Question

A company is struggling with the problem that many online customers do not return to make subsequent purchases. Management wants to increase customer loyalty and believes that improved customer satisfaction will play a major role in achieving this goal. The company asked you to conduct research to prove their belief.

1. Develop a hypothesis that you must test to prove the management’s belief.
2. List the concepts you must measure to conduct this study.
3. What are the consequences of committing Type I error in your survey?

Answer 1

a) The null hypothesis denoted as indicating that nothing new is happening refering to the status quo (current or existing state of affairs) is

: Online customers are returning to make subsequent purchases

The Alternative hypothesis denoted as indicates that something new is happening It is the opposite of the null hypothesis. It challenges the status quo. It is the hypothesis that the researcher is trying to prove.

: Many online customers do not return to make subsequent purchases

b) Concepts to be measured to conduct the study:

• The research hypothesis stated above must be proved
• Statistical hypothesis test procedure must be followed after developing the research statement
• Data must be collected and analysed to test the hypothesis
• After the results are obtained, the decision must be tested for errors

Types of possible errors are

Possible Hypothesis Test Outcomes
	Actual Situation
Decision	True	False
Accept	No Error Probability 1 - α	Type II Error Probability β
Reject	Type I Error Probability α	No Error Probability 1 - β

c) Type I error occurs when we reject null hypothesis even when it is true. This implies that even if online customers are returning back to make subsequent purchases, we spend more on increasing customer loyalty and improving customer satisfaction. This will result in unnecessary cost which was not required since, already the customers were returning back. Size of Type I error () is called producer's risk.