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

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FD02 ■ FD02 Legends Ballroom II UGC-IV (Content and Impact) Cluster: Internet and Interactive Marketing Invited Session Chair: Janghyuk Lee, Associate Professor, Korea University, Business School, Anam-dong, Seongbuk-gu, Seoul, 136701, Korea, Republic of, janglee@korea.ac.kr 1 - Understanding the Dynamic Process of Online WOM: A HB Choice Model for Online Response Behavior Luping Sun, Doctoral Student of Marketing, Peking University, Guanghua School of Management, Beijing, China, sunluping@gsm.pku.edu.cn, Ping Wang, Meng Su Online word-of-mouth (WOM) plays a critical role in reshaping consumers’ attitudes toward new products. Consumers consult online reviews to obtain others’ opinions of the new product, and then form their own ones. In a standard review, one main message initiates the communication, followed by responses from many reviewers to express their attitudes. This dynamic interaction process may change consumers’ original attitudes, and should be thoroughly studied to understand the dynamics. This research investigates how prior responses in a review and the characteristics of the current reviewer per se influence his or her attitude toward the new product. We collected 41 new product reviews from various websites and kept the first 40 to 50 responses for each review, which resulted in 1824 observations (i.e., responses) in total. In order to capture the main message heterogeneity, we apply a Hierarchical Bayesian Ordinal Choice Model with MCMC method to estimate the parameters. We find that prior responses and the current reviewer’ characteristics significantly influence his or her attitude to the product, and the impacts of the two differ greatly across main messages. Another intriguing finding is that positive responses matter more than negative ones in reshaping the following reviewers’ attitude. Finally, theoretical and managerial implications are discussed. 2 - User-generated Content in News Media T. Pinar Yildirim, University of Pittsburgh, Katz School of Business, 249 Mervis Hall, Pittsburgh, PA, 15260, United States of America, tyildirim@katz.pitt.edu, Esther Gal-Or, Tansev Geylani In this study, we investigate a newspaper’s decision to expand its product line by adding an online edition that incorporates user-generated content (UGC), and the impact of this decision on its slanting of news. We assume that the capability of online editions to offer UGC is especially appreciated by readers who have extreme political opinions. We find that extension of the product mix is a dominant strategy for newspapers resulting in reduced bias of the print editions of the newspapers. When UGC is added by readers to the online editions, each newspaper is indirectly forced by subscribers to offer two differentiated versions of its product. This extension of the product mix leads to reduced product differentiation and intensified competition on subscription fees. In addition, since the extent of slant of the online editions is partly determined by subscribers, the ability of the newspapers to extract consumer surplus via price discrimination is restricted. Due to these two effects, newspapers face reduced profitability in comparison to an environment where they offer only print editions or where they have the exclusive right to choose the bias of both editions. 3 - Online Reviews and Consumers’ Willingness-to-pay: The Role of Uncertainty Yinglu Wu, PhD Candidate of Marketing, E. J. Ourso College of Business, Louisiana State University, 3121 Patrick F. Taylor Hall, Baton Rouge, LA, 70803, United States of America, ywu3@tigers.lsu.edu, Jianan Wu Previous research studying the impact of online reviews on consumers’ willingnessto-pay (WTP) has focused on the valence and volume of online reviews. These studies theorized that both valence and volume took direct and independent roles in consumers’ uncertainty assessment of online purchases, thus their WTP. Results of these studies showed that the valence of online reviews exhibited consistent positive impact on consumers’ WTP, but the volume did not. The literature rationalized these findings on the heterogeneity of risk attitudes between consumers within the expected utility framework. Based on prospect theory and venture theory, we propose a new conceptual framework to study the relationship between online reviews and consumers’ WTP, in which we argue that the valence and volume of online reviews play different roles in consumers’ uncertainty assessment. We posit that the valence of reviews, which estimates the probability of an outcome (i.e., risk), plays a direct role while the volume of reviews, which assesses the uncertainty about such probability (i.e., ambiguity), plays an indirect role. A consumer may tend to 1) overweight small probabilities and underweight large probabilities, and 2) overweight/underweight more when ambiguity is high, rendering the consumer’s preference of smaller review volume when valence is low, but larger review volume when valence is high. As such, the impact of review volume on consumers’ WTP may vary within consumers, depending upon the review valence. We test our framework using data from a controlled experiment and from an online market. MARKETING SCIENCE CONFERENCE – 2011 62 4 - Failed Diffusion on Weak Tie Bridges Janghyuk Lee, Associate Professor, Korea University, Business School, Anam-dong, Seongbuk-gu, Seoul, 136701, Korea, Republic of, janglee@korea.ac.kr, Seok-Chul Baek, Jonghoon Bae, Sukwon Kang, Hyung Noh In this research we examine whether successful diffusion draws on weak-tied bridges, i.e., the weak ties hypothesis (Granovetter 1973). By analyzing 411,078 Web blog posts created by 61,980 bloggers in June, 2006, we show that strong-tied bridges facilitate successful diffusion in terms of distance measured as maximum path length and volume measured as total number of scraps. Our findings suggest three different patterns of diffusion in blog sphere: public announcement, weak-tied non-bridges, and strong-tied bridges. When diffusion via public and direct announcement is excluded, the findings of this paper demonstrate that information will successfully diffuse via strong-tied dyads and that the sender with bridge position will diffuse his or her information more successfully when he or she is embedded in strong-tied dyads. ■ FD03 Legends Ballroom III Online Search Cluster: Internet and Interactive Marketing Invited Session Chair: Alan Montgomery, Associate Professor of Marketing, Carnegie Mellon University, 5000 Forbes Avenue, Pittsburgh, PA, 15213, United States of America, alan.montgomery@cmu.edu 1 - Consumer Search and Propensity to Buy Ofer Mintz, University of California, Paul Merage School of Business, Irvine, CA, 92697-3125, United States of America, omintz07@exchange.uci.edu This article investigates the association between consumers’ pattern of information search and their propensity to buy in a field setting. We expect that a consumer whose information search pattern is skewed towards alternative-based search will have a greater propensity to buy than a consumer whose search pattern is skewed towards attribute-based search. In addition, we expect that the price category selected by a consumer influences their subsequent pattern of search. To test these expectations, we develop a conceptual framework and consider several choice models that allow us to account for endogeneity and simultaneity in the relationship between pattern of information search and propensity to buy. The models are fit to a unique database which recorded the search and propensity to buy of 920 shoppers at a global computer manufacturer’s website. The results confirm our expectations. The implication is that a manager can now identify a consumer who has a higher propensity to buy while that consumer engages in information search prior to a purchase commitment, an important first step in targeting decisions. 2 - Return on Quality Improvements in Search Engine Marketing Nadia Abou Nabout, Goethe University, Gruneburgplat 7 1, Frankfurt, 60629, Germany, abounabout@wiwi.uni-frankfurt.de, Bernd Skiera In search engine marketing, such as on Google, advertisements’ ranking and prices paid per click result from generalized, second-price, sealed bid auctions that weight the submitted bids for each keyword by the quality of an advertisement. Conventional wisdom and statements by Google suggest that advertisers can only benefit from improving their advertisement’s quality. With an empirical study, this article shows the fallacy of this statement; 25 % of all quality improvements to an advertisement lead to higher prices (measured by price per click) per keyword, 70 % to higher costs for search engine marketing, and 47 % to lower profits. Quality improvements lead to higher weighted bids, which only lower prices if they do not improve the ranking of the advertisement. Otherwise, better ranks likely to lead to higher prices. A decomposition method can disentangle these effects and explain their joint effect on search engine marketing costs and profits. Finally, the results indicate that advertisers benefit if they adjust their bids after improvements to advertising quality.
3 - Which Link to Click – Sponsored or Organic? An Empirical Investigation on Consumer’s ‘Clickability’ Amalesh Sharma, Teaching Associate, Indian School of Business, Gachibowli, Hyderabad, 500032, India, amaleshsharma@gmail.com, Sourav Borah Sponsored search advertising has arguably become the most predominant form of advertising in the online marketing strategy. Sponsored links are paid links and organic links are natural or non-paid links. Prior research has studied the relation between organic and sponsored search advertisement, click process and clicking time (Chatterjee, Hoffman, Novak 2003), browsing behavior of customers in multi-site context (Park and Fader 2004) and online media selection (Danahar, Lee and Kerbache 2009). Montgomery et al (2004) model online browsing behavior to predict buying behavior of customers. In this research we study which specific link in a webpage is clicked on in a consumer search algorithm and why. An extended understanding on the clickability can open up advanced research area in online marketing literature and help to capture the dynamics in the market. We also try to understand the drivers for such click-ability. For this, we build an integrated model using a hierarchical Bayesian Framework to develop a relationship among factors such as keywords findings, key-word appropriateness to the search, nature of search (information/general), display of the link, rank of the link and previous history if any. Our data comes from a controlled field experiments conducted in India. Our results indicate that browsers click relatively more on the organic link (a counter finding from the earlier researches on clickability). We also predict that our findings will provide critical insight to the practitioners in determining where to place the name of the organization in web page and whether to go for paid advertisements. 4 - Predicting Purchase Conversion Rates for Online Search Advertisements Using Text Mining Alan Montgomery, Associate Professor of Marketing, Carnegie Mellon University, 5000 Forbes Avenue, Pittsburgh, PA, 15213, United States of America, alan.montgomery@cmu.edu, Kinshuk Jerath, Qihang Lin Many consumers begin their purchase process at search engines such as Google, Yahoo, or MSN instead of traditional retailers. Consumers rely upon the search results provided by these engines along with paid advertising to make decisions about what sites to visit and subsequently which products to purchase. In this study we propose a statistical model that predicts consumer search and the probability of purchase using clickstream data collected from an online sample of consumers. A challenge in analyzing this data is the textual nature of the search strings and the scarcity of many search terms. We also consider how consumers will search based upon the specificity of the search term. This model is cast in the context of a hierarchical Bayesian model to overcome the limited information for many search strings and consumers. We illustrate how this model can be used to aid advertisers in making decisions about how much to bid, what phrase to bid upon, and the appropriate landing page for the consumer once they enter the web site. ■ FD04 Legends Ballroom V Structural Models II Contributed Session Chair: Yi Zhao, Georgia State University, Suite 1300, 35 Broad Street, Atlanta, GA, 30303, United States of America, yizhao@gsu.edu 1 - The Impact of the Marketing Mix on Durable Product Replacement Decisions Dinakar Jayarajan, Doctoral Candidate, USC Marshall, 3660 Trousdale Pkwy, ACC 306E, Los Angeles, CA, 90089, United States of America, jayaraja@usc.edu, S. Siddarth, Jorge Silva-Risso Product replacements account for more than 65% of sales in durable goods categories (Fernandez, 2000). Therefore, buying a new durable product effectively involves two consumer decisions: a) the decision to replace an existing product, and b) the choice of a specific new alternative. The prior literature has analyzed these decisions separately (e.g., Rust (1987); Berry, Levinsohn, and Pakes (1995)), but not jointly, and has typically ignored the impact of marketing activities on these decisions. We develop a dis-aggregate dynamic structural model of the replacement and brand choice decisions with a forward-looking consumer who forms expectations of future new product prices and promotions. On each purchase opportunity the consumer trades off retaining the current product with buying a new product based on the current and expected future utilities of the existing and new vehicles available in the market. We estimate the model using the Nested Fixed Point (NFXP) approach on automobile transaction data for the entry-level SUV category. We start with a sample of consumers who purchased a new car in 2006 and also traded-in an old one. We work backwards from this point and reconstruct the monthly marketing environment for the new products and the monthly depreciation for the traded-in vehicle for up to eight years. We perform counter-factual analysis to a) examine the extent to which consumers anticipate promotions b) decompose the impact of a promotion on replacement acceleration and brand switching and c) gain insights into the differences in the depreciation rate of different vehicles. MARKETING SCIENCE CONFERENCE – 2011 FD04 63 2 - Economic Value of Celebrity Endorsement: Tiger Woods’ Impact on Sales of Nike Golf Balls Kevin Chung, Doctoral Student, Carnegie Mellon University Tepper, 5000 Forbes Avenue, Office 317B GSIA, Pittsburgh, PA, 15221, United States of America, kevinchung@cmu.edu, Timothy Derdenger, Kannan Srinivasan In this paper, we study the economic value of celebrity endorsements. Despite the size and the long history of the industry, few have attempted to quantify the economic worth of celebrity endorsers because it is terribly difficult to identify an endorser’s effect on a firm’s profit. By developing and estimating the consumer demand model for the golf ball market, we find that after controlling for brand advertisement level and taking into account the inherent quality of the endorser, there is a significant endorsement effect as a result of the extra utility attached to the endorsed product. This extra utility leads not only to a significant number of existing customers switching toward the endorsed products but also has a primary demand effect where there is an overall increase in the number of consumers in the market. By sponsoring Tiger Woods for 10 years, we find that the Nike golf ball division reaped additional profit of $60 million through the acquisition of 4.5 million customers who switched as a result of the endorsement. We also find that the recent scandal regarding Tiger Woods’ infidelity had a negative impact which resulted in Nike losing approximately $1.3 million in profit with a loss of 105,000 customers. However, we conclude that Nike’s decision to stand by Tiger Woods was the right decision because even in the midst of the negative impact of the scandal, had they terminated its contract with the golfer, Nike would have lost an additional $1.6 million in profit. 3 - Determination of Brand Assortment: An Empirical Entry Game with Post-choice Outcome Li Wang, PhD Student, Washington University in St Louis, Olin Business School, Campus Box 1133, Saint Louis, MO, 63130, United States of America, wangli1@wustl.edu, Tat Y. Chan, Alvin Murphy This paper studies the two-sided decision of brands’ entry into a large department store. This is a two-sided decision process because an observed brand entry has to be agreed by both department store and the brand. By contrast, in standard entry model the entry decision is only one-sided as each agent can make such decision alone. We assume that the store offers each potential entering brand an optimal contract (represented by a transfer from store to brand) to maximize its expected category value. Given the contract, each potential brand makes a take-it-or-leave-it decision. With post-entry sales and transfer data available, we propose a structural model to incorporate post-entry outcome data into a static entry game of incomplete information where the outcome regression is selection-corrected by the inclusion of entry game. This model is estimated using a direct constrained optimization approach which is robust to multiple equilibria and circumvents the heavy computation burden from traditional nested fixed-point algorithm. The model is applied to women’s clothing category, the largest category of department store, and capable of quantifying the magnitude of inter-brand spillovers. We find evidence of significant competition and complementarity (within and out of category) across different brand types and the selection bias from ignoring the entry decision. The estimation result helps to understand how inter-brand spillovers, brand selling cost and brand demand are interwined to yield observed category brand assortment and shed lights on retail category management. 4 - An Empirical Model of Dynamic Re-entry, Advertising and Pricing Strategies in the Wake of Product Yi Zhao, Georgia State University, Suite 1300, 35 Broad Street, Atlanta, GA, 30303, United States of America, yizhao@gsu.edu, Ying Zhao, Yuxin Chen Product harm-crisis may become the worst nightmare for any firm at some point in time. It may affect both the demand side, such as consumer’s intrinsic preference and sensitivities to marketing mix, and the supply side such as costs and competition structures. Product-harm crisis always triggers a product recall, and in most cases the affected brand will return to store shelf after the crisis is solved. The timing of reentry can be a strategic decision for the firms. In this paper, we empirically study firms’ re-entry strategy after a major product-harm crisis, taking into account the demand side of market. Two other interactive strategies, pricing and advertising, are also modeled through Markov perfect equilibrium framework. The model is applied to product-harm crisis event that hits the peanut butter division of Kraft Food Australia in June 1996. Substantively we find that (1) the observed “large advertising expenditure” strategy for the unaffected brand before the affected brand re-enters the market is optimal, since a “large advertising expenditure” in this period plays an important role in postponing the time of re-entry for the affected brand; (2) the competition after the occurrence of the product-harm crisis becomes more intensive. The direct consequence of this is that both the affected and unaffected firms are forced to adopt “low margin” and “large advertising expenditure” (comparing with the pre-crisis advertising expenditure) strategies. As a result, the long-term profitabilities decrease, especially for the affected brand whose profitability decreases by 38%. Finally, the counterfactual experiments show that the increase in the effects of the state dependence is one of the major reasons for a more intensive competition after the product harm crisis.
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