Marketing Research Seminar Series - Fall 2009

Quantitative models in marketing typically focus on the household as the unit of analysis while ignoring the individual family members' behavior and behavioral interactions among household members. However, knowledge of such intra-household behavioral interaction enables marketers to target their communications more effectively. In this paper, we propose a modeling framework to capture the intra-household behavioral interaction based on family members' actual consumption behavior over time. We develop a model to capture multiple agents' (more than two individuals') simultaneous choice decisions over more than two choice alternatives. This is extremely difficult with other previously developed modeling approaches. We apply the proposed model to a context of family member's television viewing, and simultaneously model whether TV is on, which type of programs is playing and which family member(s) is(are) watching. The proposed model allows us to estimate the individual's intrinsic preference and the extrinsic preference from a joint consumption with other members. These estimates allow us to test several alternative group decision-making heuristics that may operate in those joint consumption occasions and conduct managerially useful counterfactual simulations.

The authors review the Implicit Association Test (IAT), its use in marketing, and the methodology and validity issues surrounding it. They focus then on a validity problem that has not been investigated so far, the impact of cognitive inertia on IAT-effects. Cognitive inertia denotes the difficulty in switching from one categorization rule to the opposite categorization rule. This difficulty causes IAT-effects to depend on the order in which the two IAT-blocks are administered. In study 1, an IAT-effect is observed when the ‘compatible’ block precedes the ‘incompatible’ block, but not when the ‘compatible’ block follows the ‘incompatible’ block. In studies 2 and 3, the IAT-effect changes its sign when the order of the blocks is reversed. Cognitive inertia distorts individual IAT-scores and diminishes correlations between IAT-scores and predictor variables when block-order is counterbalanced between-subjects. Study 4 shows that counterbalancing block-order repeatedly within-subjects can eliminate cognitive inertia effects on the individual level. The authors conclude that researchers should either interpret IAT-scores on the aggregate level or, when individual IAT-scores are of interest, counterbalance block-order repeatedly within-subjects.

In many industries, firms use information on the identity of past buyers to engage in behavior-based price discrimination: past customers are offered one price and new customers another. However, with increased sophistication at the company-customer interface, many firms collect more than the names and addresses of past customers. Firms often collect demographic, ownership and personal information from each customer at the time of purchase. As a result, a firm can do more than offer a standard price to past customers; it can offer a price that is uniquely tailored to the customer based on her willingness to pay (location based price discrimination). This new capability raises a number of questions. First, can offering location-based prices to past customers, lead to higher profits in a competitive industry? Second, is the optimal pricing strategy affected by the competition's ability to respond? Finally, how will the frequency of "behavior and location based pricing" affect overall industry profitability? We examine these questions in a two-firm multi-period analytic model where a fraction of the market is replaced by new consumers each and every period: successive generations of consumers overlap. A key insight of the analysis is that the appeal and profitability of behavior and location based pricing depends on the evolution of consumer preferences over time. Even more important, there are many conditions where behavior and location based pricing can lead to higher industry profitability, i.e. the capability to implement behavior and location based pricing has the potential to be win-win for competing firms. Finally, we show that the ability of consumers to account for the future impact of current decisions has a significant effect on the pricing decisions made by firms. Strangely, consumers who think ahead suffer as a result of "more careful" decision making. Forward-thinking makes consumers "less sensitive" to prices and as a result, forward-looking consumer pay more for the same products.

When victims of Aids get some money from your purchase of a Gap Red t-shirt, or a breast cancer research foundation gets money when you buy a pink Avon nail polish, you are buying a cause-related product. Cause Marketing (CM) by firms entails linking products with a cause and sharing their sales proceeds with this cause. The number of firms carrying a cause-related product has significantly increased in recent years, and CM is very widespread today. I will present two papers on CM, which examine different issues. In the first paper, I consider a duopoly model of competition between firms in two products, to determine which products a firm will link to a cause. I first test the behavioral underpinnings of my model in two laboratory experiments, to demonstrate the existence of both a direct utility benefit to consumers from cause marketing (CM) and a spillover benefit onto other products in the portfolio. Linking one product in a product portfolio to a cause can therefore increase sales both of that product and, via a spillover effect, of other products in the firm’s portfolio. I construct a CM game in which each firm chooses which products, if any, to place on CM. In the absence of a spillover benefit, a firm places a product on CM if and only if it can increase its price by enough to compensate for the cost of CM. Thus, in equilibrium, firms either have both products or neither product on CM. However, with the introduction of a spillover benefit to the second product, this result changes. I show that if a single firm in the market links only one product to a cause, it can raise prices on both products and earn a higher profit. I assume each firm has an advantage in one product, and show that there is an equilibrium in which each firm links only its disadvantaged product to a cause. If the spillover effect is strong, there is a second equilibrium in which each firm links only its advantaged product to a cause. In each case, firms raise their prices on both products, and earn higher profits than when neither firm engages in CM. I also show that a firm will never place its entire portfolio on CM. Overall, my work implies that, by carrying cause-related products, companies can not only improve their image in the public eye but also increase profits. In the second paper, I experimentally show that when consumers purchase a cause-related product, their direct donation to the cause can decrease, and ironically that total donation to the charity (contributions from consumers and firms) can also decrease. As such, CM is not necessarily beneficial for the cause. Further, I show that males’ (but not females’) direct donations are sensitive to firm contribution – males donate less when firm contribution is higher. I conduct two experiments for which I design and use the “charitable shopping game”, a variation of the well known dictator game. My research indicates that cause-related products may help the firms marketing these products by increasing their sales, but need not increase the total contribution to the cause.

Point spread betting markets are considered an important example of crowd wisdom, because point spreads are accurate and are believed to reflect the “crowd’s” predictions of sporting events. However, a season-long experiment found that a crowd of football bettors was systematically biased and performed poorly when predicting which team would win against a point spread. Moreover, the crowd’s biases worsened over time. However, when the crowd was instead asked to predict game outcomes by estimating point differentials, its predictions were unbiased and wiser. Thus, the same “crowd” of bettors can emerge wise or unwise, depending on how predictions are elicited.

Firms frequently use a curious pricing mechanism called “pay as you wish” pricing (PAYW). When PAYW is used, a firm let consumers decide what a product is worth to them and how much they want to pay to get the product. This practice has been observed in a number of industries. In this paper, we theoretically investigate why and where PAYW can be a profitable pricing strategy relative to the conventional “pay as asked” pricing strategy (PAAP). We show that PAYW has a number of advantages over PAAP such that it is well suited for some industries but not for others. These advantages are: 1) PAYW helps a firm to maximally penetrate a market; 2) it allows a firm to price discriminate among heterogenous consumers; 3) it helps to moderate price competition. We derive conditions under which PAYW dominates PAAP and discuss ways to improve the profitability of PAYW.

We investigate how making highly consequential, highly undesirable decisions affects emotions and preference for autonomy. We examine individuals facing real or hypothetical decisions to discontinue their infants¡¯ life support who either choose personally or have physicians choose for them. Findings from a multidisciplinary approach consisting of a qualitative analysis of in-depth interviews and three laboratory studies reveal that perceived personal causality for making tragic decisions generates more negative feelings than having the same choices externally made. Tragic decisions also undermine coping abilities, weakening the desire for autonomy. Consequently, participants disliked making decisions but also resented relinquishing their option to choose.

We study the role of reference price in a setting where both the price and the quantity are set through personal interaction during the transaction process, such as in negotiated B2B transactions. Most studies on reference price in the literature have focused on consumer packaged good industries, where prices are typically fixed during the shopping trip and the transaction does not involve personal interaction with a salesperson. In this paper, we study the effect of reference price, not only on the quantity demanded but also in the pricing outcome of the transaction. We estimate a simultaneous equation system model of both pricing and quantity demand and obtain the following substantive findings: (1) reference price effects exist not only in quantity demand but also in pricing outcomes in B2B market transactions, (2) business customers react asymmetrically to price increases and price decreases, (3) salesperson reference price influences the price-setting behavior of sellers, and (4) reference price effects are attenuated with increased interaction between the customer and salesperson as well as increased customer experience of the product. The underlying reasons behind these findings are provided and managerial implications are discussed.