bluuebunny/crossref_metadata_2025 huggingface dataset:
Empirical Generalizations from Reference Price Research
Authors: Kalyanaram Gurumurthy , Winer Russell S.
Published: October 2008

Considerable theoretical justification for consumers' use of psychological reference points exists from the research literature. From a managerial perspective, one of the most important applications of this concept is reference price, an internal standard against which observed prices are compared. In this paper, we propose three empirical generalizations that are well-supported in the marketing literature. First, there is ample evidence that consumers use reference prices in making brand choices. Second, the empirical results on reference pricing also support the generalization that consumers rely on past prices as part of the reference price formation process. Third, consistent with other research on loss aversion, consumers have been found to be more sensitive to “losses,” i.e. observed prices higher than reference prices, than “gains.” We also propose topics for further research on reference prices.
The Underlying Structure of Brand Awareness Scores
Authors: Laurent Gilles , Kapferer Jean-Noël , Roussel Françoise
Published: October 2008

There are three classical measures of brand awareness: aided, spontaneous, and top-of-mind. The relationships between these measures, across a set of brands in the same product category, are close, but highly nonlinear. We show that these relationships can be linearized, in all product classes, by performing a logistic transformation on each measure. This amounts to describing the process by which consumers answer awareness questions by a Rasch model, originally proposed to describe the success of students in answering exam questions. The brand's salience is equivalent to the students' competence, and the difficulty of the awareness question is equivalent to the test difficulty. We briefly summarize the research process that led to this empirical generalization. Managerial implications are described, mainly linked to the diagnosis of “locked” versus “open” product categories.
Market Share and Distribution: A Generalization, a Speculation, and Some Implications
Authors: Reibstein David J. , Farris Paul W.
Published: October 2008

In this paper we review evidence of a generalized convex cross-sectional relationship between retail distribution and unit market share, i.e., large-share brands have more share points per percentage of distribution than small-share brands. The dynamics and structure of distribution and share can help explain many phenomena in marketing, including this convex shape: (1) market share is both a cause and an effect of distribution, and (2) in the typical convenience goods distribution system there are a few large outlets that stock many brands and numerous smaller outlets that stock the leading brands only. Generally, the observed cross-sectional “curve” relating distribution and share will reflect the retailers' stocking decisions, not the incremental effect of distribution on share. However, a logically consistent model of share based on (1) and (2), when combined with the assumption of low search loyalty, results in customers being willing to switch from preferred to available brands. A further consequence is that the marginal effect of weighted distribution on share is likely to be increasing, i.e., result in convex curves relating distribution and share for a given brand. In some cases, and for some measures of distribution, these convex curves have been observed in time-series data for brands that failed and lost distribution over a relatively short period of time. The implication is that marketers should monitor distribution carefully, as it is the result of combined effects of brand preference, loyalty, and “push” programs. With a better understanding of the market share/distribution relationship, managers should be in a better position to forecast marketplace results for a given level of distribution.
Identifying Generalizable Effects of Strategic Actions on Firm Performance: The Case of Demand-Side Returns to R&D Spending
Authors: Boulding William , Staelin Richard
Published: October 2008

This paper provides an approach for assessing generalizable effects of strategic actions on firm performance. We identify five key issues that need to be addressed before one can have confidence in the obtained strategic generalization. In addition, we suggest a methodology for attacking each of these five issues. We then illustrate this framework using the example of demand-side returns to R&D spending. We document two empirical generalizations in this research. First and foremost, we show that demand returns to R&D spending depend on whether the firm has ability and motivation to take advantage of the R&D investment. Thus, only firms with high ability and motivation leverage the R&D investment into monopoly rents in the form of subsequent price increases. Second, we show that the concept of a firm needing both ability and motivation to sustain returns from a strategic action generalizes across strategic actions. We make two other conclusions about empirical approaches to strategy research. First, to produce valid empirical generalizations about the effects of strategic actions on firm performance requires a study to address adequately the five issues we establish herein. Second, one readily available strategy database, PIMS, enables the researcher to address each of these issues.
Good Empirical Generalizations
Authors: Barwise Patrick
Published: October 2008

As well as being generalizations based on repeated empirical evidence, good empirical generalizations have five other characteristics: scope, precision, parsimony, usefulness, and a link with theory.
Why Do We Observe Minimal Warranties?
Authors: Lutz Nancy A. , Padmanabhan V.
Published: October 2008

Why is it that some products carry a minimal manufacturer base warranty even though all consumers are risk-averse? Conventional wisdom suggests that it is profitable for the manufacturer to offer a comprehensive warranty in this setting. We provide in this paper an explanation for the provision of minimal warranty in markets where all consumers are risk-averse. Minimal warranties are created by the impact of consumer moral hazard and competition in the insurance after-market for the product. We show that consumers who purchase optional extended warranties from an independent provider of insurance create a significant negative externality on the warranty redemption costs of the manufacturer. This, in turn, creates a significant erosion in the manufacturer's profits from warranty insurance. Consequently, it is in the best interest of the manufacturer to drop the level of warranty coverage provided with the product. This intuition holds for homogeneous as well as heterogeneous markets of consumers.
The Inverse Relationship Between Manufacturer and Retailer Margins: A Theory
Authors: Lal Rajiv , Narasimhan Chakravarthi
Published: October 2008

Our objective in this paper is to explain the relationship between a manufacturer's brand advertising and its impact on wholesale and retail margins in consumer goods markets. We construct a model of re-tailers and manufacturers, and using tools from game theory explain why under some conditions a manufacturer's advertising can squeeze, i.e., lower, the retail margin while simultaneously increasing the wholesale margin. Our paper should be of interest to applied analytical and empirical researchers in marketing as well as managers interested in understanding the strategic impact of brand advertising on margins.

The consumer goods retail market is characterized by intense rivalry among retailers competing for a share of the consumer dollar. Retailers carry many products, and on any given purchase occasion a typical consumer buys a subset of the vast number of items a retailer has on its shelf. In general consumers are ignorant about the prices of all the products they want to buy and consequently select a retailer to shop at based on the advertised prices of a subset of the products they intend to buy. Given this, retailers tend to compete more aggressively based on the prices of a selected set of items by advertising these prices to consumers. The items that the retailers select to compete on are those that most consumers desire and value highly. Since the profit from any customer is the sum of profits from advertised and unadvertised items, the intensity of retail competition, as evident from the prices of these items, increases with the amount the consumer will expend on the unadvertised items once at the store. This aggressiveness therefore translates into lower retail margins on these selected items since the retailers expect that consumers, once inside a store, will buy non-advertised products as well on which the retailers make money. Thus manufacturers who are more adept at using “pull” strategies to enhance the popularity of their product, obtain d significant competitive advantage vis à vis others. The positioning of the product and the image conveyed through advertising act as drivers in creating this advantage which results in higher wholesale prices that these manufacturers can charge the retailers.

There are several key insights from our analysis. Our model explains why retail and wholesale margins can move in opposite directions and also suggests when—in those retail markets where consumers shop for a basket of goods. Our analysis also reveals that retailers make higher margins on unadvertised products and less on advertised products. Furthermore it shows the power of a popular brand where its popularity can be enhanced through brand advertising. From a managerial standpoint we also show that the effectiveness of advertising should not be narrowly interpreted in terms of increase in share or awareness but should include the ability to charge a higher wholesale price. Finally our analysis sheds light on extant, and provides guidance to future, empirical work in this area.
To Zap or Not to Zap: A Study of the Determinants of Channel Switching During Commercials
Authors: Siddarth S. , Chattopadhyay Amitava
Published: October 2008

We present a conceptual framework to describe the commercial zapping phenomenon and use it to identify factors that influence channel switching during commercials. Drawing on previous research, published reports of practitioner gut feel, interventions used by advertisers to reduce channel switching, and proprietary studies reported in the published literature, we describe how these variables might potentially affect the decision to zap a commercial. We use a latent class approach to model the impact of the identified factors on two aspects of the switching decision—whether or not a commercial is zapped (modeled with a binary logit model) and, conditional on a zap having taken place, the number of seconds that the commercial was watched before being zapped (modeled within the proportional hazards framework). The model is estimated on telemeter data on commercial viewing in two categories (spaghetti sauce and window cleaners) obtained from a single-source, household scanner panel.

The results from the empirical analysis show that households can be grouped into two segments. The first, which consists of about 35% of households in the sample, is more zap-prone than the second. For this “zapping segment,” the probability of zapping a commercial is lower for households who make more purchases in the product category. Also, zapping shows a J-shaped response to previous exposures to the commercial, with the associated zapping elasticity reaching its minimum value at around 14 exposures and increasing rapidly thereafter. This finding suggests that advertisers should be cautious not to use media schedules that have excessive media weight or that emphasize frequency over reach.

We found that zapping probabilities for ads aired around the hour and half-hour marks to be significantly higher than for other pod locations. Based on these results, we argue that prices for advertising pods located around the hour/half-hour marks should be between 5% to 33% lower than those in the remaining portion of the program.

We explore the impact of advertising content on zapping and find that the presence of a brand differentiating message in a commercial causes a statistically significant decrease in zapping probabilities. While the magnitude of this effect is small, the finding suggests that it may be helpful to include qualitative variables in future models of advertising response.

We propose the expected proportion of time that an ad is watched as a benchmark to compare 15-second and 30-second ad formats from a zapping standpoint. We found no significant differences between the two formats on this dimension. Our analysis also shows that, due to the impact of previous exposures on zapping, the use of 15-second ads runs a greater risk of reaching the threshold exposure level beyond which zapping probabilities start to increase. This implies that while managers must be cognizant of the risks of overexposure for any ad, it is especially important in the case of the shorter, 15-second ad format.
Does “Bait and Switch” Really Benefit Consumers?
Authors: Wilkie William L. , Mela Carl F. , Gundlach Gregory T.
Published: October 2008

While the field of marketing science has long been interested in the effects of promotional efforts, public policy issues involving illegal marketer fraud and deception have generally not been addressed in this body of work. One key exception to this generalization is a Marketing Science article suggesting that the practice of “bait and switch” may be beneficial to consumers and, furthermore, that the Federal Trade Commission should investigate revising its standards to legitimize this practice (Gerstner and Hess 1990). This finding and recommendation seemed so significant that it is surprising that the recommendation has not, to date, been explored in greater detail.

In this paper we further explore the impact of the two components of bait and switch: out of stock and upselling. We do this by using Moorthy's (1993) theoretical modeling framework to systematically extend and assess the Gerstner and Hess model. We find that the previously reported increase in consumer welfare that arises from allowing out-of-stock conditions at retailers is actually due to the utility created by salespersons' explaining product features and benefits, not by the out of stock. Thus, the ramifications of both our legal and modeling analyses are that deceptive bait-and-switch practices result in harm to consumers and should not be legalized.

Our paper concludes by proposing worthwhile modeling issues for further exploration. In addition, we suggest that our procedure for analyzing public policy issues (by exploring the confluence of law, consumer behavior, and marketing models) can serve as a useful exemplar for further contributions to public policy by marketing scientists.
Product Proliferation: An Empirical Analysis of Product Line Determinants and Market Outcomes
Authors: Bayus Barry L. , Putsis William P.
Published: October 2008

Considering the number of new product introductions and available product varieties today, the practice of product proliferation is visibly evident in many diverse industries. Given its prevalence in practice, understanding the determinants and implications of firm proliferation strategies clearly has important managerial relevance.

Previous theoretical research has identified three primary effects of a proliferation strategy: (1) a broad product line can increase the overall demand faced by the firm, (2) a broad product line can affect supply by increasing costs, and (3) broad product lines can have strategic consequences (e.g., long product lines can deter entry, thereby allowing an incumbent firm to raise prices). However, despite the theoretical interest in this common business practice, there has been very little empirical research on this topic. Moreover, no empirical study has simultaneously considered all three of the possible effects associated with a proliferation strategy. Consequently, in this paper we propose a three-equation simultaneous system that captures both the determinants and market outcomes of a firm's product line decisions. In particular, we specify market share, price, and product line length equations, which are estimated by three stage least squares. Using this structure, we empirically study the personal computer industry over the period 1981–1992.

Our empirical results demonstrate that proliferation strategies do not have a uni-dimensional explanation. We find that product proliferation decisions have both demand (market share) and supply (price) implications. Our empirical results also suggest that the firm-level net market share impact of product proliferation in the personal computer industry is negative (i.e., the cost increases associated with a broader product line dominate any potential demand increases). As expected, we find that structural competitive factors play an important role in the determinants and market outcomes of a firm's product line decisions. However, we do not find evidence of firms using proliferation strategies to deter entry in this industry. Finally, we also demonstrate that some of the empirical conclusions from previous research are reversed once product line length is specified as endogenous in the share and price specifications.
The Dynamic Effect of Discounting on Sales: Empirical Analysis and Normative Pricing Implications
Authors: Kopalle Praveen K. , Mela Carl F. , Marsh Lawrence
Published: October 2008

Baseline sales measure what retail sales would be in the absence of a promotion (Abraham and Lodish 1993), and models that measure baseline sales are widely used by managers to assess the profitability of promotions (Bucklin and Gupta 1999–this issue). Estimates of baseline sales and promotional response are typically independent of past promotional activity, even though there is evidence to suggest that increased discounting reduces off-promotion sales and increases the percentage of purchases made on deal (e.g., Krishna 1994). As a result, models that do not consider dynamic promotional effects can mislead managers to overpromote. Given the widespread use of “static” models to evaluate the efficacy of promotions, it is particularly desirable to calibrate a dynamic brand sales model and use it to establish an optimal course of action.

Accordingly, we develop a descriptive dynamic brand sales model and use it to determine normative price promotion strategies. Our descriptive approach consists of estimating a varying-parameter sales response model. Letting model parameters vary with past discounting activity accommodates the possibility that market response changes with firms' discounting policies. In the normative model, we use the estimates obtained in the descriptive model to determine optimal retailer and manufacturer prices over time.

The results of the descriptive model indicate that promotions have positive contemporaneous effects on sales accompanied by negative future effects on baseline sales. The results of the normative model suggest that the higher-share brands in our data tend to overpromote while the lower-share brands do not promote frequently enough. We project that the use of our model could improve manufacturers' profits by as much as 7% to 31%.

More generally, the normative results indicate that i) if deals become more effective in the current period, i.e., if consumers are more price sensitive, promotions should be used more frequently; and ii) as the negative dynamic effect of discounts on sales increases, the optimal level of discounting should go down. Without our approach, it would be difficult to make this trade-off exact. Finally, we demonstrate that these dynamic effects provide another perspective to the marketing literature regarding the existence of promotions.
Commentary on “Industrial Pricing: Theory and Mangerial Practice”
Authors: Cressman George E.
Published: October 2008

Noble and Gruca (1999, this issue) provide useful insights into the pricing practices managers employ. Their findings indicate managerial pricing practices are heavily dominated by internal, cost-based approaches. Particularly relevant is the absence of value-based pricing practices.

Noble and Gruca's findings indicate that the emerging market orientation work has not connected to pricing practice. This work poses a significant challenge for marketing theoreticians and educators: How can managers be helped to move beyond internally focused to externally-customer-focused pricing practice?
Response to the Comments on “Industrial Pricing: Theory and Managerial Practice”
Authors: Noble Peter M. , Gruca Thomas S.
Published: October 2008

The authors thank We would like to thank George E. Cressman, Jr. for his comments on their paper, “Industrial Pricing: Theory and Managerial Practice.” This study had its origins in the thesis of the first author, who entered a doctoral program in marketing after spending 18 years in the heavy equipment industry. In that period he spent a lot of time setting prices and trying to predict future price changes by competitors. His industry experience suggested that the market-oriented pricing strategies discussed in the marketing literature are not used as extensively in practice as we might like to believe. The results of the study do confirm this suspicion, although not to the extent suggested in the commentary. It is important to understand how many firms are operating with a purely internal focus for their pricing strategy.
The Variety of an Assortment
Authors: Hoch Stephen J. , Bradlow Eric T. , Wansink Brian
Published: October 2008

Consumers rank variety of assortment right behind location and price when naming reasons why they patronize their favorite stores. Consumers care about variety because they are more likely to find what they want when going to a store that offers more varied assortments. When tastes are not well formed or are dynamic, perceived variety matters even more because of the desire to become educated about what is available while maintaining flexibility. Variety perception also matters when the variety-seeking motive operates. Retailers care about variety because customers value variety. Therefore, it is important to understand how people perceive the variety contained in an assortment and how these perceptions influence satisfaction and store choice. Remarkably, except for a recent study by Broniarczyk et al. (1998), there has been no research aimed at understanding the variety perception process itself.

We offer a general mathematical model of variety based on the complete information structure of an assortment, defined both by the multiattribute structure of the objects and their spatial locations. We impose a psychologically plausible set of restrictions on the general model and obtain a class of simpler estimable models of perceived variety. We utilize the model to develop assortments that vary widely in terms of their information structure and study the influence of three factors on variety perceptions: (a) information structure of each assortment (i.e., the attribute level differences between objects); (b) level of organization of the objects and hence their relative spatial positions; and (c) task orientations, promoting either analytic or holistic processing. We also investigate the influence of variety perception and organization on stated satisfaction and store choice. To summarize our major findings:

1. Information structure has a big impact on variety perceptions, though diminishing returns accompany increases in the number of attributes on which object pairs differ.

2. People are more influenced by local information structure (adjacent objects) than nonlocal information structure. Proximity matters.

3. Organization of the display can either increase or decrease variety perceptions. When people engage in analytic processing, organized displays appear to offer more variety. When processing is holistic, random displays are seen as more varied.

4. Both variety perceptions and organization drive stated satisfaction and store choice. People are more satisfied with and likely to choose stores carrying those assortments that are perceived as offering high variety and that are displayed in an organized rather than random manner.

Our work provides a basic framework for thinking about variety. By helping retailers to understand the factors that drive variety perception, it may be possible to design more efficient, lower cost assortments without reducing variety perceptions and the probability of future store visits.
MDS Maps for Product Attributes and Market Response: An Application to Scanner Panel Data
Authors: Andrews Rick L. , Manrai Ajay K.
Published: October 2008

There is theoretical and empirical evidence that consumers have limited cognitive resources and thus cannot maintain direct preferences for each choice alternative on the store shelves. Instead, they likely form their overall preferences for choice alternatives by evaluating the attributes describing each item. Rather than mapping the locations of and preferences for all choice alternatives in a multidimensional space, as is the current practice in marketing research, it is insightful to map the locations of and preferences for the attributes consumers use to evaluate the choice alternatives. The model proposed in this study unifies latent class preference models (choice models or conjoint models) with latent class multidimensional scaling (MDS) analysis. Dimensional restrictions are imposed on latent class preference models such that the locations of attribute levels and market response parameters can be mapped in reduced-dimension spaces. Interactions between attributes can be graphically examined, which is not feasible with the traditional MDS approach. Also, the effects of price reductions and promotions on the locations of attribute levels can be graphically examined. An empirical application with scanner panel data shows the capabilities and limitations of the proposed model. In addition to the managerial insights provided by the model, it is also much more parsimonious than existing methods, and it forecasts holdout choices significantly better. In the empirical application, a model with two-dimensional attribute maps has 50 fewer parameters than the best unrestricted latent class choice model, yet the fit is comparable. The predictive performance of our model is shown to be superior to that of latent class MDS approaches and latent class conjoint approaches.
Advertising and the Diffusion of New Products
Authors: Horsky Dan , Simon Leonard S.
Published: October 2008

This paper examines the effects of advertising on the sales growth of new, infrequently purchased products. It is assumed that producer originated advertising serves to inform innovators of the existence and value of the new product while word-of-mouth communication by previous adopters affects imitators. Such a diffusion process is modeled and tested for the case of telephonic banking. It is shown that advertising accelerates the diffusion process of the new product. The implications for a firm introducing a new product and wishing to maximize its discounted profits over the product's life cycle are discussed. In particular, it is demonstrated that the optimal advertising policy is to advertise heavily when the product is introduced and to reduce the level of advertising as sales increase and the product moves through its life cycle. Evidence that such a strategy is commonly practiced by firms is cited.
Formal Choice Models in Marketing
Authors: Corstjens Marcel L. , Gautschi David A.
Published: October 2008

The paper gives an overview and evaluates the theoretical traditions underlying choice models that are used in marketing. In particular, the emphasis of this essay is on the underlying assumptions, limitations and empirical demands of these choice models. Four fundamental choice models are used as a basis to analyze this complex field; the neoclassical economic theory as extended by Lancaster, the Risk-Preference Theory of Choices under uncertainty, the Strict Utility Theory and the Random Utility Theory. These four choice models and their extensions are compared and contrasted along the three critical steps in the model building process: theory generation, parameterization and estimation.
An Industry Equilibrium Analysis of Downstream Vertical Integration
Authors: McGuire Timothy W. , Staelin Richard
Published: October 2008

This paper investigates the effect of product substitutability on Nash equilibrium distribution structures in a duopoly where each manufacturer distributes its goods through a single exclusive retailer, which may be either a franchised outlet or a factory store. Static linear demand and cost functions are assumed, and a number of rules about players' expectations of competitors' behavior are examined. It is found that for most specifications product substitutability does influence the equilibrium distribution structure. For low degrees of substitutability, each manufacturer will distribute its product through a company store; for more highly competitive goods, manufacturers will be more likely to use a decentralized distribution system.
Recall, Recognition, and the Measurement of Memory for Print Advertisements
Authors: Bagozzi Richard P. , Silk Alvin J.
Published: October 2008

The recall and recognition of people for 95 print ads were examined with an aim toward investigating memory structure and decay processes. It was found that recall and recognition do not, by themselves, measure a single underlying memory state. Rather, memory is multidimensional, and recall and recognition capture only a portion of memory, while at the same time reflecting other mental states. When interest in the ads was held constant, however, recall and recognition did measure memory as a unidimensional construct. Further, an examination of memory over three points in time showed considerable stability. The findings are interpreted from the perspective of recent research in cognitive psychology as well as current thinking in consumer behavior and advertising research. Managerial implications are considered as well.
A Logit Model of Brand Choice Calibrated on Scanner Data
Authors: Guadagni Peter M. , Little John D. C.
Published: October 2008

A multinomial logit model of brand choice, calibrated on 32 weeks of purchases of regular ground coffee by 100 households, shows high statistical signficance for the explanatory variables of brand loyalty, size loyalty, presence/absence of store promotion, regular shelf price and promotional price cut. The model is parsimonious in that the coefficients of these variables are modeled to be the same for all coffee brand-sizes. The calibrated model predicts remarkably well the share of purchases by brand-size in a hold-out sample of 100 households over the 32-week calibration period and a subsequent 20-week forecast period. The success of the model is attributed in part to the level of detail and completeness of the household panel data employed, which has been collected through optical scanning of the Universal Product Code in supermarkets.

Three short-term market response measures are calculated from the model: regular (depromoted) price elasticity of share, percent increase in share for a promotion with a median price cut, and promotional price cut elasticity of share. Response varies across brand-sizes in a systematic way with large share brand-sizes showing less response in percentage terms but greater in absolute terms. On the basis of the model a quantitative picture emerges of groups of loyal customers who are relatively insensitive to marketing actions and a pool of switchers who are quite sensitive.
Managing Channel Profits
Authors: Jeuland Abel P. , Shugan Steven M.
Published: October 2008

A channel of distribution consists of different channel members each having his own decision variables. However, each channel member's decisions do affect the other channel members' profits and, as a consequence, actions. A lack of coordination of these decisions can lead to undesirable consequences. For example, in the simple manufacturer-retailer-consumer channel, uncoordinated and independent channel members' decisions over margins result in a higher price paid by the consumer than if those decisions were coordinated. In addition, the ensuing suboptimal volume leads to lower profits for both the manufacturer and the retailer.

This paper explores the problems inherent in channel coordination. We address the following questions.

—What is the effect of channel coordination?

—What causes a lack of coordination in the channel?

—How difficult is it to achieve channel coordination?

—What mechanisms exist which can achieve channel coordination?

—What are the strengths and weaknesses of these mechanism?

—What is the role of nonprice variables (e.g., manufacturer advertising, retailer shelf-space) in coordination?

—Does the lack of coordination affect normative implications from in-store experimentation?

—Can quantity discounts be a coordination mechanism?

—Are some marketing practices actually disguised quantity discounts?

We review the literature and present a simple formulation illustrating the roots of the coordination problem. We then derive the form of the quantity discount schedule that results in optimum channel profits.
Carryover Effects and Temporal Aggregation in a Partial Adjustment Model Framework
Authors: Vanhonacker Wilfried R.
Published: October 2008

This paper discusses the impact of aggregating time series observations on the specification of an econometric model. In the framework of a familiar sales response model, temporally aggregated specifications are derived. It is illustrated that different aggregation schemes provide different models, each of them having appealing characteristics. Furthermore, the derived specifications illustrate that frequently calibrated models are misspecified and as such provide biased estimates which significantly affect the interpretation of the results. Some suggestions are provided for estimating the exact specifications in such a way that the obtained parameter estimates provide correct insights into the underlying response process.
A Model for Evaluating the Profitability of Coupon Promotions
Authors: Neslin Scott A. , Shoemaker Robert W.
Published: October 2008

In the experience of the authors, most firms do not have good procedures for estimating the net profitability of coupon promotions. Instead, managers generally examine a number of subsidiary measures such as: redemption rates, market share and the direct costs of the coupon promotion. A user-oriented computer model is presented for simulating the effect of coupon promotions on sales and calculating net profitability. The model includes the actions of the manufacturer, retailers, and consumers. It takes into account three key phenomena of consumer response: the acceleration of product category purchases, the brand loyalty of coupon redeemers, and repeat purchase effects. The model also incorporates the effects of retailer promotions that often accompany a coupon program. Data from an actual application are used to illustrate use of the model.
Targeting the Switchable Industrial Customer
Authors: Gensch Dennis H.
Published: October 2008

This article presents a new approach to target marketing. An industrial market for electrical equipment is segmented on the basis of the strength of current preferences as defined by the probabilities of selecting the various suppliers. A modification of a disaggregate attribute choice model (logit) is used to identify the firm's “switchable” customers. The “switchable” customers are then targeted by direct personalized mail and visits by a “missionary” sales force. A major supplier of large-scale electrical equipment utilized this methodology with impressive sales results.
Response—On Establishing a Dialogue in Television Viewing Research
Authors: Rust Roland T. , Alpert Mark I.
Published: October 2008

Response to the commentary Pringle, L. G. 1984. A Comment. Marketing Sci. 3 125–126 on author's paper Rust, R. T., M. I. Alpert. 1984. An audience flow model of television viewing choice. Marketing Sci. 3 113–124.
A Price Discrimination Theory of Coupons
Authors: Narasimhan Chakravarthi
Published: October 2008

The objective of this paper is to analyze the consumer's decision in electing to use cents-off coupons distributed by manufacturers of consumer products. Arguing that the decision to use coupons is based on the tradeoff between costs of using coupons and the savings obtained, it is shown that coupons can serve as a price discrimination device to provide a lower price to a particular segment of consumers. Based on a price theoretic model, it is shown that the users of coupons are more price elastic than nonusers of coupons and that the opportunity cost of time and other household resource variables are determinant factors in consumers' decisions. Implications derived from the model are tested using diary panel data.
Technical Note—A Pure Birth Model of Optimal Advertising with Word-of-Mouth
Authors: Monahan George E.
Published: October 2008

A stochastic, dynamic model of advertising, which incorporates both advertising and word-of-mouth effects, is formulated. The time between the acquisition of new customers is assumed to be random. The distribution of the time until the firm obtains a new customer depends upon the rate of advertising expenditures and upon a word-of-mouth parameter. The problem of choosing the rate of advertising expenditures so as to maximize long-run expected profit is formulated as a continuous-time Markov decision chain. The impact of changes in various parameters of the model on optimal advertising decisions is studied.
A Market Dynamics Model for New Industrial Products and Its Application
Authors: Oren Shmuel S. , Rothkopf Michael H.
Published: October 2008

New product planning models attempt to predict the market consequences of product line and product design decisions. One output of such models, especially those driven by subjective or market research data, is usually theoretical market shares based upon consumer preferences under idealized conditions. This paper describes a class of models that bridge the gap between such theoretical market shares and dynamic sales forecasts. This model accounts for differences in customer awareness of different products, for differences in product announcement dates, for differences in product availability, for differences in marketing efforts, for customer inertia and for customer purchasing delays. The paper describes specific details of such a model used in a system developed for market analysis of high speed nonimpact computer printers.
Market Segmentation, Self-Selection, and Product Line Design
Authors: Moorthy K. Sridhar
Published: October 2008

The purpose of this paper is to develop a theory of market segmentation based on consumer self-selection. The extant theory is based on the third-degree price discrimination model of Pigou, central assumptions of which are that the firm can directly address individual segments and isolate them. By using consumer self-selection, I am relaxing these assumptions. In the context of a monopolist designing a product line, I show that this relaxation has significant implications for how the products and prices are chosen and what they look like. In particular, segments may be aggregated even though there are no economies of scale. Furthermore, consumer self-selection enables us to model “cannibalization” and competition among firms.
A Multiattribute Model of Consumer Choice During Product Learning
Authors: Meyer Robert J. , Sathi Arvind
Published: October 2008

The processes of consumer preference formation during product learning are analyzed. A hypothesis about how individuals form attribute expectations is used to derive a dynamic multinomial logit model of individual choice which endogenously recognizes product learning. The model and its underlying assumptions are then tested in the context of an interactive grocery store learning game. The results support most elements of the proposed model structure. An assumption of temporal stationarity in attribute salience, however, could not be supported. Approaches to implementation of the model are discussed, and implications for marketing management and research in individual choice modeling are addressed.
Technical Note—A Price Vector Model of Demand for Consumer Durables: Preliminary Developments
Authors: Winer Russell S.
Published: October 2008

Although considerable research has been conducted on optimal pricing policies for manufacturers, relatively little work has been done on how price enters the consumer choice process. In this paper, a model is developed for durables purchasing which integrates both economic and behavioral research by specifying a vector of five price concepts which affect purchasing behavior. Of particular interest are variables relating to future price expectations. Due to data limitations, a revised model is estimated and the results provide preliminary support for the general model.
A New Class of Market Share Models
Authors: Batsell Richard R. , Polking John C.
Published: October 2008

Applications of market share models which (implicitly) rely on Luce's choice axiom have been widely criticized because they cannot account for the effects of differential product substitutability and product dominance. Three types of choice models—Tversky's Elimination-By-Aspects model, Tree Models, and Generalized PROBIT—have been offered as solutions to the problems identified with the Luce model, but they each suffer from limitations which have prevented their widespread application in marketing contexts. Tversky's elegant EBA model has not been widely used because it requires a large number of parameters and no special-purpose parameter estimation software has yet emerged. Tree models have been offered as more parsimonious special cases of EBA, but they are more restrictive in that they presume: (1) that products, and the process of choosing from among them, can be characterized in terms of hierarchical, attribute-based trees; and (2) that the aspects governing choice are well-known. Generalized PROBIT can paramorphically handle the problems with the Luce model, but parameter estimation software has proved problematic because it cannot guarantee a globally optimum solution. This paper proposes a new class of market share models. Rather than model the choice process explicitly, the new models simply scale the effects competing products have on each other's market share. These competitive effects are scaled in the context of a class of market-share models which: (1) do not assume a tree-like structure for the competing products; (2) do not presume any a priori knowledge about the attributes governing choice; (3) are characterized in terms of parameters that can be estimated using ordinary least-squares; and (4) provide clear managerial insight into the sources of competition. The paper begins with a brief review of previous work. Following the review, the paper offers a theorem and proof which guarantees the existence of the new class of models. The empirical validity and strategic utility of the models are demonstrated using two separate sets of data.
Mental Accounting and Consumer Choice
Authors: Thaler Richard
Published: October 2008

A new model of consumer behavior is developed using a hybrid of cognitive psychology and microeconomics. The development of the model starts with the mental coding of combinations of gains and losses using the prospect theory value function. Then the evaluation of purchases is modeled using the new concept of “transaction utility.” The household budgeting process is also incorporated to complete the characterization of mental accounting. Several implications to marketing, particularly in the area of pricing, are developed.
The Salesperson as Outside Agent or Employee: A Transaction Cost Analysis
Authors: Anderson Erin
Published: October 2008

This descriptive study explores the reasons for integration of the personal selling function, i.e., the use of employee (“direct”) salespeople rather than manufacturers' representatives (“reps”). A hypothesized model is developed based on both transaction cost analysis and the sales force management literature. Data from 13 electronic component manufacturers covering 159 U.S. sales districts are used to estimate a logistic model of the probability of “going direct” in a given district. Results are shown to be stable across specification and estimation methods and to fit the data well. The transaction cost model is generally supported. The principal finding is that the greater the difficulty of evaluating a salesperson's performance, the more likely the firm to substitute surveillance for commission as a control mechanism, i.e., to use a direct sales force. Among other findings, direct sales forces are also associated with complex, hard-to-learn product lines and with districts that demand considerable nonselling activities. Several factors prove unrelated, including company size, the amount of travel a district requires, and the importance of key accounts.
Optimal Dynamic Pricing For Expanding Networks
Authors: Dhebar Anirudh , Oren Shmuel S.
Published: October 2008

This paper analyzes the dynamic pricing decision of a monopolist marketing a new product or service whose consumption value increases with the expansion of the “network” of adopters. We characterize an optimal pricing strategy which maximizes the present value of the monopolist's profits, subject to the dynamics of the demand for network access. These dynamics depend, among other factors, on the current price and consumer anticipations about future network growth. We examine the effects of changes in the growth anticipations and the discount rate on the optimal equilibrium access price and network size. It is shown that higher growth anticipations and a lower discount rate result in a lower equilibrium price and a larger network.
A Constrained Unfolding Methodology for Product Positioning
Authors: DeSarbo Wayne , Rao Vithala R.
Published: October 2008

This paper presents a recently developed unfolding methodology for analyzing preferential/dominance data that addresses the product positioning/repositioning decision problem of product (re)design and targeting by relating brand and consumer characteristics explicitly to perceptual brand locations and ideal points respectively. The methodology and associated algorithm are applied to a set of preference data for twelve models of residential communication devices. Various managerial implications of the model for product positioning and optimal product design are illustrated and discussed.
Profitable Pricing When Market Segments Overlap
Authors: Gerstner Eitan , Holthausen Duncan
Published: October 2008

In this paper, we analyze profitable pricing strategies when market segments overlap. Overlapping markets are segments that are not perfectly sealed, and leakage between them can occur. Different consumers are assumed to incur possibly different transaction costs if they choose to purchase in the low-price market. A monopolist seller knows the distribution of transaction costs across consumers and must choose an optimal pricing strategy. In particular, the monopolist must decide whether to charge a single price or to price differentiate. Conditions are derived under which price differentiation will be the most profitable strategy. When price differentiation is optimal, the equilibrium amount of leakage is determined endogenously. Unlike the standard economics textbook model of price discrimination in which zero leakage is determined exogenously and is usually given as a necessary condition for price discrimination, we show that zero leakage is not necessary for differential pricing to be optimal, and that price differentiation can be optimal even when leakage between markets is substantial. We also show that by imposing restrictions on the low-price market buyers, the seller can control leakage and increase profits. Market-specific managerial applications are illustrated.