In marketing practice, we often face various threshold decisions:
- Price Threshold: What's the best price?
- Promotion Threshold: What's the best discount threshold?
- Ad Spend Threshold: How much spend achieves optimal ROI?
Today we'll introduce Regression Discontinuity Design (RDD), a method that can scientifically answer these questions.
What is Regression Discontinuity Design?
The core idea of RDD is: Use changes around a threshold to identify causal effects.
Simple Understanding
An e-commerce platform runs a "Spend $200, Get $30 Off" promotion. Users who spent exactly $200 and $201 received very different benefits — only $1 difference in actual payment.
RDD uses this comparison between "just passed" and "just failed" the threshold to estimate the true effect of the promotion.
Two Types of RDD
1. Sharp RDD
At the threshold, the probability of receiving treatment jumps from 0% to 100%.
2. Fuzzy RDD
At the threshold, the probability of receiving treatment changes significantly, but not necessarily from 0% to 100%.
Marketing Application Scenarios
Scenario 1: Optimal Pricing
Case: Online Course Pricing Analysis
Through RDD analysis:
- Conversion rate drops 15% when price increases from $99 to $100
- Conversion rate drops 8% when price increases from $199 to $200
- Optimal Price: $199
Scenario 2: Discount Campaign Threshold
Case: E-commerce Platform Discount Analysis
- The critical threshold is around $100
- Below $100, user purchase intent drops significantly
- Optimal Threshold: $100
Scenario 3: Ad Spend Threshold
Case: Brand Ad Spend Analysis
Through RDD found:
- Monthly budget of $200K: ROI 2.8 (critical point)
- Optimal Budget: $200K/month
Practical Steps
- Define treatment variable and threshold
- Collect data
- Choose bandwidth
- Estimate effect
- Robustness checks
Conclusion
Regression Discontinuity Design (RDD) is a powerful tool for discovering optimal marketing strategies:
- Discover Key Thresholds: Optimal values for price, budget, thresholds
- Quantify Marginal Effects: Effect differences around critical points
- Optimize Marketing Decisions: Based on data, not intuition
Master RDD for more refined marketing strategies.
Next: We'll cover Event Study to help evaluate the impact of brand activities on the market. Stay tuned!
