Marketing Research Seminar Series

Advertising nudges consumers along the think-feel-do hierarchy to induce sales. However, extant sales response models ignore the role of intermediate factors, namely, cognition, affect, and experience. Hence, the authors propose a dynamic factor model of advertising, which introduces (i) sales & factor dynamics, (ii) purchase reinforcements, and (iii) the simultaneous effects of advertising on all intermediate factors & brands sales. They develop a methodology to filter out measurement noise, determine the number of factors to retain, extract the factor loadings, estimate the dynamic evolution of the intermediate factors, infer their sequence in any hypothesized hierarchy, and embed their impact in dynamic sales-advertising models. Applying this method for a major brand yields the sequence: advertising ? experience ? cognition ? affect ? sales. Affect drives sales substantially, which explains the use of emotional advertising. Most importantly, if one ignores the intermediate effects, long-term ad elasticity is underestimated substantially (from .46 to .12), leading incorrectly to infer over-spending. Thus, both researchers and managers need to estimate the intermediate effects to capture the advertising's dual role of building brand values and growing sales volume.

Market outcomes depend on the quality of information available to its participants. We measure the effect of information disclosure on market outcomes using a large-scale field experiment that randomly discloses information about quality in wholesale automobile auctions. As the theoretical literature predicts, information disclosure increases expected revenues. However, in contrast with conventional theories, the biggest gains are for the best- and worst-quality cars. We argue that information disclosure causes better matching of heterogeneous buyers to different quality cars. This novel explanation both rationalizes patterns in our data and is confirmed by additional tests. Our findings have implications for the design of other markets, including online consumer auctions, procurement auctions, and labor markets.

One of the most strongly held tenets in customer relationship management is that customers become more loyal (i.e., less likely to depart) as they gain tenure with a particular firm. Many retention strategies, loyalty programs, etc., are built directly upon this seemingly universal observation. But is it really true? We posit that it is easy to mistakenly infer "negative duration dependence" (i.e., a decreasing tendency to churn over time) when, in fact, most customers may actually be increasingly likely to depart over time. This apparent paradox is driven by the intertwined effects of heterogeneity and duration dependence, both of which are not well understood (or accounted for) by practicing managers. In order to sort out these effects, we develop a simple but flexible discrete-duration model - the beta-discrete-Weibull. Using a variety of actual and simulated datasets, we demonstrate how easy it is for one of these effects to be mistaken for the other. Furthermore, we show (using real data) that when both factors are taken into account, there is little evidence to support negative duration dependence as the predominant dynamic trend. Finally, using readily available summary statistics (such as the aggregate retention rates from the first few time periods) we show how analysts can begin to tease apart the two effects and offer useful diagnostics about each of them.

When manufacturers do not have sufficient capacity to meet demand, they use various methods to allocate goods to retailers. A common allocation mechanism is based on a retailer''s sales history: a retailer that has ordered large quantities in the past should get a larger allocation than a retailer that has historically ordered smaller quantities. Such a turn-and-earn allocation mechanism is commonly used in many industries such as automobiles, microprocessors, video game consoles, etc. The existing literature has considered the effect of turn-and-earn allocation for a case of manufacturer selling one product. However, when we consider the substitutability of items in a product line, it is not clear whether the manufacturer is better off basing its allocation on the sales history of the entire product line or basing allocation solely on the sales history of the product in short supply. In particular, a shortage of one product can lead retailers and consumers to move toward other products. This, in turn, can have an effect on the manufacturer''s optimal allocation mechanism. We examine this issue by developing a model of a supplier selling two substitutable goods to two retailers. We develop a general turn-and-earn allocation mechanism and in stark contrast to earlier research, we find that a turn-and-earn rule is not always optimal for the manufacturer. In particular, because dealers can substitute across items in a product line, they can offset some of the manufacturer''s advantages of using a turn-and-earn allocation mechanism. We also find conditions under which these allocation mechanisms are more profitable for the manufacturer and the supply chain.

In many instances a consumer's choice of a service or service level (e.g., whether or not to subscribe or the specific plan to subscribe to) temporally precedes usage. In such scenarios, one often observes ex post that consumers might have been better off if they had chosen a different service or service level. Researchers have advanced several demand side explanations for such behavior including overestimation of future usage, the presence of switching costs, the "intrinsic" preference for a particular type of plan, learning, sorting at the time of subscription, etc. In this paper, we investigate the role played by variation in service quality in driving this seemingly sub-optimal behavior. Our empirical context is of a video-on-demand service wherein households subscribe to the service and not use it. Our analysis is facilitated by the availability of objective data on an important aspect of service quality received by each household over time with exogenous variation in this quality across subscribers and within subscribers over time. We formulate a structural model of subscription and usage to account for the alternative demand side explanations proposed in the literature. Our empirical analysis indicates that service quality plays an important role in driving both subscription and usage decisions. While the most important driver of "zero usage" varies across segments, uncertainty about service quality consistently plays a significant role in driving this behavior across all four segments that we are able to identify. Specifically, removing this uncertainty about service quality would lower the occurrence of zero usage by over 50% amongst most households. We also find that while households learn about their average service quality quickly, the presence of significant temporal variation in this quality within a household implies that such uncertainty plays a key role in causing zero usage even after prolonged exposure to the service. Understanding the role of supply-side factors in driving behavior in such service markets can help managers'' better deal with their observed consequences.

Gray marketing, the selling of branded goods outside of manufacturer-authorized channels, is a factor in many industries. Using a model of differentiated Cournot duopoly competition, we analyze how gray markets affect the strategy firms use to enter low-priced foreign markets. In particular, we examine how much autonomy a firm should give to a foreign subsidiary. When production in the foreign country is determined at head office, the firm has a centralized organizational structure. In contrast, when the subsidiary has autonomy to set its own production, the firm has a decentralized organizational structure. In the presence of gray markets, we find that organizational structure has a significant effect on firm profitability. When competing products in the domestic market are highly substitutable, foreign entry accompanied by decentralized management is advantageous. The finding holds in a situation where only one firm enters the foreign market but also in a situation where both firms do so. The advantage of decentralization is not explained by lower gray market volume under decentralization: gray market quantities can also be higher. The advantage of decentralized management comes from the different incentives it creates for decision makers. Under decentralization, every division makes production decisions locally. This leads to aggressive production in the domestic market because the decision maker does not account for reduced gray market sales (this "hurts" the foreign subsidiary). Aggressive domestic production both limits the impact of the gray market and weakens the domestic competitor. The same mechanism also applies when both firms enter the foreign market. As a result, both firms adopt decentralized control but in contrast to the single firm case, the equilibrium is a Prisoners'' Dilemma: profits are reduced versus an outcome where both firms operate under centralized control. The combined results imply that in competitive categories where gray marketing is significant, we should observe foreign subsidiaries that operate with a high degree of independence. These results echo the findings of McGuire and Staelin (1983) who find that manufacturers in bilateral duopolies benefit by decentralizing operations when downstream products are close substitutes. However, contrary to the finding for bilateral duopolies, here manufacturers suffer as a result of their decentralized structure.

This paper is focused on benchmarking of media-platform organizations and makes two contributions. We note that productivity benchmarking involves the study of which decision-making unit (DMU) is more efficient in converting inputs into outputs. Benchmarking media-platform DMUs poses some methodological challenges by virtue of their business model. For instance, the outputs of some platform-firms are inherently networked since the outputs of some departments may serve as inputs to the other and vice versa. A survey of the literature suggests that none of the current benchmarking approaches account for all of the media-platform's benchmarking challenges simultaneously. The first contribution of this paper is to combine relatively new techniques in the operations research and statistics literatures to develop a new procedure to benchmark media-platforms that addresses the challenges. The second contribution lies in empirical demonstration/validation of the approach via an application to U.S. print newspaper firms. While doing so, this paper also demonstrates how the developed approach outperforms applications of the existing approaches.

Despite efforts to increase awareness of the importance of conservation, the rate of progress in reducing waste has been low. We propose one new approach to reducing waste. We examine situations where waste occurs because consumers'' over-acquire goods and then either do not use all of that is acquired or use it inefficiently. We suggest that cues indicating non-abundance of a resource can prompt conservation behaviors. We posit that the tendency to conserve triggered by non-abundance cues in a prior context can persist into subsequent consumption of unrelated resources. In four experiments, we demonstrate the proposed phenomenon, showing that non-abundance cues regarding one particular resource decrease cognitive accessibility of the general construct of abundance, and subsequently increase participants' tendency to conserve a different type of resource. Our results suggest that the underlying mechanism for the effect of non-abundance cues on conservation is motivational rather than priming of conservation-related concepts or traits.

Given the ease with which many information goods can be shared, consumers sometimes form groups to purchase a single information good and share it. Although firms cannot directly observe this group process, they need not ignore it when setting prices. To examine the effect of sharing information goods on profits, we use a graph theoretic model to capture probabilistic formation of consumers into sharing groups. We find that, while sharing within groups will often have the intuitive effect of decreasing profits, this need not always be the case if the firm sets prices in anticipation of sharing. Our analysis shows that sharing can increase profits, and that the marginal impact of additional sharing on profits is always positive when the probability of sharing is already sufficiently high. This is because higher sharing levels can enable a firm to tailor its prices to groups of consumers rather than to individuals. We describe how the effects of sharing depend on the consumer network structure, the group decision mechanism, and the presence of homophily in group formation. Our findings have implications for global pricing strategies of information goods.

While literature in marketing shows that individuals often use non-compensatory decision rules, existing research on dyadic or group choice is exclusively based on compensatory models. In this paper the authors present a dyadic choice model that helps investigate both compensatory and non-compensatory aspects of the joint decision process. Based on this modeling framework the authors present a set of dyadic decision processes (DDPs) to capture contexts where dyad members are in concordance or discordance about which alternatives to consider. They empirically investigate the implications of different DDPs on outcomes such as decision efficiency and dyadic welfare. The methodological approach merges choice experiments with Bayesian statistical models to uncover nuances of the non-compensatory dyadic choice process. Data were collected using a multi-phase nationwide study of 265 husband and wife dyads purchasing three different consumer electronics products: flat-panel televisions, digital cameras, and laptop computers. Results across the three categories indicate that both concordant and discordant dyads exist. Among concordant dyads, the non-compensatory dyads make quicker decisions that result in higher dyadic welfare than compensatory dyads. Among discordant dyads, those that restrict their consideration set make quicker decisions that result in higher dyadic welfare than those that expand their consideration set. Interestingly, product knowledge and experience are found to be inextricably related to dyadic screening patterns. These findings have important implications for both buyers and sellers.

We develop and estimate a stochastic model of patient compliance and persistence regarding pharmaceutical drugs. Persistence refers to whether a patient continues with therapy, i.e., whether the patient continues to obtain refills of the drug. Compliance refers to whether the customer obtains a refill on time, given he or she does in fact obtain a refill. We develop a simple stochastic model of these behaviors, drawing on models of customer value developed by Schmittlein, Morrison, and Colombo (1987) and Fader, Hardie, and Lee (2005). We estimate the model using patient-level data for 253 drugs and illustrate two applications: (1) We show how changes in drug characteristics would influence the number of days of therapy lost either through lack of persistence or lack of compliance, and (2) Show how the model could be used to identify patients who are at higher than average risk for losing therapy days due either to noncompliance or nonpersistence. We discuss implications of the work for researchers and practitioners.

We use qualitative data from a two year ethnographic study to analyze the key elements of the price adjustment processes used at a large industrial manufacturer and several of its major customers. We focus on a specific episode, a price cut, which most vividly exemplifies the themes that emerge from our data. In the specific episode, market considerations clearly dictate that the firm should cut prices, and everyone in the firm agrees with this assessment, suggesting a fairly straightforward organizational decision. Yet when we look deeper, and dissect how the firm implemented the price cut, we uncover a rich tapestry of frictions hidden within the organization. We document four specific themes that emerge from the analyses of the data. (1) Each manager (or each group) within the firm handles only a part of the economic complexities of a given pricing problem, using partial (albeit coherent) models of the marketplace. (2) Yet, when viewing the organization as a whole, across the different managers and groups, many of the economic complexities of the marketplace are covered. (3) The partial models used by managers may collide, creating market based conflicts between managers and groups within organizations. (4) These collisions between partial models of market considerations interact with organizational considerations to intensify the conflicts between managers. We discuss how these findings relate to the pricing literature in marketing and economics, and how they offer an opportunity to bring these literatures together with the organizational behavior literature. We also discuss how managers can use these findings to help their organizations price more effectively.

Because consumers ask different questions to establish commitment at beginning versus advanced stages of goal pursuit, we propose that progress that they attribute to themselves and to the situation will have a distinctive impact on motivation, depending on their relative position in goal pursuit. When progress on achieving a goal is low, people are concerned about its attainability. Because attributing low progress to self (vs. to the situation) signals a higher difficulty of goal attainment, it leads to lower goal commitment and, subsequently, decreased motivation. Conversely, when progress on achieving the goal is high and attainment of the goal is relatively secured, people are more concerned about the value of the goal. Because attributing a high progress to self (vs. to the situation) signals a greater value of the goal, it should lead to greater goal commitment and, subsequently, higher motivation.

Web sites invest signi?cant resources in trying to in?uence their visibility among online search results. In addition to paying for sponsored links, they invest in methods known as search engine optimization (SEO). We study the economic incentives of Web sites to invest in SEO and its implications on search engine and advertiser payo?s. We focus on SEO methods that improve the ranking of a site among the search results without improving its quality. We ?nd that the process is equivalent to an all-pay auction with noise and headstarts. Our results show that, under certain conditions, a positive level of search engine optimization improves the search engine's ranking quality and thus the satisfaction of its visitors. In particular, if the quality of sites coincides with their valuation for visitors then search engine optimization serves as a mechanism that improves the ranking by correcting measurement errors. While this bene?ts consumers and increases tra?c to the search engine, sites participating in search engine optimization could be worse o? due to wasteful spending unless their valuation for tra?c is very high. We also investigate how search engine optimization a?ects the revenues from sponsored links. Surprisingly, we ?nd that in many cases search engine revenues are increased by SEO.