Conference Sessions - Jesse H. Jones Graduate School of ...

FA13
4 - Modeling the Impact of Visual Design in Consumer Choice Model
Elea McDonnell Feit, Research Director, Wharton Customer Analytics
Initiative, 256 S. 37th Street, Philadelphia, PA, 19104, United States of
America, efeit@wharton.upenn.edu, Jeffrey Dotson, Mark Beltramo,
Randall Smith
Product designers often want to understand the affect of visual design on product
choice, but it hasn’t been clear how to incorporate such complex, multi-dimensional
attributes into consumer choice models. Existing approaches either ignore important
information about visual design and its effect on vehicle choice, particularly the fact
that individuals differ in what they find appealing, or subject respondents to long and
difficult tasks where they rate many alternative visual designs. But when the affect of
design at the individual-level is ignored, the observed individual behavior is likely to
violate the IIA property, a feature of most choice models—including hierarchical
choice models. We propose a new model that controls for the fact that customers
who prefer one shape are likely to prefer similar-shapes. The model incorporates a an
error covariance between alternatives that is parameterized as a function of the visual
similarity of the alternatives. Using choice-based conjoint data for crossover utility
vehicles, we demonstrate that the proposed model makes better predictions about
which products will gain or lose share when a new vehicle enters the market. We
will discuss how such methods can be applied to other complex attributes such as
speed of a computer, sound quality of a stereo or taste of a snack food.
■ FA13
Champions Center III
Marketing Finance Interface I
Contributed Session
Chair: Michal Herzenstein, Assistant Professor of Marketing, University of
Delaware, 319 Lerner Hall, Newark, DE, 19716, United States of America,
michalh@udel.edu
1 - Going Public: How Stock Market Participation Changes Firm Product
Innovation Behavior
Christine Moorman, T. Austin Finch, Sr. Professor of Business
Administration, Duke University, Fuqua School of Business,
100 Fuqua Way, Durham, NC, 27708, United States of America,
moorman@duke.edu, Simone Wies
Innovation is a marketing action of high strategic relevance and a source of
competitive advantage. Abundant literature documents the positive effects of product
introductions on performance and capital market measures. These findings reveal that
investors do interpret innovation actions, and therefore suggest that managers
incorporate investor behavior in their decision-making. Apart from a few notable
exceptions, acknowledging the stock market as antecedent of innovative behavior has
so far been very limited in research in marketing. We address this possible reverse
causality and consider how firms change their innovative behavior, i.e. level and
timing of innovation, following an initial public offering (IPO). We examine our
predictions in a longitudinal data set of 263 firms that change their status from
private to public during the sample period. This quasi-experimental set-up is
complemented by a control panel of 285 firms that remain private throughout the
sample period from 1995 until 2007. We obtain a difference-in-differences estimate of
the average capital market effect that reveals an increase in the number of
introductions per quarter after the firm’s IPO. We also observe a change in the timing
of product introductions, with firms introducing new products closer to the end of
the quarter after they go public. We contribute to literature by showing a role of the
stock market in affecting firm behavior. Likewise, we employ a unique developmental
perspective on what the process of “going public” means for the firm’s strategic
choices. Finally, by using a quasi-experimental approach with a difference-indifferences
estimator, we are able to rule out methodological concerns with regard to
unobserved omitted factors.
2 - Media Expenditure Effectiveness and Firm Performance
Lopo Rego, Associate Professor, University of Iowa, Tipple College of
Business, 108 PBB W274, Iowa City, IA, 52242-1994, United States of
America, lopo-rego@uiowa.edu, Lisa Schöler, Bernd Skiera
Using a unique dataset detailing advertising expenditures by media type, we examine
the association between advertising investments, and short- (cash flows) and longterm
financial performance (Tobin’s Q). We find that reliance on aggregate advertising
data leads to biased assessments on the influence these investments have on
marketplace and financial performance. Using detailed advertising data, we identify
media type efficacy in creating firm performance, and detail specific firm and industry
conditions moderating these associations. This study contributes to a better
understanding of the effectiveness of, and how firms can leverage advertising
investments, and how such investments create marketplace and financial
performance.
3 - The Impact of Capital Structure on Customer Satisfaction
Reo Song, Assistant Professor, Kansas State University, Marketing
Department, Calvin 104, Manhattan, KS, 66506, United States of
America, strada@ksu.edu, Gautham Vadakkepatt
This study develops and tests a comprehensive conceptual framework that examines
the direct and indirect link between capital structure, i.e. a firm’s mix of financial
claims, and firm-level customer satisfaction. The authors hypothesize that a firm’s
capital structure can directly and indirectly impact customer satisfaction. Capital
structure can directly affect customer satisfaction by imposing liquidation cost on the
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customer. A firm’s capital structure indirectly influences customer satisfaction through
the mediation of marketing assets. Specifically, the authors argue that the potential
destruction of value of marketing assets in case of financial distress can lead firms
with high financial leverage to invest less in marketing assets, which in turn can
negatively influence customer satisfaction. Using a uniquely compiled dataset of 73
firms tracked for a period of eight years (2000-2007), the authors test and find
support for these hypotheses.
4 - The Use of Advertising for Capital Market Benefits
Michal Herzenstein, Assistant Professor of Marketing, University of
Delaware, 319 Lerner Hall, Newark, DE, 19716, United States of
America, michalh@udel.edu, Tzachi Zach, Dan Horsky
Do firms engage in marketing activities for reasons other than to increase sales and
build up their brand? A natural context to examine this question is the raising of
funds through initial public offerings (IPOs) and seasoned equity offerings (SEOs).
Are the marketing activities, in particular advertising expenditures, of firms engaged
in these offerings different before and after such offerings? Past literature in both
marketing and finance domains is equivocal, with some papers showing that
companies engage in earning management and reduce advertising expenses to appear
more profitable (Mizik and Jackobson 2007); and others showing that advertising
budgets are increased in order to reduce the asymmetric information between firms
and investors (Chemmanur and Yan 2009). Yearly advertising spending (from
COMPUSTAT) was employed in the above papers. Using TNS data which tracks
weekly advertising expenses, Joshi and Hanssens (2010) show that ad spending has a
positive impact on firms’ market capitalization. But their data is limited to two
industries and nine firms. Similar results were shown by Osinga et al. (2011) in the
pharmaceutical industry. In the present research we utilize a much larger TNS dataset
(all firms engaged in IPO or SEO in 1995-2009, over 2000 firms). By employing
weekly data (rather than yearly data as prior research) we are able to shed light on
firms’ ad spending patterns and purposes before securing capital.
5 - A Simple Metric that Really Matters: Including the Share of Customer
Business in Financial Reports
Christian Schulze, Goethe-University Frankfurt, Grueneburgplatz 1,
Frankfurt, 60323, Germany, email@christian-schulze.de,
Manuel Bermes, Bernd Skiera
Firm’s profit either comes from customer business or non-customer business.
Customer business refers to products being sold to customers or services mandated by
customers, whereas non-customer business comprises financial activities on the firm’s
own authority and for its own ac-count. Knowledge about their share in firm’s profit
is important because they rely on different intangible assets. For example, brands are
important for customer business, while smart traders are necessary to generate high
returns for excess liquidity. Yet, little is known about the size of these two kinds of
profits. In our first empirical study, we therefore analyze the degree of transparency
about non-customer business for the world’s leading firms across various industries.
Surprisingly, our evaluation of their public financial reports reveals that a lack of
stringent reporting requirements does not allow shareholders to determine the
importance of customer vs. non-customer business for most firms. In our second
empirical study, we then focus on the banking industry to analyze the share of profit
for customer business and non-customer business of more than 200 of the world’s
largest banks. Our findings are highly unintuitive: The share of customer business at
bank’s profit on average exceeds 100% - thus, non-customer business on average
destroys value. Both, the surprising findings for banks and the lack of transparency in
other industries lead us to propose more transparency in financial reporting regarding
customer business and the inclusion of customer business’s share of profit as an
additional metric.
■ FA14
Champions Center VI
Pricing and Consumer Behavior
Contributed Session
Chair: Marcus Kunter, RWTH Aachen, Templergraben 64, Aachen, 52064,
Germany, mk@lum.rwth-aachen.de
1 - Produce Line Obfuscation
Lin Liu, University of Southern California, Marshall School of
Business, Los Angeles, CA, 90089, United States of America,
Lin.Liu.2014@marshall.usc.edu, Anthony Dukes
There is evidence that consumers sometimes feel confused when shopping because of
the large number of products available. Conventional wisdom suggests that a firm
takes caution when extending its product line in order to mitigate confusion.
However, this wisdom ignores the impact of consumer confusion on competitive
interactions among firms. We develop a competitive model of firm competition when
a portion of the consumers become confused due to the number of products
available. We consider two levels of confusion and find that if some consumers are
moderately confused, then even the presence of a small portion of these confused
consumers provides benefits to firms in the form of reduced price competition. This
effect encourages firms to further obfuscate consumers’ choice by expanding their
product lines beyond the level of when there is no confusion. Alternatively, firms
shrink their products lines but do not lower prices as consumers become highly
confused. Finally, consumer welfare among confused and non-confused consumers,
as well as total social welfare, unambiguously suffers as a consequence of either
moderate or high levels of confusion.