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TB08 4 - Evaluating Financial Risk from Cross Border M&A Activities on Brand Identity Sustainability Sixing Chen, University of Connecticut, Storrs, CT, United States of America, sixing.chen@business.uconn.edu, Xiaoqi Yang, Ronald W. Cotterill The past several years have witnessed a strong trend of cross border merger and acquisition activities in emerging markets. M&A activity has a deep impact on reconstructing firms’ organizational structure and market structure, facilitating company organizational identity and corporate branding. Most financially mature companies in emerging markets seek technology advances as well as corporate recognition over the cross border M&A activity. However, cross border M&A includes huge financial risks that are related to the sustainability of the brand identity of the corporation both before and after the M&A process. This research examines the relationships between the firm’s financial risk and the sustainability of corporate branding identity during a cross border M&A activity. It chooses companies from Brazil, Russia, India and China, that initiated cross border M&A in the past 10 years. It includes multiple industries and M&A activities that happen between emerging markets and countries from different continents, such as North America, Europe, South East Asia, and Africa. We also focus on controlling some market related and technological determinants of R&D intensity and spending for different industries. We use both the branding rankings in business publications as well as corporate financial data for this empirical study. We expect the findings of the research will provide sufficient support that advertising spending and new leadership structure is among the factors that are highly associated with sustainability of brand identity after a cross border M&A. ■ TB08 Founders II Innovation II Contributed Session Chair: Chander Velu, Judge Business School, University of Cambridge, Judge Business School, Trumpington Street, Cambridge, CB2 1AG, United Kingdom, c.velu@jbs.cam.ac.uk 1 - An Analysis of the Financial Performance of Radical, Complex and Financially Risky Innovations Lisa Schöler, Goethe-University Frankfurt, Grüneburgplatz 1, Frankfurt, Germany, lschoeler@wiwi.uni-frankfurt.de, Bernd Skiera, Gerard J. Tellis Innovation introduction is an important driver of the financial performance of a firm, but little knowledge exists on the influence of radical, complex and financially risky innovations on stock market returns and how these three important characteristics are moderated by economic conditions and location. This study analyzes 198 product announcements with an event study and shows how these three important characteristics of innovations influence stock market returns. The authors find that radicalness and financial risk have a positive and complexity has a negative impact on stock market returns. These impacts are also influenced by economic conditions and location. 2 - Promoting Growth and Innovation through Acquisition: A Choice Modeling Approach Yu Yu, Assistant Professor, Georgia State University, 1336 College of Business, Georgia State U, 35 Broad Street, Atlanta, GA, 30303, United States of America, yyu5@gsu.edu, Vithala Rao While innovation and growth can be promoted internally through focus on research and development (R&D), many firms find acquisition from external sources to be a fast and attractive alternative. Despite the numerous theories of merger and acquisition in the literature, no empirical study has tackled the problem of target selection in an acquisition. This paper is the first to study the target selection criteria in an empirical setting. It quantifies the elusive concept of synergy by developing novel measures of similarity and complementarity between the acquirer and the target that are more comprehensive than the existing measures in the literature. Using an innovative application of the discrete choice model, the authors find that firms use acquisition to promote growth and innovation in areas of strategic interest. Specifically, acquirers choose targets whose product markets match their own R&D projects, and targets whose R&D projects match their own product markets. These findings provide support for the knowledge based view of the firm and lay the foundation for future research in this area. In spite of having a relative small sample, the authors were able to illustrate the robustness of the estimation results as well as the predictive ability of the model through a set of tests. These tests might be valuable for many empirical researchers who also face small sample constraints on a regular bases. 3 - Product Portfolio Effects of Innovation: A Diversification Perspective on Innovation Value Creation Fredrika Spencer, University of North Carolina-Wilmington, 1009 Country Glen Ct, Apex, NC, 27502, United States of America, fjs3@duke.edu, Richard Staelin Organizational researchers have long considered innovation a critical activity. While insightful regarding the nature of the innovation process and the rewards and risk associated with innovation, prior work has neglected the perspective that innovations function within a firm’s wider product portfolio. This perspective enables assessment of when innovations truly generate new value for firms and the mechanisms through MARKETING SCIENCE CONFERENCE – 2011 14 which it does so. We propose a general theory for how innovation creates new value for a firm and apply this theory to understanding how new value, measured as abnormal stock returns, from innovation is reflected in the changes it manifests in the diversity of a firm’s product portfolio. The empirical analysis of this framework seems to indicate that both innovations achieve value through individual mechanisms (e.g., demand) and portfolio mechanisms (e.g., leverage and cannibalization). The importance of this topic lies in both theory and practice. Theoretically, this work sheds light on the degree to which innovation value is a function of the value accrued to the innovation itself and its interdependency with the firm’s overall product portfolio. Practically, understanding how the new value from innovation incorporates the effect of the innovation on the firm’s portfolio enables firms to grasp how decisions they make regarding innovation influences their expected success. 4 - Entrepreneurs as Owner-managers, Ownership Concentration and Business Model Innovation Chander Velu, Judge Business School, University of Cambridge, Judge Business School, Trumpington Street, Cambridge, CB2 1AG, United Kingdom, c.velu@jbs.cam.ac.uk, Arun Jacob We examine the relationship between ownership and innovation by using data from the US and European bond trading industry. We show that less concentrated ownership and presence of entrepreneurs as owner-mangers positively influences the degree of innovation. In addition, we show that the positive relationship between less concentrated ownership and the degree of innovation is more pronounced in highly competitive environments and becomes negative in less competitive environments. On the other hand, we show that the positive relationship between entrepreneurs as owner-managers and the degree of innovation is stronger in less competitive environments and becomes negative in highly competitive environments. ■ TB09 Founders III Promotions II Contributed Session Chair: Francesca Sotgiu, HEC Paris, 1 Rue de la Liberation, Jouy en Josas, France, sotgiu@hec.fr 1 - On the Timing and Depth of a Manufacturer’s Sales Promotion Decisions with Forward-looking Consumers Yan Liu, Assistant Professor, Texas A&M University, 4112 TAMU, 220G Wehner, College Station, TX, 77843, United States of America, yliu@mays.tamu.edu, Subramanian Balachander, Sumon Datta This paper investigates a manufacturer’s optimal timing and depth of price promotions over a planning horizon in a frequently purchased packaged goods context. Our empirical analysis comprises of two steps. In the first step, we obtain heterogeneous demand side parameters with a dynamic structural model. In this model, consumers decide whether to buy, which brand to buy and how much to buy conditional on their rational expectations of future promotions. In the second step, we specify a dynamic game between consumers and the manufacturer and solve for the optimal promotion policy, taking the structural demand-side parameters from the first step as given. We obtain the optimal promotion policy as the Markov-perfect equilibrium outcome of the dynamic game. In our empirical application, we develop the optimal promotion schedule for the StarKist brand in the canned tuna category using household-level panel data. We find that it is optimal for the manufacturer to promote when the mean inventory for brand switchers is sufficiently low and that the optimal discount depth decreases in the mean inventory for brand switchers. We also find that Starkist could increase profit by offering more frequent but shallower price promotions. Interestingly, we find that the manufacturer’s profit increases as consumers become more forward-looking (discount the future less). 2 - Empirical Investigation of Consumer Impulse Purchases from Television Home Shopping Channels Sang Hee Bae, PhD Candidate, New York University, 40 West 4th St. Tisch Hall #920, New York, NY, 10012, United States of America, sbae@stern.nyu.edu, Sang-Hoon Kim, Sungjoon Nam Due to retail channel proliferation and mega size retail stores, marketers are putting more efforts in in-store marketing tactics to induce more impulse purchases while customers are at the stores. In particular, customers are more likely to purchase on impulse when they discover a product by chance with a price promotion or a bundling/multi-unit packaging offer. Although impulse buying is a widespread phenomenon, previous literature heavily relies on interrupt survey data or lab experiments on unplanned/impulse purchases. Also, the empirical data have been limited to a small number of product categories such as fashion and grocery. This paper empirically investigates the consumers’ retrospective canceling behavior on previous impulsive purchases for pricing, product bundling, and packaging offer. We use order canceling data from a television home shopping channel to proxy impulse purchase behavior. Order cancellation occurs when a customer places a product order, and subsequently cancels the order even before the product is shipped. The unique aspect of our data can distinguish between impulse purchases and unplanned purchases. We find that a small price discount significantly lowers consumer order cancellation by 30%. Also impulse buying is more likely to occur when products are sold with bundling offers for hedonic goods, but not for utilitarian goods. Furthermore, order cancellation varies by multi-unit packaging of products. These findings give managerial implications for in-store price promotion and bundling practices.
3 - The Impact of Free-trial Promotions on Adoption of a High-tech Consumer Service Bram Foubert, Assistant Professor, Maastricht University, School of Business and Economics, Department of Marketing and SCM, P.O. Box 616, Maastricht, 6200 MD, Netherlands, b.foubert@maastrichtuniversity.nl, Els Gijsbrechts, Charlotte Rolef With the boost of electronic consumer services like online movie rentals or digital TV, free-trial promotions have gained widespread acceptance. Although a few studies have explored the impact of samples for consumer packaged goods, free trials for electronic consumer services deserve separate attention. For one, a service trial does not involve a fixed consumption amount but a fixed consumption period, such that learning depends on the consumer’s usage intensity. Moreover, because of its hi-tech nature, the quality of the service may evolve over time. In this study, we investigate the effects of free-trial promotions on consumers’ adoption decisions for hi-tech services. We identify the different components of a consumer’s “adoption utility” that are influenced by a free trial, and use a mixed logit structure with Bayesian learning to model the resulting effects on adoption behavior. A key feature of our model is that it incorporates usage-based learning about service quality in a context where the service quality itself evolves over time. We estimate the model on data from a large European telecom operator offering free trials to promote its new interactive digital TV service. Our empirical results yield several key insights for managers. First, our analysis enables us to document how free trials impact both the number of adopters and the total subscription fees – thereby shedding light on the degree of subsidization. Second, we compare the effectiveness of free trials in conveying information about the service, with that of other tools, namely advertising and direct marketing. Last but not least, we generate insights into the appropriate timing of free-trial promotions, and offer guidelines for targeting. 4 - Promotion Effectiveness in Economic Turbulence: From Price Wars to Economic Downturns Francesca Sotgiu, HEC Paris, 1 Rue de la Liberation, Jouy en Josas, France, sotgiu@hec.fr, Katrijn Gielens Reports on supermarket price wars are a wide spread theme in the business press, throughout the world and over time. When retailers intensify price competition, brand manufacturers are often at a loss, as they tend to lose control over their price and promotion tactics. Whereas temporary price discounts are manufacturers favorite tool to (temporary) boost their brand’ sales and market shares, it remains unclear how individual promotion actions perform amid a barrage of store-wide pricerollbacks. To address this issue, we examine price promotion effectiveness when brand manufacturers are tied up in supermarket price wars. We look at whether brand managers can benefit from promoting more (or less) during price wars and whether they would be better off refraining from entering price wars, and/or changing their tactics as price wars go on. To do so, we first estimate the effectiveness of individual promotion events using a multiple break analysis (Leone 1987). Next, we relate the individual price promotion sensitivities to different price war scenarios. We analyze 687 individual price promotion events of a multinational CPG manufacturer at four competing supermarket chains between 2001 and 2005 in the Dutch market. Our results reveal that during price wars, promotions are more effective than during a business-as-usual environment. This effect, however, decreases over time during price wars. Still, when price wars coincide with economic contractions promotion effectiveness increases over time. ■ TB10 Founders IV Decision Making Contributed Session Chair: Robert Rooderkerk, Tilburg University, Warandelaan 2, Tilburg, NB, 5000 LE, Netherlands, R.P.Rooderkerk@uvt.nl 1 - Some Empirical Evidence on Predicted versus Reported Behavior: The Role of Attitudes and Situational William Putsis, University of North Carolina at Chapel Hill, Kenan- Flagler Business School, CB 3490, McColl Bldg #4518, Chapel Hill, NC, 27599, United States of America, William_Putsis@unc.edu, Preethika Sainam, Gal Zauberman Drug abuse among teenagers is commonplace: for example, in 2002, an estimated 2.6 million Americans used marijuana. So, what factors lead to drug use among teenagers and do situational or attitudinal factors drive anticipated behavior? For example, while there are many reasons for using drugs, peer pressure often plays a major role in initial trial. In our research, we use data from the Partnership for Drug Free America’s (PDFA) Partnership Attitude Tracking Survey (PATS). Using this survey, the main question that we examine is whether individuals, teenagers in particular, are able to correctly predict their future consumption of illegal drugs. We use prior research to provide hypotheses about the role that situation versus attitude play in the accuracy of their prediction, accounting for factors such as peer influence, access to drugs, attitudes about drugs as well as current and prior drug use. The two key aspects of our framework are prediction accuracy and the power of the situation over beliefs and attitudes in accounting for behavior. To provide insight into these issues, MARKETING SCIENCE CONFERENCE – 2011 TB10 15 we examine research from psychology and behavioral decision making to develop our theory and then test our hypotheses using successive waves of the PATS survey. We find that non-users do a good job predicting future non-use. However, those who have previously tried drugs before generally do a poor job of predicting future use, systematically under-predicting the amount that they will use in the future. Further, we find that the greater the amount of prior use, the greater the under-prediction. More generally, we find evidence that situation plays a larger role than attitude in accounting for this systematic under-prediction. 2 - Units versus Numbers Ashwani Monga, University of South Carolina, 1705 College Street, Columbia, SC, 29212, United States of America, ashwani@moore.sc.edu, Rajesh Bagchi Marketers frequently make changes to their product offerings (shipping time, package size, etc.). We study how consumers react to such changes. The physical quantities we consider are duration, height, and weight. Numerosity research suggests that people react more strongly to equivalent changes that are expressed in units that are small (e.g., change in shipping time from 7 to 21 days) rather than large (e.g., change from 1 to 3 weeks), because of the size of the numbers (7 to 21 > 1 to 3). We propose an opposite effect – what we call unitosity – such that people react more strongly to changes in large rather than small units because of the size of the units themselves (few more weeks > few more days). These opposing effects, we argue, could occur due to perceptual salience such that physically prominent numbers elicit numerosity, but prominent units elicit unitosity. Then, we discuss cognitive salience due to mindsets. We argue that people construe numbers at a low level and units at a high level, because of which a concrete mindset yields a numerosity effect whereas an abstract mindset yields a unitosity effect. We observe such numerosity-unitosity reversals in four laboratory studies. 3 - Resource Abundance and Conservation in Consumption Meng Zhu, Carnegie Mellon University, 5000 Forbes Ave, Posner 385a, Tepper School of Business, CMU, Pittsburgh, PA, 15213, United States of America, mzhu@cmu.edu, Ajay Kalra In most consumption contexts, consumers tend to seek convenience, which typically leads to greater acquisition of resources than is necessary. Such over-acquisition of resources is only possible when resources are abundant. When resources are not abundant, consumers need to carefully monitor their acquisition and consumption to not deplete the supply. Therefore, cues indicating non-abundance of a resource can prompt conservation behaviors. Importantly, we posit that the tendency to conserve triggered by non-abundance cues in a prior context can persist into subsequent consumption of unrelated resources. In four experiments, we demonstrate the proposed phenomenon, showing that non-abundance cues regarding one particular resource decrease cognitive accessibility of the general construct of abundance, and subsequently increase participants’ tendency to conserve a different type of resource (e.g., water, energy). Our results suggest that the underlying mechanism for the effect of non-abundance cues on conservation is motivational rather than priming of conservation-related concepts or traits. 4 - Optimizing the Assortment Layout: The Effect of Categorization Congruency on Purchase Incidence Robert Rooderkerk, Tilburg University, Warandelaan 2, Tilburg, NB, 5000 LE, Netherlands, R.P.Rooderkerk@uvt.nl Consumer perceptions of the variety and complexity of an assortment affect the decision to buy or not. The study investigates the influence of assortment configuration on purchase incidence through its effect on both assortment perceptions. The layout of an assortment implies a certain externally induced product categorization. Consumers, on the other hand, have their own internal product categorization. This study studies the effect of the congruency between the external and internal categorization on purchase incidence. The data result from a betweensubjects experiment for a biscuit category, conducted with actual shoppers in a grocery store. Results from Bayesian mediation analyses show that higher categorization congruency positively affects purchase incidence via two routes. The first route corresponds to a positive effect of categorization congruency on perceived variety. This is consistent with the notion that higher categorization congruency facilitates consumer recognition of variety. The second route involves a negative effect of categorization congruency on perceived complexity. An assortment lay-out that is more consistent with a consumer’s internal categorization will make it easier for the consumer to understand the assortment. The effect of congruency on the two assortment perceptions is asymmetrically moderated by product knowledge. Whereas higher product knowledge strengthens the effect of categorization congruency on perceived variety, it has no effect on the relationship with perceived complexity. The analyses account for the correlation between the mediators and the repeated measures nature of the data. As such, they provide a generalizable framework to test for multiple mediation in the presence of a binary dependent variable.
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