NATIONAL ECONOMICS UNIVERSITY

ADVANCED EDUCATIONAL PROGRAM

STATISTICS FOR BUSINESS AND

ECONOMICS

GROUP ASSIGNMENT

Class: Advanced Accounting 54A

Students:

Ng Thanh H 11121048

ng Khnh Linh.. 11122156

Trn Bch Phng. 11123076

Khng Th Thy Tin. 11123948

m Th Tuyt. 11124496

Ha Noi, 11/2014

2

PART I

RESEARCH STUDY

Perception towards Online Advertising and Its

Influences on Consumer Behavior

3

Contents

Figures & Table ............................................................................................................................................ 3

METHOD ..................................................................................................................................................... 5

Participants ................................................................................................................................................ 5

Research Design........................................................................................................................................ 6

Measures ................................................................................................................................................... 6

FINDINGS AND DISCUSSION .................................................................................................................. 7

Findings .................................................................................................................................................... 7

Students tendency towards growth potential of online advertising ..................................................... 7

Students perception towards online advertising .................................................................................. 7

Online advertising sometimes is useful and informative ...................................................................... 7

Online advertising and consumer decision making .............................................................................. 8

Quality of services and products advertised through online ................................................................. 8

Discussion ................................................................................................................................................. 9

Students have positive disposition towards growth potential of online advertising ............................. 9

Online advertising sometimes is useful and informative .................................................................... 10

Students use online advertising as a service to aid in consumer decision making .............................. 12

Quality of services and products advertised through online advertising is not as students expect ..... 13

CONCLUSION ........................................................................................................................................... 14

Appendix A: Questionnaire ........................................................................................................................ 16

Appendix B ................................................................................................................................................. 18

Reference .................................................................................................................................................... 21

Figures & Table Figure 1: Average Times per Day of Seeing Ads ....................................................................................... 18

Figure 2: Attitudes towards E-Ads.............................................................................................................. 18

Figure 3: Perception on Underlying Factors about E-Ads .......................................................................... 19

Figure 4: Average Points of Underlying Factors ........................................................................................ 19

Figure 5: Perceived Values of E-Ads .......................................................................................................... 20

Table 1: How Online Advertising Influence on Consumers ....................................................................... 20

Table 2: Challenges Consumers Encounter ................................................................................................ 20

Table 3: Quality of Products bought through Online Advertises ................................................................ 21

4

Perception towards Online Advertising and Its Influences on Consumer Behavior

Nowadays, as well as the breaking out of the Internet, several of different services are being

occurred on it such as shopping online, social networks, online newspapersin order to attend to

relaxing requirements of human beings and advertisements are one of them. Different from the

previous studies, this study explores students perceptions towards advertising which usually

appears on the Internet; in other words, it is called Online advertisement- one of the fastest

forms to approach Internet users. However, there are many contrary ideas of users about this

genre of marketing, about the effectiveness of them on their choice of products. In terms of

Internet users, there is considerable academic research into the motivations behind consumers

attitudes toward and perception of advertising and the Internet. On the other hand, online

advertisements also act directly on many firms. For example, the last decade is a short time

which turned Google from a humble search company into the E-Marketing tycoon with earning

profits were an estimated 28 billion of dollars (Insider, 2011). The future of Internet is dependent

upon the continued support of advertisers in this new medium, which is linked to the acceptance

of advertising on it by their target audience. This exploratory study used the qualitative research

methods of conducting an inquiry to gain insights from the student participants. Therefore, the

aims of this research are to find out the feelings of students when having too many

advertisements sent to them (whether they like or dislike, if they pay some money for those

goods, etc.) and they effect on them in which form.

In recent years, online advertising has developed strongly in Vietnam and theses advertisements turn

up numerous on many websites. For instance, there are some websites which specialize in diffusing

online products such as nhommua.com, muachung.vn, cungmua.com, etc. Besides, when

accessing any websites or forums to see movies and listen to music, Internet users may come

across many spam emails which manifest continuously. So there are three main reasons so that

our group goes on this research:

First of all, AEP students are very interested in the Internet, they suggest that Internet is a

wonderful world where they can do anything they want, of course, no one is unaware of the

advertisements appear incalculable on the Internet. Therefore, they will be pleased to answer our

questions.

Secondly, the recent development of shopping online is spreading in Vietnam and the main

consumer using this kind of shopping are youngsters, especially for AEP students, some of them

5

have an online fashion shop and many of them used to buy something on the Internet by that

way. Therefore, E-Marketing affected them by any ways.

Finally, there are quite many previous studies and articles which referred to this issue. We

suppose that these are resources of great worth for our study in this area.

The major purpose of this study is to investigate the influence of online advertisings on AEP

Students. Specially, the study determined:

The views of students about online advertisements

Find out the disposition of students towards online advertisings.

Find out the attitudes and perceptions of students towards the online advertisings

appearing on many websites.

How advertisements effect on consumer purchase behavior of students

Find out the ways online advertisements rule over students choice of products.

Find out the challenges students encountered while patronizing products and

services seen advertised on the web.

In order to explore how students perception towards advertising on the Internet, the

research questions to be addressed in this thesis are:

1. What are the views of AEP students about online advertising?

2. In what ways have online advertising influence consumer behavior of AEP

students?

We also hope that throughout our study, online advertisers can understand nonmarketable issues

in their advertisements, and then they can develop E-marketing by the better way which makes

people to be pleased. At last, our team expects from the students the main consumers on the

Internet will find out how to manage to buy products by the online advertisements.

METHOD

Participants

The study uses the survey research design and Internet resources. This study covers students in

Advanced Educational Program (AEP) in National Economics University (NEU). They are

Second year students- Intake 54 and the majority of these students have computer or laptop.

6

Research Design

According to my research questions, we design a questionnaire (English version will be

introduced in appendix) including only selection questions.

Beside the primary data, we also use some secondary data including online newspapers articles

and academic research as a reference sources to support our ideas

Measures

Altogether 217 copies of the questionnaire will be administered by hand and via the

Internet to the respondents. Data will be analyzed using means, frequencies and percentages. All

of the metrics will be coded and classified by mathematical tool of Excel software.

The survey questionnaire contained questions measuring the frequency rate of E-Ads,

attitudes and perceptions of students toward E-Ads, perceived values of E-Ads and how they

influence on purchase behavior.

One item was used to measure the frequency rate of E-Ads in terms of the average times

per day of seeing Ads. The respondents were asked how many times, on the average, the saw the

E-Ads when surfing the Internet per day. Three items were applied to measure students attitudes

toward E-Ads in terms of favorableness, what they like and desirability and they chose one of

three options only. The respondents were asked to answer the questions based on a five-point

scale. An example of the scale ranged from (1) strongly agree to (5) strongly disagree with

respect to the measurement of perceptions and perceived values. Three main factors were used to

evaluate perceived values of E-Ads namely useful, important and valuable. The perceptions of

the students toward E-Ads were measured based on several nouns as follows:

Entertainment Irritation Interactivity

Informativeness Credibility Privacy

The respondents were asked to indicate their level of agreement with respects to each of

these six dimensions in terms of how they perceived E-Ads.

The variable Consumer Behavior was measured using multiple choices. Respondents

were asked which way E-Ads influenced on them and the quality of products bought via E-Ads.

They were asked to tick only one option in each question. They also were asked to tick many

choices they wanted.

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FINDINGS AND DISCUSSION

Findings

Students tendency towards growth potential of online advertising

Nearly two thirds of respondents said that they saw 1 to 5 times per day 20.28%

saw online Ads appearing from 6 to 10 times and the remaining 17.51% of respondents

complained that they were obliged to see pop-ups, banner on the website over 10 times

per day.

20.71% of respondents believed that online advertising was a favorable marketing

industry

The proportion of what I like group was approximately 37.79%, and what I

like here means pleased or neutral.

Over 40% of the respondents highly appreciated potential of online

advertising.

Students perception towards online advertising

Nearly two thirds agree online advertising is irritative while the number of people

who has no sympathy with the credibility of them was over half.

With reference to privacy of advertising, there were up to three quarters assumed

that online advertising was not secrecy.

The score of Credibility item was 3.88 points- somewhat disagree.

Online advertising sometimes is useful and informative

Carried out a survey of 217 AEP students about their perceptions toward E-Ads, we asked them

the knowledge of advertising utility on the Internet throughout factors above. Advertising utility

consisted of items related to the value or effectiveness of advertising in meeting consumers

need- that is, how informative and entertaining the online advertising is and how useful it is for

making purchase decisions. Indeed, informativeness and entertainment have been identified as

positively contributing to the perceived values of E-Ads in the Figure 5.

The chart 4 shows consistent low scores on entertainment, informativeness,

interactivity. The majority of participants agreed somewhat that E-Ads is informative

and entertained (2.08 and 2.08 in turn)

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This study used three items: useful, important and valuable. Figure 5 shows the

group means. Online advertising hold slightly higher score on being valuable (1.9

points- neither agree nor disagree). Participants agreed that the advertising on the

website was useful (3.15 points) and the important level was just assessed at 2.84 points

(neither agree nor disagree).

Online advertising and consumer decision making

The results obtained from the preliminary analysis of usefulness are presented in Table 1.

30.44% of respondents were used to purchasing goods thanks to online

advertisements

7.83% for the number of people who had never paid attention to this form

15.67% bought some of products and services so advertised

23.04% of students answered that they used those E-Ads as reference

materials for their future purchases.

4.15% of people suggesting that the products and services supplied on the online

stores were too expensive

18.90% of respondents said that they did not trust online - Figure 3 (3.8).

Quality of services and products advertised through online

Compared with the percentage of people bought and used products and services (more than

46%), we brought a question out for the students that which challenges they encountered while

patronizing products and services seen on the website.

55.30% of participants complained about this challenge

23.69% and 27.65% for Lack of access to Internet factor and Fraud factor

respectively.

10.14% and 13.82% respectively indicated that bad delivery factor and erratic

electricity supply factor

20.74% of students pleased with the quality of products and service

17.05% of those surveyed was tricked

13.82% of people who have never using online purchase.

This questionnaire was conducted to answer the two questions raised at the beginning of this

paper. Overall, this study reveals the following take-away messages:

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Consumers hold extremely negative scores on attitudes and perceptions. Low

scores were also found for entertainment, informativeness, irritation and interactivity, and

high scores for credibility and privacy concerns.

Consumers mainly used ads to purchase and plan for their future purchases and

were not pleases with the services online stores supplied.

Despite the negative reactions, many consumers used online advertising as an efficient tool to

purchase via the Internet. In addition, the quality of products and services was not as they

expected.

Discussion

Participants recognized in online advertising both benefits for consumers and economic

advantages for advertising networks. The most commonly articulated benefit of online

advertising was that it would help participants see advertising targeted towards and relevant to

their personal interests. Some participants also expected that marketers would use online

advertising to target special offers to consumers who were interested in a particular product.

Students have positive disposition towards growth potential of online advertising

Internet is used for many different aims. Nowadays, students make use of Internet to serve for

entertainment or relaxing, namely searching details, chatting on Yahoo or Facebook, listening to

music and seeing movies. If these accessing goals made up a high rate, it was because the objects

investigated were 19 year-old students who are still youngsters. Therefore, the demands of

entertainment have a high level.

In addition, the evolution of free websites happens in amusement area. Just consider particularly

online music website in Vietnam, there is over 100 pages not including abroad websites. Along

with breaking out of information over the world, a lot of search services were founded such as

Google, Ask, and Bing. For example, in 2011, Ask.com achieved 210 million times for unique

visitor and 2 billion times for page view.

In fact, online advertisers usually approach students through entertainment websites. There are

two reasons which induced this result: demands of using Internet of students and freedom of

websites.

In regards to the first cause, compared with the data achieved from Figure 1, the relationship

between the marks of accessing Internet and the density of appearance of advertising on the

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websites is extremely closed. It is complicated that website attracts many people, it contains

many advertisements. Thus, as mentioning above, students usually use Internet to relax; online

advertisers approach the clients by posting product advertisements on the amusement websites.

Another point to consider is students ignore advertising when they perceive that there is too

much clutter. The proportion of people who felt misled by E-advertising are quite appropriate the

number of people avoiding E-advertisement in the Figure 3. From that point, we can realize the

connection between avoiding and misleading details, in other words misleading details is one of

the causes of ignoring E-advertising. For example, to see the advertising, clients usually go on

some steps such as supplying personal details, moving another page and something like that.

These steps cause clutter in consumers mind which make them feel offended and uncomfortable

to continue them.

Finally, students avoid if they had negative experiences with the previous online advertisements.

The students are distrustful of online advertisements because the details of advertisements are

mess and baseless, otherwise they also appear too much on the Internet-create washy information

for viewers unexpectedly. Most of this distrustful also comes from word of mouth, parents and

peers. Far from that, students see advertisements as a risk or threat. Many of them had heard of

people who had negative experiences such as getting a computer virus or receiving incorrect

information and were therefore reluctant to click onto any advertisements. For instance, on the

forums, there are some vibrate messages such as click onto, receive The New Ipad or Do you

know your IQ? Click now, but in fact, only reading the title of them we can realize that they are

unjustified and cannot believe them, however, if the consumers click on them, they will be asked

to supply phone number or name. These can effect on the secretary and privacy of the users.

On the surface, advertising on the Internet should be a very attractive proportion for marketers

and advertisers. Advertising messages can be sent to specific targets based on their disclosed

interests and demographics. These messages appear in a website which is controlled by receivers

of the message and is appreciated by them. The receiver of message is generally in a relaxed

frame of mind and has chosen to be on the Internet to relieve boredom or to socialize. Yet, if

advertising is ignores or dismissed then advertising dollars are wasted.

Online advertising sometimes is useful and informative

Although most of students had a negative perception towards E-advertising, someone still found

out the benefits of advertising, especially clothes sales, games online advertising and study

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courses. Some male students enjoyed playing the interactive games that appeared on their site

but most did not view this as advertising. However, they would not give out any personal

information to receive prizes from these games. Female students loved clothes or accessory

which broadcasted fascinatingly on the websites. They suggested that this kind of advertising is

pretty clear and trustful. They do not ask buyers to give personal details as well as do not need to

pay any money to use them, it is simple that consumers read advertising, if they like, they will

buy.

In fact, advertising value and advertising perception are highly associated. Therefore, a consumer

who assesses advertising to be valuable is expected to generate favorable perception. In this

sense, Advertising value is positioned as one of the antecedents (or predictors) of Perception

toward Advertising. Furthermore, entertainment would directly impact advertising attitude.

Although interactivity does not contribute to value, it does have a small but significant effect on

advertising attitude. This relationship is the same for both traditional and Internet based

advertising. One way of interpreting the high correlations interactivity has with the other four

constructs is that interactivity enhances entertainment for example. High interactivity results in

high level of perceived entertainment, which in turn contributes to advertising value. That is,

interactivity itself does not contribute to the value directly but has impact on the antecedents of

value. High interactivity also seems to correlates with low irritation level, high credibility and

high in formativeness, which all has positive impact on value.

People who believe online advertising has a positive impact on the economy tend to have a

positive attitude toward online advertising. A basic view of advertising proponents is that

advertising is the lifeblood of business it provides consumers with information about products

and services and encourages them to improve their standard of living. Information has been a

common belief about advertising identified by previous studies. One of the most important

functions of advertising is to improve information. Past research on Internet use motives has

revealed that searching for information is the primary reason why people use the Internet. It is

logically sound that those who perceive online advertising to be informative are more likely to

favor it. Entertainment is another component influencing the effectiveness of advertising by

establishing an emotion link between consumers and a brand message. With the marketplace

cluttered with advertising messages vying for peoples attention, advertising needs to be

interesting and enjoyable in a creative way to attract audiences attention. Furthermore,

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information and entertainment are often intertwined with each other in an information society.

Students use online advertising as a service to aid in consumer decision making

About 46% of participants have gone shopping online at least once by depending on advertising,

it is astonishing figure. That proved the strong development of shopping via the Internet in

general and online advertising in particular. Although there are quite a lot of people who do not

believe in online advertising, they still usually buy something through advertising because of the

cheapness of products and the appropriateness of students pocket. In addition, instead of going

to each store to see and choose something for self, from now on, students only use mouse to click

in anything they want on a shopping website and they need to pay a routine money to home

delivery.

But online advertising still induce for consumers a lot of doubts. With the same good, this

website sold it with this price while that website sold it with another price or different origin.

Thus, when reading baseless advertising like that, students will feel misled and misunderstood.

Maybe the reason is competition between firms, they want to achieve the highest sales as well as

create a stable brand for self. Also may be the reason is having someone who wants to seek

profit, give out the wrong information and reduce consumers to be tricked.

Nevertheless, we must admit E-advertising is pretty engrossing which makes viewers to notice

them. Because of being shopping online, picture of product plays the most important factor

during students purchasing decision. The snapshots are taken in many different angles in order

to describe product clearly. And this is the only way so that consumers can see the shape or color

of product they choose. Therefore, image is always the aspect fascinating viewers in E-

advertising.

Though effect aspect made up more than full of promise advantages aspect, we believe that this

aspect depends on buying objects. If buyer finds an item initiatively, they will not notice effects

like sound, content or color of advertisements. By contrast, some people also buy an item when

running into any advertising. (In fact, they are attracted by effects of advertisements and curious

about them).

Nevertheless, many students complained that fraud and lack of access to Internet were their main

challenges while patronizing products and services advertised on the web. Minority of the

respondents said products were delivered in bad conditions was their difficulty. Generally,

people still seem not to fully believe in credibility of online advertising and advertisers have not

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had a well-balance operation in caring customers.

Quality of services and products advertised through online advertising is not as students expect

This research points out one thing that students trust the information on a brands TV more than

the brands Internet. They believe that any one can develop an online advertisement and give

false information about brand on websites whereas before being posted on TV, advertisements

must be checked many times about reality of it. This is another reason for why the quantity of

goods bought through commercial advertisements is always more than through E-

advertisements.

Another reason for the distrustful of students to online advertisements is the quality of products

or services. In spite of 46% of people buying goods through E-advertising, 48% of them

complained that the items and services they bought via Internet were only quite like the details of

advertisements. As not seeing in their eyes the products they bought, suppliers can exchange

goods by the poor quality products easily or they give out the wrong information intentionally

Overall, E-advertising affected AEP students by some ways. Although students still flinch with

the burdensome of them, they view step by step online advertising as an effective tool in

purchasing. Thus, marketers and advertisers should find out the methods to improve online

advertising in serving consumers.

This study has explored the influence of E-advertising on AEP students. This research has made

the following contributions to theory regarding websites as an advertising medium. These

contributions are as follows:

Motivations behind use of Internet such as the need for social interaction,

the need for recognition, new experiences and information seeking.

New model of advertising avoidance in the Internet environment like

expectation of negative experiences, perception of relevance of E-advertising,

skepticism about advertising claims.

Characteristics of websites as an advertising including ability for

interactive advertising, synergistic by supporting advertising in other different

websites.

Though online advertising plays an important role in purchasing decisions to some extent, it does

not really take consumers belief. This asks advertisers and marketers to carry out targeted

strategies to shorten distance with buyers.

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First of all, they should found the particular websites which display advertising on it such

as nhommua.com, muachung.com instead of posting advertising density on every websites. In

addition, they need to remove the unnecessary advertising on the websites to reduce avoiding of

students.

Along with that, before advertising is posted, advertisers must supply the information of products

clearly and fully so that the consumers can see the truth of them and give out right decisions in

purchasing. In some discount shopping websites, they usually send e-mails spam to consumer

strictly except having their acceptation; however, they should stop doing like that as they will

cause offended f or Internet users.

Finally, advertisers and marketers should not ask consumers to supply the personal details. If

they are able to overcome these things, students will not have aversion to online advertising.

For students, to find out the usefulness of online advertising and not feel uncomfortable with

them, especially in purchasing decisions, students should learn about them cautiously. When

login a websites, buyers should not supply personal details for them because it will effect on

their privacy of them. Otherwise, consumers should only see advertising on the particular pages

to prevent from virus injuring.

CONCLUSION

Online advertising is a new form of advertising that many companies all over the world are

venturing into, for the purpose of informing consumers of their products and services. This study

has shown that Internet has influence on consumers than any other mass media when it comes to

making purchase decisions. According to Dever (2012) the Internet is the most influential in the

consumer purchasing decision process than advice from friends/family and any other medium

such as Television, Newspaper 66% of online consumers consider the Internet helping them

make purchasing decision compared to 61% from friends/ family and 42% from Television.

(Dever)

The influence of online advertising on consumers over other forms of advertising will continue

to increase in many years to come because of its interactive nature, the global platform it

presents to companies that advertised on it and the opportunities it offers to consumers to make

purchases through online.

Participants found online advertising both useful and privacy-invasive. The majority of

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participants were either fully or partially opposed to online advertising, finding the idea smart

but creepy. However, this attitude seemed to be influenced in part by beliefs that more data is

collected than actually is.

Our understanding of consumers interaction with such information artifacts is still limited, and

as a result, these information artifacts may not be designed to fulfill their greatest potentials to

both serve the consumers and generate business values. This study gathers understanding and

insights, with the hope of guiding better future designs and a less annoying and stressful

environment for consumers with adequate policing by certain online policies.

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Appendix A: Questionnaire

Online Advertising Questionnaire

We are the students from Advanced Educational Program at National Economics

University. This research project is conducted as part of our study program. The aim of this

research is to discover the perception towards online advertising and its influences on

consumer behavior of AEP students. All data and measurements obtained from this research

study will be stored confidentially. Only researcher will have access to view any data

collected during this research.

The research intends to cause no physical or psychological harm or offense and to abide

by all commonly acknowledged ethical codes. You voluntarily agree to participate in this

research project by filling the following questionnaire. You have the right to ask the

researchers any question regarding this project. You also have the right to reject participation.

You may withdraw from this research any time you wish. This may take 5 minutes of your

time. Please make sure that you have responded to every statement.

1. How many times per day do you see online advertisings?

A. 0

B. 1-5

C. 6-10

D. Over 10

2. How do you feel about the development of online advertising today?

A. Favorable

B. What I like

C. Desirable

Please indicate whether you: Strongly Agree (1); Somewhat Agree (2); Neutral

(3); Somewhat Disagree (4); Strongly Disagree (5) for Q3 and Q4

3. What do you perceive the content of online advertisings today?

Factors Strongly

agree

Somewhat

Agree Neutral

Somewhat

disagree

Strongly

Disagree

Entertainment

Informativeness

Irritation

Credibility

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Interactivity

Privacy

4. How would you rate perceived values of online advertisings?

Strongly

Agree

Somewhat

Agree

Neutral Somewhat

Disagree

Strongly

Disagree

Useful

Important

Valuable

5. In what way does online advertising have influence on you? Please choose only

one statement

A. Purchase some of the products and services so advertised

B. Use some of the products and services

C. Only influences me to plan for their future purchase

D. It has no influence on me because the products and services are too

expensive

E. It has no influence on me because I do not trust online purchase

F. I do not pay attention to online advertisings

6. What are the challenges you encountered while patronizing advertised products

and services seen on the web? You can choose more than one statement

A. Erratic electricity supply

B. Lack of access to Internet

C. Services not provided as advertised

D. Fraud

E. Products are delivered in bad conditions

7. Could you consider about the quality of products and services brought

throughout online advertisings? Please choose only one statement

A. Exactly like the details of Ad. Very pleased

B. Quite like the details of Ad. Not expect too much

C. Completely different from Ad. Seem to be tricked

D. Never having bought something like that before

Thank you for your help!

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Appendix B

Figure 1: Average Times per Day of Seeing Ads

Figure 2: Attitudes towards E-Ads

0%

62,21%

20,28% 17,51%

0%

10%

20%

30%

40%

50%

60%

70%

0 1-5 6-10 over 10

41,47%

37,79%

20,74%

0,00% 5,00% 10,00% 15,00% 20,00% 25,00% 30,00% 35,00% 40,00% 45,00%

desirable

what I like

favourable

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Figure 3: Perception on Underlying Factors about E-Ads

Figure 4: Average Points of Underlying Factors

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

strongly disagree

somewhat disagree

neutral

somewhat agree

strongly agree

2,08 2,08 2,18

3,88

3,26

3,86

0

0,5

1

1,5

2

2,5

3

3,5

4

4,5

20

Figure 5: Perceived Values of E-Ads

Response Percentage

Purchase some of the products and services so

advertised 15.67%

Use some of the products and services 30.41%

Only influences me to plan for their future purchases 23.04%

It has no influence on me because the products and

services are 4.15%

It has no influence on me because I do not trust

online purchase 18.90%

I do not pay attention to online advertisings 7.83%

Total 100.00

Table 1: How Online Advertising Influence on Consumers

Response Percentage

Erratic electricity supply 13.82%

Lack of access to Internet 23.96%

Services not provided as advertised 55.30%

Fraud 27.65%

Products are delivered in bad conditions 10.14%

Total 100.00

Table 2: Challenges Consumers Encounter

3,15

2,84

1,9

0 0,5 1 1,5 2 2,5 3 3,5

Useful

Important

Valuable

21

Response Percentage

Exactly like the details of Ad. Very pleased 20.74%

Quite like the details of Ad. Not expect too much 48.39%

Completely different from Ad. Seem to be tricked 17.05%

Never having bought something like that before 13.82%

Total 100.00

Table 3: Quality of Products bought through Online Advertises

Reference Dever, E. (n.d.). Retrieved 3 30, 2012, from www.lab.net

Insider, B. (2011, 11 19). Retrieved 4 18, 2012, from moore.vn.

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PART II

CASE STUDY ANALYSIS

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SPECIALTY TOYS

Executive Summary

Specialty Toys, Inc. is a manufacturer of new and innovative childrens toys which includes the

Weather Teddy. The Weather Teddy has a built-in barometer that provides one of five standard

responses about the weather when a child presses the teddy bears hand. The company recently

reached out to our team to prepare a managerial report addressing, but not limited to, the

following issues: normal probability distribution in relation to demand approximation, the

probability of stock-outs for certain quantities and the projected profits associated with certain

order quantities. The purpose of this managerial report is to address the concerns of the

management team at Specialty Toys, Inc. and also to provide a recommended order quantity for

the Weather Teddy, the probability of stock-outs related to specific order quantities, and the

potential profits associated with certain order quantities.

Specialty Toys Business Cycle

The company sells a variety of toys throughout the year. However, Specialty Toys plans to

release the Weather Teddy in October, before the holiday season is officially underway.

Management has determined that this is the best time to release a holiday gift because many

families have already begun shopping for holiday gifts at this time. In order to have the Weather

Teddy on the shelf by October, the company must place a one-time order with its manufacturer

in either June or July. Due to the large gap between when orders are placed and actual products

are produced, the most important question the company faces is determining the correct number

of units to purchase in order to meet customer demand. The company must balance this desire to

meet customer demand with the potential loses that could result from having excess inventory

left over from the holiday season that must be sold at a reduced cost.

There is considerable disagreement between the management team over what the correct order

quantity should be. Estimates have ranged from 15,000 to 28,000. This variation clearly shows a

large degree of disagreement amongst the management team over how successful they believe

the Weather Teddy will be. Through our discussions with management, we have learned that

24

each Weather Teddy will be sold for $24. Each toy will cost $16 for the company to manufacture

and sell. Therefore, the net profit for each Weather Teddy sold is $8. However, any unsold

Weather Teddys after the holiday season will be sold for a reduced price of $5. Based on this

discounted price, Specialty Toys will end up losing $11 on every toy left over from the holiday

season. In addition, Specialtys senior sales forecaster predicted an expected demand of 20,000

units with a .90 probability that demand would be between 10,000 and 30,000 units. We used

these management estimates to perform our analysis and probability calculations.

Normal Probability Distribution

This managerial report is based on the Senior Sales Forecasters prediction that expected demand

for the Weather Teddy will be 20,000 units and that there is a 90% probability that unit demand

will be between 10,000 and 30,000 units.

Below is a distribution graph showing the details of the forecasters prediction. The mean of the

distribution is the expected 20,000 units and the standard deviation is 6079 units. Z scores for

the 90% probability that units sold will be between 10,000 and 30,000 units are -1.645 and

+1.645, respectively.

At x = 30,000,

= 1.645

Normal distribution 20,000

20,000

.05

5

10,000 30,000

.05 .90

25

Likelihood of Stock-Outs for Specific Order Quantities

As noted in the Specialty Toys Business Model section, the company must balance the additional

profits associated with each toy sold ($8) against the losses that will be incurred for any toys

leftover after the holiday season ($11). Below, we provide the probability that Specialty Toys

will run out of the Weather Teddy based on estimated quantities provided to us by management.

@ 15,000

P (stock out) = 0.7939

Analysis: There is an approximately 79.39% chance that Specialty Toys will run out of the

Weather Teddy if the company orders 15,000 units.

@ 18,000

P (stock out) = 0.6293

Analysis: There is an approximately 62.93% chance that Specialty Toys will run out of the

Weather Teddy if the company orders 18,000 units.

@ 24,000

P (stock out) = 0.2546

Analysis: There is an approximately 25.46% chance that Specialty Toys will run out of the

Weather Teddy if the company orders 24,000 units.

@ 28,000

P (stock out) = 0.0934

Analysis: There is an approximately 9.34% chance that Specialty Toys will run out of the

Weather Teddy if the company orders 28,000 units.

26

Profit Potential

Based on the case, where price of Weather Teddy p = $24, per unit cost c = $16 and inventory

will be sold at i = $5, profit can be calculated as followed:

If

If

Order Quantity: 15,000

Sales

Unit

Sales

Total

Cost

at $24 at $5 Profit

10,000 240,000 240,000 25,000 25,000

20,000 240,000 360,000 0 120,000

30,000 240,000 360,000 0 120,000

Order Quantity: 18,000

Sales

Unit

Sales

Total

Cost

at $24 at $5 Profit

10,000 288,000 240,000 40,000 -8,000

20,000 288,000 432,000 0 144,000

30,000 288,000 432,000 0 144,000

Order Quantity: 24,000

Sales

Unit

Sales

Total

Cost

at $24 at $5 Profit

10,000 384,000 240,000 70,000 -74,000

20,000 384,000 480,000 20,000 116,000

30,000 384,000 576,000 0 192,000

27

Order Quantity: 28,000

Sales

Unit

Sales

Total

Cost

at $24 at $5 Profit

10,000 448,000 240,000 90,000 -118,000

20,000 448,000 480,000 40,000 72,000

30,000 448,000 672,000 0 224,000

Accounting and Economic Profit Potential

In order to calculate the quantity needed to ensure a 70% chance of meeting demand, we first

determined the Z score associated with a 70% probability. Using Microsoft Excel, we calculated

the Z score to be approximately .5244, rounding to four decimals. We can now calculate the

quantity associated with a 70% probability by inputting in our known values to the following

formula:

P (X < K) = 0.7

P (Z < (K 20,000) / 6079) = 0.7

(K 20,000) / 6079 = 0.5244

K = 20000 + 6079 * 0.5244 = 20000 + 2675 = 23,188 units to be ordered

In order to assure a 70% chance of meeting customer demand, we recommend that Specialty

Toys place a one-time order for 23,188 toys. The projected profits under the 3 scenarios are

computed below.

20,000

30%

Qz = 0.52

70%

28

Order Quantity: 23,188

Sales

Unit

Sales

Total

Cost

at $24 at $5 Profit

10,000 371,008 240,000 65,940 -65,068

20,000 371,008 480,000 15,940 124,932

30,000 371,008 556,512 0 185,504

Recommendations

There were several different factors that we took into account when making our recommendation

and deciding on a suitable order quantity. Factors to consider included the probability of a stock

out, potential profits from several different possible quantities demanded, loss of profits in the

event a stock out does take place, and finally added revenues associated with the discount sale of

excess goods on hand.

After analyzing the results of our calculations based on managements expectations, we find the

probability of demand being greater than or equal to 15,000 or 18,000 units is too large for these

quantities to be sufficient. Ordering a quantity of goods at far below level s of expected demand

create a high probability (80% and 63%) that Specialty Toys will sell out of Weather Teddy

stock and lose sales revenue. The probability of stock outages occurring drastically decrease to

25 % and 9% in forecasts of higher quantities demanded of 24,000 and 28,000 units,

respectively.

In addition, a single-period inventory model recommends an order quantity that maximizes

expected profit based on the following formula:

*P(Demand ) u

u o

cQ

c c

Where *P(Demand )Q is the probability that demand is less than or equal to the

recommended order quantity, *Q uc is the cost of underestimating demand (having lost sales

because of a stock out) and oc is the cost per unit of overestimating demand (having unsold

inventory). Specialty will sell Weather Teddy for $24 per unit. The cost is $16 per unit. So, uc =

29

$24 - $16 = $8. If inventory remains after the holiday season, Specialty will sell all surplus

inventories for $5 a unit. So, oc = $16 - $5 = $11.

* 8P(Demand ) 0.42118 11

Q

The profit projections for this order quantity

are computed below:

Order Quantity: 18,784

Sales

Unit

Sales

Total

Cost

at $24 at $5 Profit

10,000 300,544 240,000 43,920 -16,624

20,000 300,544 450,816 0 150,272

30,000 300,544 450,816 0 150,272

Based on the information in the case, we recommend a quantity with a large probability of

meeting customer demand. Specialty Toys should order the quantity that maximizes expected

profit of Weather Teddy. From the calculation above, we can see that if the company orders

18,784 units, the expected profit will be largest out of the four quantities, which is $150,272. In

order to have a better understanding of the specific quantity of units needed, more information is

necessary including industry sales trends of recent products and sales history of similar products.

Given the risks associated with over purchasing, Specialty Toys management would also need

to provide the interval of probability in which they expect to meet consumer demand.

Other options that we alternatively recommend would be to negotiate higher rates with contract

manufacturers to produce additional rush orders in October if demand is high when the toys are

released. Additionally, Specialty Toys could sign contracts with discount retailers prior to

October specifying a fixed unit price (above the reduced price the toys would be sold at) for all

excess toys to avoid excess loss.

0.5789

Q*

z = -0.20

0.4211

30

PAR, INC.

Executive Summary

Par Inc. is a major manufacturer of golf equipment. Management believes that Pars market share

could be increased with the introduction of a cut-resistant, longer-lasting golf ball. The company

recently reached out to our team to prepare a managerial report addressing, but not limited to, the

following issues: the rationale for the hypothesis test that par could use to compare the driving

distances of the current and new golf balls, descriptive statistical summaries of the data for each

model, and population mean of each one if confident interval is 95%. The purpose of this

managerial report is to address the concerns of the management at increased with the

introduction of a cut-resistant, longer-lasting golf ball and also to provide a recommended

whether the company need to make the larger sample sizes and more testing with the golf balls.

New Cut-Resistant Ball

The research group at Par has been investigating a new golf ball coating designed to resist cuts

and provide a more durable golfs. This research is concern about the effect of the new coating on

driving distances. Par would like the new cut-resistant ball to offer driving distances comparable

to those of the current-model golf ball. To compare the driving distances for the two balls, 40

balls of both the new and current models were subjected to distance tests. The testing was

performed with a mechanical hitting machine so that any difference between the mean distanced

for the two models could be attributed to a difference in the two models. The results of the tests,

with distances measured to the nearest yard.

Hypothesis Testing The first thing to do is to formulate and present the rationale for a hypothesis test that Par, Inc.

could use to compare the driving distance of the current and new golf balls. The result of test on

the durability of the improved product another issue has been raised and this is the effect of the

new coating on driving distances. 40 balls of both the new and current models were subjected to

distance test. They are independent sample and test follows a large sample case (developed test).

By formulation of these hypothesis there is assumed that the new and current golf balls show no

31

significant difference to each other. The hypothesis and alternative hypothesis are formulated as

follow:

Mean distance of current-model balls: 1.

Mean distance of new cut-resistant balls: 2.

Ho: 1 = 2 (Mean distance of current balls equals mean distance of new balls)

H1: 1 2 (Mean distance of current balls does not equal mean distance of new balls)

Specify the level of significance. = 0.05 so z = 1.96

P- Value Approach

To test further hypothesis, we set at .05 and our rejection criteria is Reject Ho and accept Ha if

F > Fc or P < (.05) (1- 0.95) (according to Fisher theory). Since hypothesis test done thru

statistic tools doesnt indicate Fc, we will use the P-value approach.

Current New

270.28 267.50 mean

8.75 9.90 std. dev.

40 40 n

78 df

2.775 difference (Current - New)

87.282 pooled variance

9.342 pooled std. dev.

2.089 standard error of difference

0 hypothesized difference

1.33 t

.1879 p-value (two-tailed)

F-test for equality of variance

97.95 variance: New

76.61 variance: Current

1.28 F

.4465 p-value

32

Looking at the descriptive statistics for each model, we can initially conclude that Current model

has a longer range of distance based on the 40 samples with a mean of 270.275 (calculated in

excel) compare to 267.500 for new model. Beside, standard deviation of current is 8.75 and of

new is 9.89. Although, two value of mean is different but Sd also is quite large so we can say

they are quite same.

P-value i=0.1879 > 0.05=. Our decision rule for this problem is:

Do not reject Ho

Mean distance of cut-resistant balls equals mean distance of current-model balls

The new cut-resistant balls have no difference in distance compared to the current-model

one

Therefore, we recommend for Par, Inc.: they should launch this new product

Descriptive Statistical Summaries

The sample contains 40 observations. There is no outlier and extreme.

Descriptive Data

Current New

count 40 40

mean 270.28 267.50

sample variance 76.61 97.95

sample standard deviation 8.75 9.90

minimum 255 250

maximum 289 289

range 34 39

population variance 74.70 95.50

population standard deviation 8.64 9.77

standard error of the mean 1.38 1.56

33

Current New

1st quartile 263.00 262.00

median 270.00 265.00

3rd quartile 275.25 274.50

interquartile range 12.25 12.50

mode 272.00 263.00

low extremes 0 0

low outliers 0 0

high outliers 0 0

high extremes 0 0

The mean distance of Current Ball is a bit higher than that of New Ball (about 2.78). However,

the standard deviation of Current Ball is lower than that of New Ball (8.75 compared to 9.90).

Obviously, variance of Current Ball is lower than variance of New Ball (76.61 and 91.95). Since

variance is a measure of groups dispersal, it means the data of New Ball fluctuates more than

Current Balls. It is almost indifferent between the interquartile of both sets of data.

Boxplot

Box plot of Current Ball has slightly uneven hinges. The lower hinge is a little bit larger than the

upper hinge, which indicates the shape of distribution of gold is right skewness.

250 255 260 265 270 275 280 285 290 295

Current

BoxPlot

34

The upper hinge and lower hinge of New Ball Boxplot are strongly uneven. The upper hinge is

smaller than the lower one. That announces a long left tail of its shape of distribution.

The range of box-and-whisker of New is taller, which indicates that it has larger variance than

Currents. The Current Balls distance is relatively more stable than the News.

Population mean with 95% confidence interval For current model:

Confidence interval mean

95% confidence level

270.275 mean

8.752984839 std. dev.

240 250 260 270 280 290 300

New

BoxPlot

35

40 n

1.960 z

2.713 half-width

272.988 upper confidence limit

267.562 lower confidence limit

For new model:

Confidence interval mean

95% confidence level

267.5 mean

9.896904463 std. dev.

40 n

1.960 z

3.067 half-width

270.567 upper confidence limit

264.433 lower confidence limit

Hypothesis Test: Independent Groups (t-test, pooled variance)

Current New

270.28 267.50 mean

8.75 9.90 std. dev.

40 40 n

78 df

2.775 difference (Current - New)

87.282 pooled variance

36

9.342 pooled std. dev.

2.089 standard error of difference

0 hypothesized difference

1.33 t

.1879 p-value (two-tailed)

-1.384 confidence interval 95.% lower

6.934 confidence interval 95.% upper

4.159 margin of error

The 95% Confidence Interval for the difference between the means of the two populations is

(-1.384; 6.934).

Recommendations

P-Value for this two tailed test is 0.1879, which is greater than level of significance (0.05).

Hence, H0 will not be rejected which shows that Par, Inc. should take a new ball in production as

the P value indicates that there is no significant difference between estimated population mean of

current as well new sample model. The 95% confidence interval for the population mean of the

current model is 267.52 to 272.988 and of the new model is 264.433 to 270.567. It means that

the estimated population mean for Par, Inc. should lie within this range for consistent result.

However, the 95% confidence interval for the difference between the means of the two

populations is (-1.384; 6.934). The calculated test statistic value is far from the rejection area. If

the sample size is larger, the standard deviations will be smaller which means point estimator of

mean will become more accurate. Thus, there is no need to take larger sample size.