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

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FD05 ■ FD05 Legends Ballroom VI Game Theory III: General Contributed Session Chair: Niladri Syam, Associate Professor, University of Houston, 4800 Calhoun Road, Houston, TX, 77204, United States of America, nbsyam@uh.edu 1 - A Model of the “It” Products in Fashion Kangkang Wang, Washington University in St. Louis, Campus Box 1133, Olin Business School, St. Louis, MO, 63130, United States of America, wangka@wustl.edu, Dmitri Kuksov One of the characteristics of fashion is unpredictability and apparent randomness of fashion hits. Another one is the strong influence of the fashion editor recommendations on consumer demand. This paper proposes an analytical model of fashion hits in the presence of competition and a fashion editor acting on behalf of high-type consumers, in which we consider fashion as a means used by consumers to signal belonging to the high class in a matching game. We show that consistently with the observed market phenomenon, in equilibrium, the editor randomizes between available products. Furthermore, this randomization is essential for the market for fashion to exist when low-type consumers’ valuation of meeting high-type consumers is high enough. Whenever the low-type consumer demand for a product is positive, an increase in price results in higher probability of the product being chosen by the editor but lower low-type consumer demand. We also show that in equilibrium, firms always price as to attract strictly positive demand from the lowtype consumers. The equilibrium price and profits are non-monotone in the low-type consumer valuation, with the equilibrium profit first increasing and then decreasing. 2 - Would ”False” Promotions be Profitable? Evidence from Experimental Data Yiting Deng, Duke University, Fuqua School of Business, Durham, NC, United States of America, yiting.deng@duke.edu, William Boulding, Richard Staelin Retailers use many different kinds of consumer promotions to attract customers to their stores. However, not all promotions are real. For instance, one issue of the ShopSmart Magazine pointed out that around last Thanksgiving, a famous retailer had a coffeemaker “on sale” for $61.99, a discount from the retailer’s posted $69.99 “regular” price. However, the manufacturer’s suggested retail price (MSRP) is only $59.99. Given the fact that retailers commonly price items below MSRP, the retailer’s promotion regarding the coffeemaker is actually “false”. In this study, we examined the key factors that affect a firm’s decision of whether to apply real or false promotion from a profitability perspective. Our study is comprised of two major parts: an analytical model on firm decision process and an empirical model based on data collected from a controlled experiment. In the analytical model, we solved for regions of relevant parameters that support different promotional strategies, including offering “false” promotions. We then used the experimental data to identify the parameter values and in turn investigate whether such false promotions can be profitable. In the experiment, we asked the subjects to make two consecutive product choices among two stores and provided them information about the truthfulness of the store promotions. We then applied structural equation models to the experimental data to identify the relative significance and magnitude of different factors in the consumer choice process. Primary results indicate that while the undetected false promotion can positively affect sales, the detected false promotion has negative effects on store image and in turn lowers consumers’ willingness to purchase from the store. 3 - Facts and Slant in News Production Yi Zhu, University of Southern California, 3660 Trousdale Parkway, Los Angeles, CA, 90089, United States of America, zhuy@usc.edu, Anthony Dukes, Kenneth Wilbur More and more consumers regularly read the news through the internet. Following the shift of readers’ preferences, newspapers, magazines, and TV networks have also been broadcasting their news on the internet. The increasing use of blogs and the emergence of online social network platforms, like Facebook, YouTube and Twitter, have greatly lowered barriers to the production and delivery of news. This new technology intensifies the competition for “eyeballs” among news providers. In this paper, we ask how increased competition affects the presentation of facts and slant in news production. To answer this question, we examine a model that incorporates the following features: a) the number of facts contained in the news is bounded by the choice of media slant. If a news report is more slanted from the truth, there are fewer facts that can be reported truthfully; b) consumers are not only looking for news that is consistent with their opinions, but they also value the facts in the news. Therefore, news producers must optimally balance consumers’ desire for facts and their taste for slant. Under the monopoly case, we find that the news provider slants the news less so that it can deliver a higher number of facts. As competition arises, however, we find that the news producers report more slanted news to avoid the head-to-head fight. As a result, news reporting becomes more polarized with fewer facts. MARKETING SCIENCE CONFERENCE – 2011 64 4 - Production Networks in Co-creation Niladri Syam, Associate Professor, University of Houston, 4800 Calhoun Road, Houston, TX, 77204, United States of America, nbsyam@uh.edu, Amit Pazgal Co-Creation, the participation of the consumer in the production of goods and services, has gained increased popularity of late due to advances in information technology and flexible manufacturing. In this research we distinguish between two types of co-creation: proprietary and non-proprietary. The former involves the price mechanism mediating the exchange between firm and customer while the latter does not. We study, (1) production externalities between firm and customers, (2) production externalities between the customers themselves, and (3) pricing by firms. The main result in the non-proprietary setting is that the firm’s effort decreases in the number of customers (free-riding effect). We also find that the firm’s effort decreases in the degree of substitutability between its efforts and customers’ efforts. In a proprietary setting free-riding is eliminated. This is a major distinction between cocreation, which is often proprietary, and the extant public goods literature. Also, the firm’s effort increases in the degree of substitutability between its effort and the customers’ efforts. Again this stands in contrast to the non-proprietary case. Overall, we contribute not only by investigating the increasingly important phenomenon of co-creation, but also by developing a novel general method to analyze production externalities in the presence of the price mechanism. ■ FD06 Legends Ballroom VII Channels V: Strategy Contributed Session Chair: Volker Trauzettel, Professor, Pforzheim University of Applied Sciences, Tiefenbronner Str, 65, Pforzheim, 75175, Germany, volker.trauzettel@hs-pforzheim.de 1 - Name-your-own-price as a Competitive Distribution Channel in the Presence of Posted Prices Xiao Huang, Assistant Professor, John Molson School of Business, Concordia University, 1455 de Maisonneuve Blvd West, MB 011-323, Montreal, QC, H3G1M8, Canada, xiaoh@jmsb.concordia.ca, Greys Sosic Priceline.com patents the innovative marketing strategy, Name-Your-Own-Price (NYOP), that sells opaque products through customer-driven pricing. In this paper, we study how competitive suppliers with substitutable, non-replenishable goods may sell their products (1) as regular goods through a direct channel at posted prices, and/or (2) as opaque goods through a third-party channel, which allows for the NYOP approach. We model the third-party channel as an intermediary firm that collects the difference between the customers’ bids and reservation prices set by the suppliers, and discuss different channel strategies and customers’ bidding strategies. We show that high-end customers may demonstrate low-end behavior (that is, name their prices prior to attending the direct channel, making an even lower bid than the low-end customers), and that the intermediary firm benefits more from horizontally differentiated goods than from vertically differentiated ones. We also use dynamic programming approach to analyze how should suppliers competitively determine channel prices for given initial inventory levels with the goal of maximizing the average expected profit, and show that time and inventory levels have very different impact in dual-channel versus single-channel settings. Our results suggest that the suppliers may not benefit from the existence of a profit-maximizing NYOP channel. In particular, a monopolist would opt out of the NYOP channel and sell at posted prices only, which implies that NYOP is not appropriate for customer discrimination in the regular-goods market. Numerical results show that suppliers are able to generate higher expected profits in the absence of the NYOP channel. 2 - The Optimal Online Common Agency Strategy in the Presence of Instore Display Advertising Hao-An Hung, Graduate Institute of International Affairs and Global Strategy, National Taiwan Normal University, 5F, No. 637, Bei-an Road, Taipei, Taiwan - ROC, owenhung@hotmail.com, I-Huei Wu In the tourism and some retail industries, the online common agency such as Priceline has attracted much attention from both marketers and researchers. This kind of new channel sells opaque products which contains limited product information and may intend to serve only those price-sensitive segments. In order to compete with the others in the industry, service providers (i.e., airlines) tend to redesign their in-store display advertising to fit consumer’s preference much better and to create the image differentiation. In this paper, we try to not only capture the price discrimination effect behind the online common agency but also consider the impact of in-store display advertising invested by service providers. We build a gametheoretic model where service providers can decide to invest on either the online common agency or their own websites and consider whether to launch in-store display advertising. By analyzing this model, we attempt to answer the following questions: (i) In the case where in-store display advertising can enhance only the
valuation of the high-end consumers who have brand loyalty, when and why should service providers invest on in-store display advertising? (ii) In the emergence of instore display advertising, are service providers more likely to join the online common agency instead of their own websites? (iii) Could in-store display advertising mitigate the price competition among airlines, the online common agency, and traditional travel agencies? We hope this study can provide some suggestions for marketers who are interested in the impact of the online common agency and in-store display advertising. 3 - Slotting Allowance and Marketing Channel Strategy: An Empirical Analysis Using Quantile Regression Joo Hwan Seo, PhD Candidate, The George Washington University, 2201 G Street, NW, Funger Hall, Suite 301, Washington, DC, 20052, United States of America, joohwans@gmail.com, Ravi Achrol A considerable literature has developed in marketing to study the phenomenon of slotting fees and related trade promotion expenditures. The expenditures run into billions of dollars annually, and the practices themselves are controversial. The debate has focused on whether they are the product of market power or an efficient market process, and is largely driven by economic theory perspectives. The empirical literature is also limited because direct measures of slotting-like payments, or slotting allowances, have not been available. This study advances the literature in three important ways. It adds a fresh theoretical perspective – that of marketing channel theory. Second, it uses actual dollar value measures of slotting payments. Third, for data analyses it employs panel quantile regression, a new class of regression methodology that permits the analysis of heterogeneity in firm behaviors. The findings suggest that prevailing distinctions between power and efficiency effects may be simplistic. Channel power is a factor in determining slotting allowance but appears to work to enhance channel efficiency. There is also the suggestion that the payments are a response to shifting channel functions. Further, contrary to conventional belief, trade allowances and advertising are not alternative channel strategies but work in conjunction. In contrast, firms that emphasize a product innovation strategy pay less in slotting. 4 - Price-matching and Retailing Strategies Volker Trauzettel, Professor, Pforzheim University of Applied Sciences, Tiefenbronner Str, 65, Pforzheim, 75175, Germany, volker.trauzettel@hs-pforzheim.de Many retailers apply price-matching strategies to compete with each other. We consider this phenomenom and extend it to broader business strategies. We show that price matching is not a stand-alone strategic tool as it has to be augmented by the other marketing instruments. In the broader sense, price matching extends to a business matching strategy, i.e. retailers do not only match prices, but also assortment, promotions, store design, store location, etc. ■ FD07 Founders I Meet the Editors Marketing Science/ Management Science/Journal of Marketing Research Cluster: Meet the Editors Invited Session Chair: Amit Pazgal, Rice University, Houston, TX, 77005, United States of America, pazgal@rice.edu 1 - Meet the Editors Editors of leading journals for marketing academics will present their editorial policies and perspectives.The following editors are represented: Marketing Science: Preyas Desai; Journal of Marketing Research: Tulin Erdem; Management Science: Pradeep Chintagunta & Miguel Villas-Boas MARKETING SCIENCE CONFERENCE – 2011 FD08 65 ■ FD08 Founders II Managerial Myopia and Real Activity Mis-Management: Consequences for Marketing and Firm Performance Cluster: Special Sessions Invited Session Chair: Natalie Mizik, Massachusetts Institute of Technology, Sloan School of Management, Cambridge, MA, United States of America, mizik@mit.edu Co-Chair: Anindita Chakravarty, University of Georgia, Terry College of Business, Atlanta, GA, United States of America, achakra@uga.edu 1 - Performance Benchmarks as Drivers of Marketing: The Role of Analyst Forecasts Anindita Chakravarty, University of Georgia, Terry College of Business, Atlanta, GA, United States of America, achakra@uga.edu, Rajdeep Grewal As investors reward organizations for meeting or beating short-term analyst earnings forecasts as well as penalize firms for not being able to do so, firms are pressured to engage in activities that boost short-term earnings. We study whether and how the incentive to meet or beat annual analyst forecasts drive unscheduled cuts in marketing and R&D expenses. Results from a multivariate random effect Bayesian model show that top management annual bonuses intensify the extent to which firms engage in such unscheduled cuts in response to analyst forecasts. Furthermore, well performing firms are as likely as poorly performing firms to react to analyst forecasts in this manner. However, organizations that manage high stock of intangible assets and have considerable marketing related experience within the top management team are less likely to make unscheduled marketing and R&D budget cuts in response to analyst forecasts than firms with low stock of intangible assets and negligible marketing related experience within the top management team. The results also show that unscheduled cuts in marketing and R&D budgets can increase long term downside systematic risk. 2 - Dynamics of Marketing Effort Valuation: High-Frequency Stock Market Data Analysis Isaac Dinner, IE Business School, Calle de Serrano 105, Madrid, Spain, isaac.dinner@ie.edu, Natalie Mizik, Don Lehmann How rapidly and in what manner information about marketing activities is reflected in firm valuation is unclear. We use high frequency data to examine the financial market’s ability to fully and timely value marketing and R&D-related spending. We find evidence consistent with the market initially under-valuing both marketing and R&D effort. Specifically, while we find differences in the immediate market response to earnings announcements for firms expanding versus reducing their marketing and R&D effort, we also observe a systematic long-term stock price adjustment. We find that a disproportionate amount of the future stock price adjustment occurs around future earnings announcements. This finding suggests that investors update their beliefs about firm performance only after the outcomes of marketing strategies are realized and actual performance signals are sent to the market. This study contributes to the marketing literature by documenting the dynamic patterns in the stock market response to marketing-related information. 3 - Changing the Rules of the Game: The Impact on Firm Value of Adopting an Aggressive Marketing Strategy Following Equity Offerings Didem Kurt, University of Pittsburgh, Katz Graduate School of Business, Pittsburgh, PA, United States of America, dkurt@katz.pitt.edu, John Hulland This paper examines how changes in firms’ marketing strategies following initial public offerings (IPOs) and seasoned equity offerings (SEOs) impact firm value. We first show that both IPO and SEO firms adopt a more aggressive marketing strategy during the two years following their offering. However, we then contend that not all issuers benefit equally from this increase in marketing spending, and identify a boundary condition for the link between marketing expenditure and firm value: relative financial leverage of industry rivals. Our prediction is rooted in the theoretical and empirical literature examining the connection between financial leverage and product market competition. We find that the stock market reacts favorably to an aggressive marketing strategy initiated by issuers competing against relatively highly leveraged rivals, whereas increased marketing expenditures do not translate into higher firm value when rivals are less leveraged. Furthermore, we show that marketing expenditures create value within context: the role of marketing expenditures in enhancing shareholder value and the moderating effect of relative financial leverage of rivals are more pronounced in the two-year window following an offering than at any other time. Overall, this paper contributes to the nascent literature examining how marketing and finance resources interact around equity offerings, and provides evidence for a potential “contingency theory of marketingfinance interface” (Luo 2008) by documenting that the impact of marketing on firm value is heterogeneous across firms and market conditions.
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