Statistical Testing

MKT 367
Marketing Research

April 16, 2013
Quick Recap
Data Processing:

1. Coding

2. Data Entry

3. Validation and Editing

4. Cleaning the Data

5. Statistical Analysis
Agenda
Hypothesis Testing

Common Statistical Tests

One Mean Z and t tests

Two Mean Z and t tests

Paired observations t test
Agenda
Hypothesis Testing

Common Statistical Tests

One Mean Z and t tests

Two Mean Z and t tests

Paired observations t test

The average price that college students are
willing to pay is $10,000

The average price that families with young
children are willing to pay is $30,000
The average familiarity with the University of
Wisconsin-La Crosse for community members
is 4.95/5.00

The average familiarity with the University of
Wisconsin-La Crosse for La Crosse visitors is
2.95/5.00



Average for Ad 1 = 4.95/5.00


Average for Ad 2 = 4.94/5.00
Practical
Difference
Statistical
Difference
Mathematical
Difference
Hypothesis Testing
Hypothesis

A research idea that can serve as a premise or a supposition to organize
certain facts and thereby guide observations

A possible answer to a research question

Not yet proven true

Stated in population parameters, not sample statistics (i.e. Greek letters not
English)
Commonly used/tested:
Means:
Proportions: p
Variances:

HYPOTHESIS TESTING

The process of determining whether or not a given hypothesis is true

Hypothesis Testing (cont)
The average word of mouth for the 2012 Summer
Session was 4.00 out of 5.00 for all students

The average satisfaction with the waiting list was
greater than 4.00 for all students

Juniors are less satisfied with the 2012 Summer
Session than Sophomores


Hypothesis Testing (cont)

Hypothesis Testing Procedure

1. Specify the null and alternative hypotheses

2. Choose the appropriate statistical test

3. Specify the desired level of significance

4. Compute the value of the test statistic

5. Compare the test statistic to the critical value

6. State the conclusion and discuss the practical
significance
1. Specify the Hypotheses
Null Hypothesis

Denoted by H
0


Is an assertion (belief) about a population parameter

This is the assertion that we hold to be true until there
is sufficient statistical evidence to conclude otherwise

Typically a statement of no effect, no relationship, or no
difference among the variables (independence)
1. Specify the Hypotheses (cont)
Alternative Hypothesis

Denoted by H
1

Negates the assertion stated in the null hypothesis

Covers all situations not covered by the null
hypothesis

Typically a statement in which some effect,
relationship, or difference is expected
(dependence)
1. Specify the Hypotheses (cont)
Null (H
0
) and Alternative (H
1
) Hypotheses are:

Mutually exclusive
Only one can be true at any single time

Collectively exhaustive
Together they cover all possibilities, so one or the
other must be true

FALSIFIABLE
1. Specify the Hypotheses (cont)
1. Identify the specific claim to be tested and put it
into symbolic form

2. Identify all the other possibilities not covered by the
claim in part 1

Rule of Thumb
The statement that contains some form of
equality (=, >, s) is the null hypothesis (H
0
)
The statement that contains some form of
inequality (,>,<) is the alternative hypothesis
(H
1
)
Hypothesis Testing (cont)
Example 1

Bo Ryan claims
that his basketball team
scores 86 points per
Game on average.
How would you set up
the null and alternative
hypothesis to test his claim?
Hypothesis Testing (cont)
Example 2

Government agencies are devoted to
ensuring that food producers package their
products such that the volume listed on labels
is correct. For example, bottles of beer labeled
12 oz. must contain at least 12 oz. It is
impossible to check all bottles, so sampling
is used in order to check whether there is
enough evidence to infer that the mean volume
of all bottles is under 12 oz.
Hypothesis Testing (cont)
The average word of mouth for the 2012 Summer
Session was 4.00 out of 5.00 for all students

The average satisfaction with the waiting list was
greater than 4.00 for all students

Juniors are less satisfied with the 2012 Summer
Session than Sophomores


2. Choosing the Appropriate Statistical Test
Retrospectively, the choice is made given the
hypothesis and situational characteristics
(sampling procedure, sample size, level of
measurement, etc.)



Proactivelythe marketing research process is
designed after the hypothesis

Flashback: The Marketing Research Process
1
Identify the Problem
and State the
Research Objectives
2

Create the Research
Design
3

Choose the Research
Method
4

Select the Sampling
Procedure
5

Collect the Data
6

Analyze the Data
7

Write and Present
the Report
8

Follow-up
3. Specify the Desired Level of Significance
Choose the probability that is too low to fail to
reject the hypothesis ( level)

Rule of Thumb: = 0.05

AND

Get the Critical Value
Find the correct value from the table.
4. Compute the Value of the Test Statistic
Use the appropriate formula to calculate the
value of the test statistic

5. Compare the Test Statistic to the Critical Value

Test Statistic < Critical Value Fail to Reject H
0

Test Statistic > Critical Value Reject H
0



5. Compare the Test Statistic to the Critical Value
Shortcut:

p-value < Reject H
0

p-value > Fail to Reject H
0


p-value is the probability that you would get
the test result given that the null hypotheses is
true
6. State the Conclusion and Discuss the Practical Significance
What does Fail to Reject H
0
or Reject H
0
mean?

Common Statistical Tests
One Mean
z test
t test

Two Means
z-test
t-test

Paired Observations
t test

Proportions
One sample: z-test
Two samples: z-test

More Than Two
Means
ANOVA

Goodness of Fit
Chi-Square

One Mean Statistical Tests

Z test
n 30
H
0
: =, , or #
H
1
: , >, or < #




t test
n < 30
note: df = n-1
H
0
: =, , or #
H
1
: , >, or < #


n
X
Z
o

=
n
S
X
t

=
One Mean Z Test Example
Ford substituted a different engine in cars that
were known to have an average mpg rating of
31.5 on the highway. Ford wants to test whether
the engine changes the mpg rating of the car
model. A random sample of 100 trial runs gives
= 29.8 mpg and s = 6.6 mpg.

Is the average mpg rating on the highway for
cars using the new engine different from the
mpg rating for cars using the old engine?
n
X
Z
o

=
One Mean t Test Example
RE/MAX conducted a survey to determine
customer satisfaction with recent changes to
company policies. Suppose that the average
customer satisfaction before the changes was 77 (scale
of 0 100). A random sample of 25 people who
purchased a home after the changes found average
customer satisfaction to be 84 and the sample
standard deviation was found to be 28.

Did customer satisfaction improve?
Paired Observations
Observes the same group of person or things

Before and After

At different times or under different circumstances

Why pair samples?

Removes extraneous variation
Paired Observations (cont)
Two Tailed Test
H
0
:
D
= 0
H
1
:
D
= 0


Right Tailed Test
H
0
:
D
s 0
H
1
:
D
> 0


Left Tailed Test
H
0
:
D
> 0

H
1
:
D
< 0

D
=
1

2

Paired Observations (cont)
Always a t-test with degrees of freedom of n-1

n
s
D
t
D
D

=
n
Di
D
n
i

=
=
1
1
2 2

n
D n D
s
i
D
D
i
= X
i1
X
i2
Paired Observations Example 1
The performance ratings of two sports cars, the
Chevrolet Camaro and the Dodge Challenger,
are to be compared. A random sample of 40
drivers is selected to drive the two cars. Each
driver drives each car once and the time of each
test drive is recorded. The average difference in
time (Chevrolet Dodge or

) is 5.0 seconds and

S
D
= 2.3.

Which model has higher performance?
Paired Observations Example 2
A study is undertaken to determine how
consumers reach to energy conservation efforts.
A random group of 60 families is chosen. Their
consumption of electricity is monitored in a
period before and after the families are offered
certain discounts to reduce their energy
consumption. The average difference in energy
consumption (Before After or

) is 0.2
kilowatts and S
D
= 1.0 kilowatts.

Did conservation efforts reduce consumption?
Two Means Statistical Tests
Problem: We want to compare the average
values of two independent
populations on a variable

Do men charge more on their VISA credit cards
than women?

Does one product outsell another?

Does one ad generate more sales than another?
Two Means Statistical Tests (cont)
Independent Populations

Observes different groups of persons or things

At same time or under the same circumstances

The values of one population do not influence
the values of the other population

Two Means Statistical Tests (cont)
Possible Hypotheses:

Two Tailed Test
H
0
:
1
-
2
= D
0
H
1
:
1
-
2
D
0


Right Tailed Test
H
0
:
1
-
2
D
0
H
1
:
1
-
2
> D
0


Left Tailed Test
H
0
:
1
-
2
D
0
H
1
:
1
-
2
< D
0



Notes:

1. D
0
= Hypothesized
Difference or (
1
-
2
)
0


2. D
0
does not have to equal 0,
although it often does

3. Must specify which
population is
1
and
2

Two Means Statistical Tests (cont)
When to Use a Z- or a t-Test

If population
2
is known use a Z-test

If population
2
is not known:

Use a Z-Test if n 30 for both samples

Use a t-Test if n < 30 for either sample
Two Means Statistical Tests (cont)
Z Test Formula:
( )
2
2
2
1
2
1
0 2 1
Z
n n
D x x
o o
+

=
Two Means Statistical Tests (cont)
t Test Formula

n < 30

note: df = n
1
+ n
2
2

Where:


( )
|
|
.
|

\
|
+

=
2 1
2
0 2 1
1 1
t
n n
s
D x x
P
( ) ( )
( ) 2
1 1

2 1
2
2 2
2
1 1
2
+
+
=
n n
s n s n
s
P
Two Mean Statistical Tests Example 1
Until a few years ago, the credit card industry was considered to
segmented with higher income consumers using American Express
and lower income consumers using Visa. Over the last few years,
however, Visa intensified efforts to break into the higher income
market segment by using magazine and television advertising. Visa
hired a consulting firm to determine if average monthly charges on the
American Express Gold Card are equal to the average monthly charges
on the Preferred Visa Card.

A random sample of 1,200 Preferred Visa cardholders revealed an
average monthly charge (x
1
) of $452 and an independent random
sample of 800 Gold cardholders revealed an average monthly charge
(x
2
) of $523. Assume s
1
= $212 and s
2
= $185.

Is there evidence to conclude that the average monthly charge of
American Express cardholders is different than the average monthly
charge of Visa cardholders?

Two Means Statistical Tests Example 2
Suppose that Duracell wants to demonstrate that
their size AA batteries last on average 45 minutes
longer than Energizers size AA batteries. Two
independent random samples of 100 batteries of
each kind are selected and the batteries are run
continuously until they are no longer operational.
The sample average life for Duracell is
1
= 308
minutes and
2
= 254 minutes. Assume s
1
= 84
minutes and s
2
= 67 minutes.

Is there evidence to support Duracells claim that its
batteries last on average 45 minutes longer than
Energizers batteries?
Two Means Statistical Tests Example 3
Apple wants to test whether a small price
reduction is enough to increase sales of the iPod.
Randomly chosen data on 15 weekly sales totals
at Apple Stores in a given area before the price
reduction show a sample man of $6,598 and a
sample standard deviation of $844. A random
sample of 12 weekly sales totals after the small
price reduction gives a sample mean of $6,870
and a sample standard deviation of $669.

Is there evidence to conclude that a small price
reduction is enough to increase sales?
Today In Review
A hypothesis is a possible answer to a research
question

The best status a theory can hope to achieve is not yet
disproven

Hypotheses are tested using a 6 step procedure

One means Z or t test to test

Paired observations t-test

Two means Z or t test