesis Testing Process

Problem Definition

Clearly state the null and alternative

hypotheses

Choose the relevant test and the Decide if one-or two-

appropriate probability distribution tailed test

Choose the level of significance α

Collect data and calculate test

statistic

Determine the probability associated

with the test statistic (P value)

Is the P value No
smaller than level Do not reject null
of significance α ?

Yes
Reject null

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What is a Hypothesis?

 A hypothesis is a claim (assertion) about a

population parameter:

• population mean:
Example: The mean monthly cell phone bill
in this city is μ = €28.
• population proportion:
Example: With the new landing page design,
the conversion rate is π = 75%.

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What is a hypothesis test?

 The purpose of hypothesis tests is to draw a

conclusion about an unknown population parameter

 Every hypothesis test has both a null hypothesis and

an alternative hypothesis

H o :   33
H a :   33 claim

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3 rules of the hypothesis statement

 1. The null hypothesis (H0) must have the equality

sign (=, ≤, ≥).

 2. The alternative hypothesis (H1, Ha) is the

opposite of the null hypothesis. And the two
combined should cover all possible values of the
population parameter (μ, π)

 3. The research hypothesis is usually put in H1.

*The research hypothesis is the claim researchers wish to support.

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Stating the Hypothesis

 Is always about a population parameter, not

about a sample statistic .

H 0 : μ  250 H 0 : X  250

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Stating the Hypothesis

 A fast-food restaurant claims that customers on

average spend more than 33 minutes dinning
in the restaurant.

H0 :

HA :

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Stating the Hypothesis

 Disneyland Paris managers claim that the

average waiting time for the Rocky Mountain
ride is at least 23 minutes.

H0 :

HA :

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Stating the Hypothesis

 Disneyland Paris has decided to add a new ride—
Spider Man ride. The company believes that the new
ride will be able to reduce the waiting time for their
current most popular ride—Rocky Mountain Ride to
less than 15 minutes.

H0 :

HA :

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Stating the Hypothesis

 The product manager of Chanel parfum claims that

despite Chanel No. 5 is designed to appeal to a wide
range of people, the average age of its users is 50.

H0 :

HA :

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Two-Tail Tests vs. One-Tail Tests

Two-Tail Test
H0: μ = 50
Example: The average age of Chanel N.5 users is
H1: μ ≠ 50 claimed to be 50.

One-Tail Test (Lower Tail)

A test in which the null hypothesis can be rejected if
H0: μ ≥ 50 the sample mean is inconsistently smaller than the
hypothesized population mean.
H1: μ < 50
Example: The average age of Chanel N.5 users is
claimed to be younger than 50.

One-Tail Test (Upper Tail)

A test in which the null hypothesis can be rejected if
H0: μ ≤ 50 the sample mean is inconsistently larger than the
hypothesized population mean.
H1: μ > 50
Example: The average age of Chanel N.5 users is
claimed to be older than 50.

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Types of Hypothesis Testing

Two-Tail Test

H0: μ = 50 If the sample mean is inconsistent (higher or

H1: μ ≠ 50 lower) with the null hypothesis, we reject Ho

Reject Ho (inconsistently Reject Ho (inconsistently

small sample mean) large sample mean)
α/2 α/2

Reject H0 Do not reject H0 Reject H0

Lower critical value Upper critical value

H0: μ = 50

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Types of Hypothesis Testing

One-Tail Lower-Tail Test

H0: μ ≥ 50 If the sample mean is inconsistently lower than

H1: μ < 50 the hypothesized population mean, we reject Ho

Reject Ho (inconsistently
large sample mean)

Reject H0 Do not reject H0

Lower critical value
H0: μ = 50

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Types of Hypothesis Testing

One-Tail Upper-Tail Test

H0: μ ≤ 50 If the sample mean is inconsistently higher than

H1: μ > 50 the hypothesized population mean, we reject Ho

Reject Ho
(inconsistently large
sample mean)

Do not reject H0 Reject H0

H0: μ = 50 Upper critical value

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 Hypothesis Testing for

One Variable

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Hypothesis Testing for One Variable

 In marketing research, the researcher is often interested in

making statements about a single variable against a known
or given standard.

 Examples:
 The market share for the new product would reach at
least 15 percent.
 More than 65 percent of customers would favor the new
packaging design.
 The conversion rate of the new website should exceed 5
percent.
 The average satisfaction of the hotel should be higher
than 3.0 (the neutral value on a 5-point scale).

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Hypothesis Testing for Single Population

 Example: The average age  Example: The proportion of smart

of Chanel No.5 users is 50. speaker users in France exceeds 20%.
H0: μ = 50
H0: π ≤ 20%
H1: μ ≠ 50
H1: π > 20%

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 Hypothesis Testing for

Two Variables

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Analyzing two variables

What types of variable are they?

Both are categorical Y = Numerical variable Y = Numerical variable

variables X = Categorical Variable X = Numerical variable

Simple
Chi Square Comparing Means
Regression

How many groups are you comparing?

Comparing Two Groups Comparing More than Two Groups

Do the two groups come from independent samples?

Yes No

Independent-Sample T Test Paired-Sample T test One-Way ANOVA

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