bluuebunny/crossref_metadata_2025_split huggingface dataset:
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?
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.
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.
Modeling Response to Advertising and Pricing Changes for “V-8” Cocktail Vegetable Juice
Authors: Eastlack Joseph O. , Rao Ambar G. 
Published: October 2008

This paper is based on a series of studies undertaken for “V-8” Cocktail Vegetable Juice over a five-year period. The studies were a consequence of management questions regarding the effectiveness of a new advertising campaign, the best media mix for this campaign and the apparent “wear-out” of the advertising copy. The studies included controlled experimentation, estimation of advertising response functions, and exploration of price sensitivity following major price increases by “V-8.” It was found that the short-term response to advertising was S-shaped, and that the new creative approach rather than expenditure levels alone accounted for by far the largest component of the impact of advertising on sales. It was also found that for a short period following the major price increases, “V-8” became extremely price sensitive. However, after about six months, the marginal impact of price returned to historical levels. The application of results at Campbell Soup Company, their relationship to the literature and their implications for both researchers and practitioners are discussed.
Modelling the Effectiveness and Profitability of Trade Promotions
Authors: Blattberg Robert C. , Levin Alan 
Published: October 2008

Trade promotions have become an increasingly important element of the marketing mix. Yet, there is very little research describing how to measure the profitability and effectiveness of trade promotions. This paper describes how retailers behave when trade promotions are offered. Then, a model is developed to capture the two key components of the process: the consumer and the retailer. An example is given showing how to apply the model to actual manufacturer and retail sales data. Then estimates of the profitability for different items in a product category are calculated. Many research questions are raised in this paper which can serve as future directions for research. Why are trade promotions generally unprofitable? How can scanner data improve the estimates given? How do different types of trade promotions affect the retailer and ultimately the consumer? Which brands and items should be trade promoted?
A Two-Stage Disaggregate Attribute Choice Model
Authors: Gensch Dennis H. 
Published: October 2008

A two-stage disaggregate attribute choice model is proposed and empirically implemented. The first stage of the model is attribute processing to screen the number of alternatives down to a lesser number. The second stage is brand (alternative) processing which considers the attributes simultaneously while allowing for tradeoffs among the attributes. This two-stage approach is then applied to the same real world data set as two single stage disaggregate models, logit and Maximum-Likelihood-Hierarchical (MLH) which are state of the art models representing the alternative and attribute processing approaches, respectively. The predictive accuracy of the two-stage approach compares favorably to the single stage models. In addition, it seems to offer diagnostic information that can provide managerial insights not found in the output of the single stage model.