Question

Will improving customer service result in higher stock prices for the companies providing the better service? "When a company’s satisfaction score has improved over the prior year’s results and is above the national average (75.7), studies show its shares have a good chance of outperforming the broad stock market in the long run." The following satisfaction scores of three companies for the 4th quarters of two previous years were obtained from the American Customer Satisfaction Index. Assume that the scores are based on a poll of 60 customers from each company. Because the polling has been done for several years, the standard deviation can be assumed to equal 6 points in each case. Anderson, David R.. Essentials of Statistics for Business and Economics (p. 489). Cengage Learning. Kindle Edition.

Answer 1

Question:

Company                           2007 Score          2008 Score

Rite Aid                                73                          76

Expedia                                75                          77

J.C. Penney                          77                          78

a. For Rite Aid, is the increase in the satisfaction score from 2007 to 2008 statistically  significant? Use α= .05. What can you conclude?

b. Can you conclude that the 2008 score for Rite Aid is above the national average of  75.7? Use α= .05.

c. For Expedia, is the increase from 2007 to 2008 statistically significant? Use α= .05.

d. When conducting a hypothesis test with the values given for the standard deviation,

sample size, and α, how large must the increase from 2007 to 2008 be for it to be statistically  significant?

e. Use the result of part (d) to state whether the increase for J.C. Penney from 2007 to  2008 is statistically significant.

Answer:

a. There is sufficient statistical evidence to suggest that the increase in satisfaction score for Rite Aid from 2007 to 2008 is statistically significant

b. There is sufficient statistical evidence to suggest that the 2008 Rite Aid score, is above the national average of 75.7

c. The statistical evidence support the claim of a significant increase from 2007 to 2008

d. 1.802 and above is significant

e. The increase of J. C. Penney from 2007 is not statistically significant.

Step-by-step explanation:

Here we have

n = 60

σ = 6

μ₁ = 73

μ₂ = 76

We put H₀ : μ₁ ≥ μ₂ and

Hₐ : μ₁ < μ₂

From which we have;

$z=\frac{(\mu_{1}-\mu_{2})}{\sqrt{\frac{\sigma_{1}^{2} }{n_{1}}+\frac{\sigma _{2}^{2}}{n_{2}}}} = \frac{(\mu_{1}-\mu_{2})}{\sqrt{\frac{2\sigma_{}^{2} }{n_{}}}}}$

Plugging in the values we have

$z = \frac{(73-76)}{\sqrt{\frac{2\times 6^{2} }{60_{}}}}} = -2.7386$

The probability, P from z function computation gives;

P(Z < -2.7386) = 0.0031

Where we have P < α, we reject the null hypothesis meaning that there is sufficient statistical evidence to suggest that the increase in satisfaction score for Rite Aid from 2007 to 2008 is statistically significant

b. To test here, we have

H₀ : μ ≤ 75.7

Hₐ : μ > 75.7

The test statistic is given as follows;

$z=\frac{\bar{x}-\mu }{\frac{\sigma }{\sqrt{n}}} = \frac{76-75.7 }{\frac{6 }{\sqrt{60}}} = 0.3873$

Therefore, we have the probability, P given as the value for the function at z = 0.3873 that is we have;

P = P(Z > 0.3873) = P(Z < -0.3873) = 0.3493

Therefore, since P > α which is 0.05, we fail to reject the null hypothesis, that is there is sufficient statistical evidence to suggest that the 2008 Rite Aid score, is above the national average of 75.7

c. Here we put

Null hypothesis H₀ : μ₁ ≥ μ₂

Alternative hypothesis Hₐ : μ₁ < μ₂

The test statistic is given by the following equation;

$z=\frac{(\mu_{1}-\mu_{2})}{\sqrt{\frac{\sigma_{1}^{2} }{n_{1}}+\frac{\sigma _{2}^{2}}{n_{2}}}} = \frac{(\mu_{1}-\mu_{2})}{\sqrt{\frac{2\sigma_{}^{2} }{n_{}}}}}$

Plugging in the values we have

$z = \frac{(75-77)}{\sqrt{\frac{2\times 6^{2} }{60_{}}}}} = -1.8257$

The probability, P from z function computation gives;

P(Z < -1.8257) = 0.03394

The statistical evidence support the claim of a significant increase

d. For statistical significance at 0.05 significant level, we have z = -1.644854

Therefore, from;

$z=\frac{(\bar{x_{1}}-\bar{x_{2}})-(\mu_{1}-\mu _{2} )}{\sqrt{\frac{\sigma_{1}^{2} }{n_{1}}-\frac{\sigma _{2}^{2}}{n_{2}}}}$. we have;

$z \times \sqrt{\frac{\sigma_{1}^{2} }{n_{1}}+\frac{\sigma _{2}^{2}}{n_{2}}} + (\mu_{1}-\mu _{2} )}{} ={(\bar{x_{1}}-\bar{x_{2}})$

Which gives

${(\bar{x_{1}}-\bar{x_{2}}) = z \times \sqrt{\frac{2\sigma_{}^{2} }{n_{}}}} + (\mu_{1}-\mu _{2} )}{} = -1.644854 \times \sqrt{\frac{2\times 6_{}^{2} }{60_{}}}} + 0 = -1.802$

Therefore an increase of 1.802 and above is significant

e. Based on the result of part d. we have for J.C. Penney from 2007 to 2008 an increase of 1  which is less than 1.802 at 5% significant level, is not significant.