Economic valuation of product features

Greg M. Allenby, Jeff D. Brazell, John Richard Howell, Peter E. Rossi

Research output: Contribution to journalArticle

18 Scopus citations

Abstract

We develop a market-based paradigm to value the enhancement or addition of features to a product. We define the market value of a product or feature enhancement as the change in the equilibrium profits that would prevail with and without the enhancement. In order to compute changes in equilibrium profits, a valid demand system must be constructed to value the feature. The demand system must be supplemented by information on competitive offerings and cost. In many situations, demand data is either not available or not informative with respect to demand for a product feature. Conjoint methods can be used to construct the demand system via a set of designed survey-based experiments. We illustrate our methods using data on the demand for digital cameras and demonstrate how the profits-based metric provides very different answers than the standard welfare or Willingness-To-Pay calculations.

Original languageEnglish (US)
Pages (from-to)421-456
Number of pages36
JournalQuantitative Marketing and Economics
Volume12
Issue number4
DOIs
StatePublished - Nov 23 2014

All Science Journal Classification (ASJC) codes

  • Economics, Econometrics and Finance (miscellaneous)
  • Marketing

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    Allenby, G. M., Brazell, J. D., Howell, J. R., & Rossi, P. E. (2014). Economic valuation of product features. Quantitative Marketing and Economics, 12(4), 421-456. https://doi.org/10.1007/s11129-014-9150-x