Balancing Confidence and Power for Decision Making
Abstract:
Tests of consumer preference are performed to reduce risk to the manufacturer.A new product formulation may be compared to an existing product using this type of testing with the intent of "improving" the product line. Improvement may come from increased profits from existing share or from increased share. Inherent in any product change is the chance that the product modification is to the detriment of the manufacturer. The manufacturer risks loss in sales if the new product is worse than the current one. Conversely, there is the risk of losing the chance to increase profits by not producing a cheaper, yet equally preferable product. Unfortunately, statistical analyses performed on product test data rarely take these risks into account. Research on Research Paper Number 27 touches on this aspect. This paper presents an example of a product test, relating monetary risks to levels of significance and power of the test of product preference.
