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TD07 MARKETING SCIENCE CONFERENCE – 2011 2 - A Structural Analysis on Service Quality and Pricing Tradeoff in Airlines Chen Zhou, Doctoral Candidate, Pennsylvania State University, Smeal College of Business, University Park, PA, 16802, United States of America, cxz159@psu.edu, Rajdeep Grewal Aside from price, service quality plays a prominent role in customer acquisition and retention for services firms such as those in airlines and hotel industries. Recognizing the importance of service quality, we reason that a formal model of competitive pricing behaviors of service firms should consider service quality as a managerial decision variable. For the purpose, we develop and estimate a structural model that treats both pricing and service quality as endogenous such that (1) both the variables are important in determining demand and (2) service quality also influence the production function. Thus, in our structural model we estimate systematically estimate demand, production, and profit functions. We test our model in the context of the US Airlines industry, where we conceptualize a route as a market. The data comes from multiple secondary sources, typically records maintained by the US Department of Transportation. Specifically, we obtain data on the 21 airlines on which Airline Quality Rating Reports provided by Purdue University maintains service quality measures. For these airlines, as is typical with structural models in the airlines industry, we obtain pricing and other data (e.g., capacity offered and utilized) on routes where origin and destination cities have population greater than 850,000. The results from the Generalized Method of Moment estimation of the structural model suggest heterogeneity in demand sensitivity of service quality and price across airlines, thereby having important implications for these two strategic resource allocation decisions. 3 - Hedonic Quality Differentiation and Channel Choice S. Chan Choi, Professor, Rutgers Business School, 1 Washington Park, Newark, NJ, 07102, United States of America, chanchoi@rci.rutgers.edu Quality is a multidimensional construct. In the literature, the quality concept has been used to describe either a whole product or an individual attribute. We employ a more holistic view of quality, in which quality dimensions are classified into either hedonic or utilitarian. Utilitarian qualities included attributes that are useful, practical, and necessary. Hedonic qualities are associated with fantasy, fun, and pleasure. Previous studies show that hedonic attributes have a dominant influence over utilitarian attributes when price information is present. This paper models price competition between two channels when companies are differentiated in hedonic quality. We employ a demand function that is derived from representative consumer utility that captures both horizontal and quality differentiations. We examine the way differentiation in hedonic quality alters the optimal channel choice decisions when companies compete in price when the products are also horizontally differentiated. ■ TD07 Founders I Services Contributed Session Chair: Kimmy Wa Chan, Assistant Professor in Marketing, Hong Kong Polytechnic University, Department of Marketing and Management, Li Ka Shing Tower, Hung Hom, Kowloon, Hong Kong - PRC, mskimmy@inet.polyu.edu.hk 1 - Service Worker Role in Encouraging Customer Equity: Dyadic Analysis Yu-Li Lin, Assistant Professor, Southern Taiwan University, 1, Nan-Tai Street, Yung-Kang City, Tainan, Taiwan - ROC, bookigen@gmail.com, Hsiu-Wen Liu The primary focus of this paper is assessment of the role of the service worker behaviors in encouraging customer equity. The researchers investigate this topic utilizes a dyadic sampling design. The sample includes 398 customer and service provider dyads. The findings of this research support our hypotheses. Customer orientation affects trust toward service provider. Trust toward service provider affect customer equity. Further, trust to the service worker serves as a mediator of the effects of customer orientation and customer equity. Finally, theoretical, managerial and future research implications are included. 2 - Perceptions of Service Failures: A Test and Extension of Affective Forecasting Theory Muyu Wei, Lingnan University, Dept of Marketing and Int’l Business, Tuen Mun, Hong Kong - PRC, mwei@ln.edu.hk, Geng Cui Service failure occurs when a service provider fails to meet customer expectations. Overall, service providers are believed to have more accurate predictions of the severity of service failures. However, researchers have seldom examined the accuracy of consumer perceptions or the perceptual gaps between consumers and service providers when analyzing service failure. In a 2 (group) x 2 (time) x 2 (surrogate information) experimental study, we test and extend a theory from psychology – affective forecasting – to examine the reactions of consumers and service providers to service failures. Both groups were asked about their perceived severity of the problem and their emotional reactions before and after a service failure. Due to the effect of 30 self-enhancement, both consumers and service providers tend to over-estimate the valence of their own reactions to service failures (anger vs. apology) given the significant differences in their feelings before and after the event. The results also indicate a significant gap in the perceived severity of the problem and emotional reactions between the two groups. Thus the perceptual gap between consumers and service providers is exacerbated and affect consumer expectations of the recovery efforts and their re-purchase intention. However, past experiences and the use of surrogate information, i.e., insight from others with similar experiences, serves as an effective way to reduce the perceptual gap and can help service providers to minimize consumer discontent. These findings have meaningful implications for understanding consumer reactions to service failures and for improving the management of recovery activities. 3 - Can I Do It? Can You Do It? Roles of Self-efficacy and Other-efficacy of Customers and Employees Kimmy Wa Chan, Assistant Professor in Marketing, Hong Kong Polytechnic University, Department of Marketing and Management, Li Ka Shing Tower, Hung Hom, Kowloon, Hong Kong - PRC, mskimmy@inet.polyu.edu.hk, Bennett C. K. Yim, Simon Lam Engaging customer participation (CP) in service production and delivery to cocreate value is gaining credence in both academic writing as well as marketplace practices. However, recent research shows that CP could be a double-edged sword; it could improve service quality to customers and strengthen the relational bond between customers and employees, yet, it could also pose problems for service employees (e.g., increase job stress). CP also could be a challenging endeavor for customers who not only need to have the knowledge, but also the ability, to perform their roles in specific service contexts. CP as a taxing situation for both customers and employees would therefore suggest that appraisals of both parties’ capabilities may affect their participation behaviors and emotional experience. This study examines the roles of both self-efficacy (SE) and other-efficacy (OE) (perceived capabilities of the partner) in the relationship between CP and enjoyment of participation for both customers and employees in the context of professional financial services. Social cognitive and role theories provide the foundations to support how (1) SE moderates the effect of CP on the enjoyment of participation and (2) the synergic effect of SE and OE affects the enjoyment of participation differentially for customers and employees. Empirical results from 223 pairs of customers and service employees of financial services suggest that efficacy perceptions determine the magnitude of CP effects. The match and mismatch of SE and OE also moderates the effect of CP on participation enjoyment, albeit differently for customers versus employees. Significant implications on managing customer-employee collaboration in service participation derived from the results are discussed. ■ TD08 Founders II Innovation IV Contributed Session Chair: Anna S. Cui, Assistant Professor of Marketing, University of Illinois at Chicago, 601 S Morgan Street, Chicago, IL, 60607, United States of America, ascui@uic.edu 1 - Patent Rank and Firm Performance Monte Shaffer, PhD Student, Washington State University, 821 Old Moscow, Pullman, WA, 99163, United States of America, monte.shaffer@gmail.com, U.N. Umesh Recently, top scholars in innovation rightfully assessed that traditional patent data is old and tired (Tellis et al. 2009, p. 12): “Some researchers and policy makers consider the registration of patents so important that they equate patents to innovation and often measure the latter with the former. This line of thinking suggests that patents would be an important driver of radical innovation. If markets value patents as highly as many researchers do, patents should have a major influence on financial returns of a firm.” In this manuscript, we intend to show how patents do indeed have a major influence on financial returns of firms. To do so, however, requires new data and a new perspective on patents and innovation. In a previous manuscript, we introduced Patent Rank as an objective measure of radical innovation. Patent Rank is a logical extension of WPC (weighted patent counts) introduced by Trajtenberg (1990). WPC weights each patent by forward citations because each patent’s importance and relevance is determined by how many other patents cite it as prior work. In other words, if more important patents cite a patent then the one that is cited increases, in turn, in its importance. Thus we specify a general model to define the network formation and structure. A ‘local effects’ model is most appropriate when studying financial returns using Fama/French or Carhart specifications. Another measure of importance is how well a patent, and its citations, diffuse over time. Utilizing nonlinear diffusion models, we identify which type of diffusion pattern best fit the innovation, and utilized that model to estimate a patent’s lifetime value (PLV). In this manuscript, we combine our findings to show how patents have a major influence on financial returns of firms.
2 - What You Don’t Know Can’t Hurt You: Effects of Knowledge Limitations on Technological Innovativeness Stav Rosenzweig, Assistant Professor, Ben Gurion University of the Negev, The Guilford Glazer Faculty of Business, POB 653, Beer Sheva, 84105, Israel, stavro@som.bgu.ac.il, David Mazursky Technological innovativeness underlies the development of new technologies. It generates new markets and transforms existing ones. As such, it drives the survival, growth, and success of firms, industries, and countries. A major driver of innovativeness is knowledge, which can be derived either from within the country’s technology or from outside it. What are the innovativeness consequences of limited sources of knowledge? Do knowledge sources – internal or external to a country’s technology – affect the country’s technological innovativeness? We use patent and trade data to answer these questions. We employ more than 280,000 patents issued in the US across 12 technological subcategories and over 16 years. In contrast to a prevalent thinking that bountiful knowledge sources enhance innovation we find that exposure to externally-derived knowledge is negatively associated with technological innovativeness in most technological subcategories. We also find that this negative relationship is reversed for computation and communications related subcategories. Moreover, while one may expect a negative relationship between internally-derived knowledge and innovativeness, we find that this relationship is curvilinear whereby highest levels of innovativeness are observed when internallyderived knowledge is used at moderate levels. We attribute our findings to the consequences of knowledge constraints and limitations, and suggest that they may have positive implications for technological innovativeness. 3 - Alliance Portfolio Resource Diversity and Firm Innovation Anna S. Cui, Assistant Professor of Marketing, University of Illinois at Chicago, 601 S Morgan Street, Chicago, IL, 60607, United States of America, ascui@uic.edu, Gina O’Connor Despite of firms’ increasingly common simultaneous engagement in multiple partnerships, research in marketing has predominantly focused on individual alliances without considering the important interdependencies among different alliances. This study takes a portfolio approach to examine the resource diversity of multiple alliance partners and its contribution to firm innovation. While diversity is generally viewed as beneficial for innovation, this study argues that resource diversity in an alliance portfolio can only contribute to innovation when diverse resources and information are shared across alliances or with other activities in the firm. Thus the benefit of resource diversity is dependent upon effective coordination across different alliances. This study examines factors that may facilitate or inhibit coordination across alliances and thus influence the realization of the benefit of resource diversity in an alliance portfolio. It identifies a number of moderating factors along three dimensions including the composition of an alliance portfolio, alliance governance, and the market environment. By doing so, this study not only demonstrates the boundary conditions for a firm to benefit from diverse partners, but also highlights the importance of coordination among different alliances suggesting a portfolio approach for partnership research in marketing. ■ TD09 Founders III Retailing I: General Contributed Session Chair: Umut Konus, Assistant Professor, Eindhoven University of Technology (TU/e), School of Industrial Engineering, TU/e ITEM Group IE&IS Pav.M.08, Eindhoven, 5600MB, Netherlands, u.konus@tue.nl 1 - The Effect of Brand Assortment Shares on National Brand Performance Across U.S. Supermarkets Minha Hwang, Assistant Professor, McGill University, Samuel Bronfman Building, 1001 Sherbrooke Street West, Montreal, QC, H3A1G5, Canada, minha.hwang@mcgill.ca, Raphael Thomadsen This paper extends the literature that discussed the local nature of national brand market shares by empirically investigating the performance of leading national brand market shares across U.S. supermarkets. Variance decomposition analyses of storelevel brand market shares of the top two national brands in six consumer packaged goods categories indicate the presence of large account-level components in national brand market shares. Specifically, we find that chain-level effects account for 24% of variation in brand shares, after controlling for variation across markets. We also note that there is substantial cross-chain variation in the assortments offered by different chain, and that chain-level effects account for 35% of the variation in a brand’s assortment share in a store, even controlling for market-level effects, which explain 51% of a brand’s assortment share. To gain more insight into the origin of the chainlevel effects, we investigate whether the association between market shares and assortment shares is causal. We find that chain’s brand assortment explains, on average, 57% of variance in market shares that can be attributed to chain-level components. We provide evidence that the estimated causal effects of brand assortment shares are robust to potential simultaneity biases. Taken together, these results suggest that the depth of distribution is among the major drivers of national brand market shares across stores. MARKETING SCIENCE CONFERENCE – 2011 TD09 31 2 - Validating Suppliers of Retailer’s Resources in Augmenting Product Safety Performance Wei-Che Hsu, Postgraduate Research Assistance, Chung-Hsing University, epartment of Marketing National, 250 Kuo-Kuang Rd., Rm.749, Taichung, 402, Taiwan - ROC, andy_8477@hotmail.com, Ming-Chih Tsai This study examines the effect of relationship-specific resources in affecting product safety. Retailers are increasingly concerned in the monitoring of product safety. When dealing with large numbers of individual suppliers, an effective method validating suppliers’ resources in regulating product safety is needed. Past researches examined relationship-specific invested resources in affecting financial performance, but few examines the effect of retailer and its suppliers’ investment on developing relationship-specific resources in achieving superior product safety. The study hypothesize under different extent of integrated transaction relations, parties investment in developing relationship-specific resource differently affect product safety performance. Leveraging from intellectual capital and resource-based view, we first identify intangible resources, capabilities, and validate their influences on retailer/suppliers’ invested relationship-specific resources, we then examine the effect of these invested resources in affecting food safety performance. A total of 61 valid data collected from suppliers of principle retailers in Taiwan enabled empirical examining through regression analyses. We find invested relationship-specific resources from either retailer or suppliers not to directly affect performance of product safety, but are significant when moderated by integrated relations. Findings from our research assist retailers optimize supplier selection through validating supplier’s intangible resources, and provide retailers an effective allocation of resource in developing mutually beneficial strategic resources in augmenting product safety. 3 - Assortment Selection in Retailing: Strict Return Policies Call for Eccentric Products Aydin Alptekinoglu, SMU Cox School of Business, 6212 Bishop Blvd, Dallas, TX, 75275, United States of America, aalp@cox.smu.edu, Elif Akcali, Alex Grasas Should retailers consider product returns when merchandising? We study how the optimal assortment decision of a price-taking retailer is influenced by its return policy in make-to-order (MTO) and make-to-stock (MTS) environments. We model individual consumer behavior in nested multinomial logit fashion, with purchase decisions in the first stage and keep/return decisions in the second stage. The retailer selects its assortment from an exogenous set of horizontally differentiated products. We call products with high (low) attractiveness popular (eccentric), because they are more (less) likely to be purchased by a typical consumer. Our main finding is that the optimal assortment has a counterintuitive structure for relatively strict return policies: It is optimal to offer a mix of the most popular and the most eccentric products when the refund amount upon return is sufficiently low. In contrast, if the refund is sufficiently high, or when returns are disallowed, optimal assortment is composed of only the most popular products. The structure of the optimal assortment is invariant to operational environment. Moreover, we show that the structure of optimal assortment differs between MTO and MTS environments when offering variety has a negligible fixed cost; argue that a more lenient return policy may not necessarily imply less variety; and take steps to verify the robustness of our findings to the retailer optimizing the return policy, to returned items cannibalizing the sales of new items, to quantity-dependent salvage values, and to the consumers reselling rather than returning. In summary, we conclude that retailers should carefully consider their return policy when merchandising, especially if it is sufficiently more strict than a full-refund policy. 4 - Tracking Holistic Customer Experience in Realtime Umut Konus, Assistant Professor, Eindhoven University of Technology (TU/e), School of Industrial Engineering, TU/e ITEM Group IE&IS Pav.M.08, Eindhoven, 5600MB, Netherlands, u.konus@tue.nl, Emma MacDonald, Hugh Wilson Recent research conceptualizes customer experience as the customer’s subjective response to the holistic direct and indirect brand encounter. Studies to date have, however, focused on parts of this holistic encounter such as communications or the retail environment. We propose a new method for tracking real-time experience using SMS (text) messages per encounter. 2506 consumers reported, via a structured SMS message, whenever they encountered either of two focal brands in a tracking period of a week, providing data on both encounter occurrence and encounter positivity (valenced affective response). As compared with survey methods, real-time insight offers the advantage of not relying on memory, which is particularly important for capturing affective response. We apply this method to examine the impact of customer’s encounters with various customer touch-points on brand preference for two soft drink brands. In our model we consider six encounter types: television and online advertisements, in-store and bar/restaurant communications, seeing others drinking, and word-of-mouth. Our results reveal that relative impacts of customer brand encounters through different touch-points vary by brand. Realtime encounter positivity adds explanatory power to our model. Positive encounters with TV ads, in-store communications and bar/restaurant communications have a positive impact on brand preference for both brands. The method may help managers to allocate resources across the marketing plan.
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