Department of Marketing & Entrepreneurship

Fall 2011

Time: Friday 10:30-12:00 PM
Location: 126 Melcher Hall
Open to Public: No reservation or registration required.

Date Speaker Topic
September 16 Murali Mantrala

    "Benchmarking Media-Platforms: A Method and Application to Daily Newspapers"
  • Click here to read Abstract

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

September 23 Maureen Morrin

"Scent and Consumer Behavior: What have we learned?"
September 30 David Soberman

    "Organizational Structure and Gray Markets"
  • Click here to read Abstract

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

October 7 Pradeep Chintagunta

    "Service Quality and Subscribers' Zero Rental Behavior for a Video-On-Demand Service"
  • Click here to read Abstract

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

October 14 Dinah Vernik

    "Turn-and-Earn in a Product Line: The Impact of Product Substitutability"
  • Click here to read Abstract

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

October 21 Garrett Sonnier
UT Austin

"A Latent Instrumental Variables Approach to Modeling Keyword Conversion in Paid Search Advertising"
October 28 Peter Fader

    "Customer retention dynamics in a contractual setting: The paradox of increasing loyalty"
  • Click here to read Abstract

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

November 4 Florian Zettelmeyer

    "Information Disclosure as a Matching Mechanism: Theory and Evidence from a Field Experiment"
  • Click here to read Abstract

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

November 11 Prasad Naik
UC Davis

    "Discovering How Advertising Works: Connecting Intermediate Effects of Advertising to Sales Response"
  • Click here to read Abstract

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