Showing papers in "Marketing Letters in 2005"

The Firm's Management of Social Interactions

Abstract: Consumer choice is influenced in a direct and meaningful way by the actions taken by others. These “actions” range from face-to-face recommendations from a friend to the passive observation of what a stranger is wearing. We refer to the set of such contexts as “social interactions” (SI). We believe that at least some of the SI effects are partially within the firm’s control and that this represents an exciting research opportunity. We present an agenda that identifies a list of unanswered questions of potential interest to both researchers and managers. In order to appreciate the firm’s choices with respect to its management of SI, it is important to first evaluate where we are in terms of understanding the phenomena themselves. We highlight five questions in this regard: (1) What are the antecedents of word of mouth (WOM)? (2) How does the transmission of positive WOM differ from that of negative WOM? (3) How does online WOM differ from offline WOM? (4) What is the impact of WOM? (5) How can we measure WOM? Finally, we identify and discuss four principal, non-mutually exclusive, roles

Consumer Segments Based on Attitudes Toward Luxury: Empirical Evidence from Twenty Countries

Abstract: This article proposes an international segmentation of consumers based on their attitudes toward luxury. We perform a two-stage empirical study with a data set that combines samples from 20 countries. We provide a substantive interpretation of the results to show that three attitude segments dominate in a Western cultural context. We discuss several directions for future research based on the findings.

The Psychology of Intertemporal Discounting: Why are Distant Events Valued Differently from Proximal Ones?

Abstract: Research in intertemporal choice has been done in a variety of contexts, yet there is a remarkable consensus that future outcomes are discounted (or undervalued) relative to immediate outcomes. In this paper, we (a) review some of the key findings in the literature, (b) critically examine and articulate implicit assumptions, (c) distinguish between intertemporal effects arising due to time preference versus those due to changes in utility as a function of time, and (d) identify issues and questions that we believe serve as avenues for future research.

Models of Multi-Category Choice Behavior

Abstract: Given the advent of basket-level purchasing data of households, choice modelers are actively engaged in the development of statistical and econometric models of multi-category choice behavior of households. This paper reviews current developments in this area of research, discussing the modeling methodologies that have been used, the empirical findings that have emerged so far, and directions for future research. We also motivate the use of Bayesian methods to overcome the computational challenges involved in estimation.

Spatial Models in Marketing

Abstract: Marketing science models typically assume that responses of one entity (firm or consumer) are unrelated to responses of other entities. In contrast, models constructed using tools from spatial statistics allow for cross-sectional and longitudinal correlations among responses to be explicitly modeled by locating entities on some type of map. By generalizing the notion of a map to include demographic and psychometric representations, spatial models can capture a variety of effects (spatial lags, spatial autocorrelation, and spatial drift) that impact firm or consumer decision behavior. Marketing science applications of spatial models and important research opportunities are discussed.

Choice Models and Customer Relationship Management

Abstract: Customer relationship management (CRM) typically involves tracking individual customer behavior over time, and using this knowledge to configure solutions precisely tailored to the customers’ and vendors’ needs. In the context of choice, this implies designing longitudinal models of choice over the breadth of the firm’s products and using them prescriptively to increase the revenues from customers over their lifecycle. Several factors have recently contributed to the rise in the use of CRM in the marketplace: • A shift in focus in many organizations, towards increasing the share of requirements among their current

Recent Progress on Endogeneity in Choice Modeling

Abstract: We describe recent progress in several areas related to endogeneity, including: choice set formation and attention to attributes; interactions among decision-makers; respondents' strategic behavior in answering stated preference choices; models of multiple discrete/continuous choice; distributions of willingness-to-pay; and methods for handling traditionally endogenous explanatory variables.

Psychology, Behavioral Economics, and Public Policy

Abstract: Economics has typically been the social science of choice to inform public policy and policymakers. In the current paper we contemplate the role behavioral science can play in enlightening policymakers. In particular, we provide some examples of research that has and can be used to inform policy, reflect on the kind of behavioral science that is important for policy, and approaches for convincing policy-makers to listen to behavioral scientists. We suggest that policymakers are unlikely to invest the time translating behavioral research into its policy implications, and researchers interested in influencing public policy must therefore invest substantial effort, and direct that effort differently than in standard research practices.

Adjusting Choice Models to Better Predict Market Behavior

Abstract: The emergence of Bayesian methodology has facilitated respondent-level conjoint models, and deriving utilities from choice experiments has become very popular among those modeling product line decisions or new product introductions. This review begins with a paradox of why experimental choices should mirror market behavior despite clear differences in content, structure and motivation. It then addresses ways to design the choice tasks so that they are more likely to reflect market choices. Finally, it examines ways to model the results of the choice experiments to better mirror both underlying decision processes and potential market choices.

Choice Based on Goals

Abstract: This article introduces a goal-based view of consumer choice in which (1) choice is influenced by three classes of goals (consumption goals, criterion goals, and process goals), (2) goals are cognitively represented, and (3) the impact of a goal on choice depends on its activation. For each class of goals, we discuss how goal activation is influenced by direct (subconscious) goal priming, by spreading activation from choice options, from other goals, and from the context, and by goal (non-)achievement. Opportunities for modeling goal-based choice, the integration of emotions in a theory of goal-based choice, and relationships with dual-process theories of decision making are discussed.

Statistical Analysis of Choice Experiments and Surveys

Abstract: Measures of households' past behavior, their expectations with respect to future events and contingencies, and their intentions with respect to future behavior are frequently collected using household surveys. These questions are conceptually difficult. Answering them requires elaborate cognitive and social processes, and often respondents report only their “best” guesses and/or estimates, using more or less sophisticated heuristics. A large body of literature in psychology and survey research shows that as a result, responses to such questions may be severely biased. In this paper, (1) we describe some of the problems that are typically encountered, (2) provide some empirical illustrations of these biases, and (3) develop a framework for conceptualizing survey response behavior and for integrating structural models of response behavior into the statistical analysis of the underlying economic behavior.

Cognition, persuasion and decision making in older consumers

Abstract: Older adults constitute a rapidly growing demographic segment, but relatively little is known about them within consumer contexts: how they process information, respond to persuasive messages, and make decisions. We discuss extant findings from consumer behavior and related disciplines (e.g., cognitive psychology, neuroscience, social psychology, gerontology) as they pertain to the effects of aging on consumer memory, persuasion and decision

The Role of Ordinary Evaluations in the Market for Popular Culture: Do Consumers Have “Good Taste”?

Abstract: If we define “good taste” as that prescribed by professional experts in a particular cultural field and ask whether ordinary consumers (non-experts or members of the mass audience) have “good taste,” the evidence from previous studies suggests that the relationship between expert judgments and popular appeal to ordinary consumers is significantly but only weakly positive and is therefore consistent with a phenomenon of “little taste.” Possible explanations stem from the consideration of a variable that might mediate and thereby weaken the relationship between expert judgments and popular appeal—namely, ordinary evaluations, in which non-expert consumers assess the excellence (rather than the enjoyability) of a cultural offering. An earlier experimental study of musical performances showed that ordinary evaluations did intervene between expert judgments and popular appeal to college students so that, in this sense, ordinary consumers did display aspects of “good taste”. New data on over 200 motion pictures corroborate this finding in another cultural context, with actual audience members, and through the use of real-world as opposed to experimental observations.

Understanding firm, physician and consumer choice behavior in the pharmaceutical industry

Abstract: This paper argues that the pharmaceutical industry represents an exciting opportunity to carry out academic research. The nature of the industry allows researchers to answer new questions, develop new methodologies for answering these questions as well as to apply existing methodology to new data. The paper opens with some industry background, then provides a brief overview of some important research areas and discusses the open questions in each area. Issues of data type and availability are also discussed.

Shelf sequence and proximity effects on online grocery choices

Abstract: Research on shelf effects in traditional grocery stores shows that a product's absolute and relative shelf position may strongly affect consumer choices. The authors examine whether and how such shelf effects translate to an online grocery context. We find that a product's choice probability increases when presented on the first screen or located near focal items, especially when the latter are out-of-stock. These primacy and proximity effects have stronger impacts on choice decisions when assortments are more difficult to evaluate and when a clear shelf organization facilitates the use of shelf-based choice heuristics.

A Positive Theory of Private Label: A Strategic Role of Private Label in a Duopoly National-Brand Market

Abstract: This article offers an economic rationale for national brands to provide private labels to their retailers. We build a game-theoretic model that analyzes the interactions among two national brand manufacturers and one common retailer. In an interesting strategic role, the private label mitigates the promotion competition between the two national brands and provides benefits for all three members in the channel. Our analysis shows that offering a private label can be a credible commitment from a national brand manufacturer that it will not engage in promotions and decrease the incentive of the national brand rival to engage in promotions. In this way, we attempt to provide a reason for why national brand manufacturers provide retailers with private labels in practice. In addition, we discuss the optimal quality level of private labels.

Economics, Psychology, and Social Dynamics of Consumer Bidding in Auctions

Abstract: With increasing numbers of consumers in auction marketplaces, we highlight some recent approaches that bring additional economic, social, and psychological factors to bear on existing economic theory to better understand and explain consumers' behavior in auctions. We also highlight specific research streams that could contribute towards enriching existing economic models of bidding behavior in emerging market mechanisms.

Choice in interactive environments

Abstract: In the early 21st century, firms are thinking seriously and practically about an interactive marketing paradigm—one that integrates mass scale with individual responsiveness. The focus of this paper is on how this interactive environment is changing the customer decision-making process. With the increased amount of information available, the existence of sophisticated decision aids such as intelligent agents, and more latitude in how to interact beyond the basic desktop and laptop computers (e.g., personal digital assistants, cellular phones, tablet computers), customers have more choices than ever about how, when, and how much to interact with companies and each other. In this paper, we attempt to cover a few of the major areas of research on how customers make decisions in these environments.

Decision strategy and structure in households: a "groups" perspective

Abstract: From a practical perspective, (arguably) most consumer decisions are not made in isolation of the households in which consumers are inserted, yet we commonly treat them econometrically as if they were. The purpose of this workshop was to take some initial steps in defining needed research in household decision making that structurally accounts for goal sharing, utility interdependence, taste heterogeneity, choice set formation, power structures, group size and composition, and so forth. We also considered conditions under which aggregation of tastes, utility and choices might occur and make sense from both behavioral and modeling perspectives.

Recent Advances in Structural Econometric Modeling: Dynamics, Product Positioning and Entry

Abstract: In the empirical analysis of consumer markets, recent literature has begun to explore the dynamics in both consumer decisions as well as in firms' marketing policies. Other research has begun to explore the strategic aspects of product line design in a competitive environment. In both cases, structural models have given us new insights into consumer and firm behavior. For example, incorporating consumer and firm dynamics may help explain patterns in our data that are not well-captured by static models. Similarly, the strategic aspects of firm entry and product-positioning may be intrinsically linked to firm conduct and the intensity of competition in a market. Structural analysis of these consumer and firm decisions raise a number of substantial computational challenges. We discuss the computational challenges as well as specific empirical applications. The discussions are based on the session “Structural Models of Strategic Choice” from the 2004 Choice Symposium.

Theory-Driven Choice Models

Abstract: We explore issues in theory-driven choice modeling by focusing on partial-equilibrium models of dynamic structural demand with forward-looking decision-makers, full equilibrium models that integrate the supply side, integration of bounded rationality in dynamic structural models of choice and public policy implications of these models.

Allocating a Promotion Budget between Advertising and Sales Contest Prizes: An Integrated Marketing Communications Perspective

Abstract: This paper develops and analyzes a normative model for allocating a fixed, short-term promotion budget between product advertising and prizes of a rank-order sales contest for a homogeneous sales force when sales are driven by both personal selling effort and advertising. The model provides insights into how the optimal budget allocations vary with the synergy between advertising and selling effort, sales force size, salesperson risk-tolerance, perceived cost of effort, selling effectiveness and sales response uncertainty. The analysis highlights the need for and value of close coordination between marketing and sales management in designing a promotion program involving both advertising and sales force incentives.

Blissful Insularity: When Brands are Judged in Isolation from Competitors

Abstract: The need to evaluate a single brand in isolation, without explicit comparisons to competitors, is ubiquitous in consumer judgment because competitors are often not readily apparent Although consumers routinely make such judgments, in this paper we show that when a brand is judged in isolation, the judgment is often overly favorable Moreover, we explore when and why this tendency occurs Data from 259 participants across 3 experiments that considered very different product categories, and that were conducted with student and adult consumer samples, converge to show that; (1) isolated brand evaluations on average are characterized by a favorableness bias, (2) this bias results from consumers' selective processing of information about the focal brand, (3) favorableness bias is attenuated if context leads consumers to consider alternatives to a salient focal brand, and (4) the isolated brand judgments of experts are much better calibrated than are those of novices

Incorporating Behavioral Anomalies in Strategic Models

Abstract: Behavioral decision researchers have documented a number of anomalies that seem to run counter to established theories of consumer behavior from microeconomics that are often at the core of analytical models in marketing. A natural question therefore is how equilibrium behavior and strategies would change if models were to incorporate these anomalies in a consistent way. In this paper we identify several important and generalizable anomalies that modelers may want to incorporate in their models. We briefly discuss each phenomenon, identify a key unresolved issue and outline a research agenda to be pursued.

A New Look at Constructed Choice Processes

Abstract: Normative models of choice assert axiomatically that preferences are consistent, coherent, and determined only by relevant alternatives. In contrast to this classical economic perspective, behavioral models derived from research in psychology and consumer behavior assert that preferences are not guided by an internal, stable utility function but are constructed during the choice process. The current paper is based on a session on constructed choice processes (CCP) at the 2004 Choice Symposium that focused on how the standard CCP model can be enriched by bringing theories and tools from modern research in social cognition to bear on choice phenomenon. The richer conceptual framework presented by new, currently unpublished empirical work provides a novel perspective on choice construction by integrating the roles of subjective construal, experiential information, attribution, goals, and satisfaction in understanding preference construction processes in choice.

Do certified mail third-wave follow-ups really boost response rates and quality?

Abstract: The Total Design Method (TDM) of designing and implementing mail surveys has been shown to achieve high response rates. One key step in the TDM is sending a third-wave of surveys by certified mail. However, little research exists to verify the effectiveness of this step in improving response rates and quality relative to its increased expense, although this is the 50th anniversary of certified mail in the U.S. Perhaps as a result, scholars rarely use certified mail third-waves or omit third-wave mailings altogether. This article presents the results of two experiments that we embedded in two large-scale organizational mail surveys. Both studies reveal that sending a third-wave of questionnaires significantly increases the rate of response over the first two waves of mailings. Also, the results of Study 1 show that sending a certified mail third-wave has no appreciable effect on response quality. Study 2 shows that a certified mail third-wave does not significantly increase response rate or quality compared to sending the third-wave by regular, 1st-class mail.

Do Style-Goods Retailers' Demands for Guaranteed Profit Margins Unfairly Exploit Vendors?

Abstract: Retailers, particularly those in the style-goods and fashion apparel industry, are increasingly demanding guaranteed profit margins (GPMs) from their vendors. Under a GPM stipulation, a vendor has to offer a rebate to maintain the retailer’s target margin on the item if the retailer is compelled to take a markdown from the initial price to sell out the ordered quantity for the season. Vendors dispute retailers’ claim that a GPM is a “win-win” mechanism for both parties. They rather view it as a coercive device. The authors examine this issue in a multistage game with demand uncertainty. Interestingly, the analysis shows that depending on the level of demand uncertainty, it may be optimal for the vendor to lower rather than raise his wholesale price upon being asked for a GPM. Further, the analysis shows that under conditions of low demand uncertainty the provision of a GPM by the vendor to the retailer can indeed yield higher profits for both parties than in the NO GPM case.

Optimal Duration of Magazine Promotions

Abstract: The planning of promotions and other marketing events frequently requires manufacturers to make decisions about the optimal duration of these activities. Yet manufacturers often lack the support tools for decision making. We assume that customer decisions at the aggregated level follow a state-dependent Markov process. On the basis of the expected economic return associated with dynamic response to stimuli, we determine the ideal length of marketing events using dynamic programming optimization and apply the model to a complex promotion event. Results suggest that this methodology could help managers in the publishing industry to plan the optimal duration of promotion events.

The impact of price disclosure on dynamic shopping decisions

Abstract: A potentially powerful way to assist consumers in making dynamic shopping decisions is to disclose price information to them before they shop, for example by posting prices on the Internet. This paper addresses the differential impact of disclosing either only current, or both current and future prices, on consumer shopping decisions in multi-period tasks involving multiple product purchases. In the context of an Internet-based experiment, we find that consumer expenditure deviates more strongly from that of a normative model when both current and future prices are disclosed than if only current prices are disclosed. We investigate the behavioral effects underlying this finding by estimating a model that allows for variations in consumer discounting, strength of store price format preferences, as well as choice consistency between different price disclosure conditions.

Consumer Choices Under Small Probabilities: Overweighting or Underweighting?

Abstract: This article provides a theoretical account and identifies boundary conditions for the common beliefs about the “overweighting of small probabilities”. Based on four studies, our results suggest that the weighting of probabilities is context-dependent. When the contrast in value is reduced or not presented in a decision problem, small probabilities are less likely to be overweighted. In addition, as the associated payoffs increase, the weights on small probabilities tend to diminish or even to be “underweighted”. However, there is an “interpersonal difference” in the weighting of probabilities which reflects the particular circumstances of individuals, including their wealth status. Some implications of small probabilities for marketing practices are also investigated and discussed.