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SA04 MARKETING SCIENCE CONFERENCE – 2011 3 - Retargeting - Investigating the Influence of Personalized Advertising on Online Purchase Behavior Alexander Bleier, PhD Student, University of Cologne, Albertus Magnus Platz 1, Cologne, 50939, Germany, bleier@wiso.uni-koeln.de, Maik Eisenbeiss In an average online shop, the conversion rate of visitors to buyers is about 2%. However, even as most customers leave the site without purchasing, their sales are far from lost. Having traced a customer’s shopping behavior in the online store, a retailer can employ a special form of online advertising, called retargeting, to induce the prospective buyer’s return and purchase completion. With retargeting, the retailer makes use of the previously collected information to provide the customer with personalized banners at various web sites she subsequently visits. Nevertheless, even though this technique offers several advantages over conventional banner advertising and is currently employed by an increasing number of online retailers, it also poses several risks. For example, since personalized banners are more explicitly recognized than conventional banners, the customer may end up feeling annoyed or pursued, especially when the exposure frequency is perceived as too high. As a result, she may be even less likely to return to the retailer’s store than had she received no advertising at all. Analyzing individual level online sales of a major German retailer matched with clickstream data of its web shop and an affiliated advertising agency, we develop a model to explain the effects of retargeting on customers with respect to their click-through and purchase behavior. Accounting for heterogeneity among individuals, we model their immediate and subsequent reactions to targeted banners. The results of our study are of interest to retailers and advertisers alike, as this dynamic form of advertising is still largely unexplored. 4 - Usage Experience with Decision Aids and Evolution of Online Purchase Behavior Jie Zhang, Associate Professor, University of Maryland, 3311 Van Munching Hall, College Park, MD, 20742, United States of America, jiejie@rhsmith.umd.edu, Savannah Wei Shi A distinct feature of online stores is that they offer a wide range of interactive decision aids which can facilitate consumers’ shopping processes. The objective of this study is to conduct an empirical investigation on how the usage experience with these various decision aids may affect the evolution of consumers’ purchase behavior in the Internet shopping environment. In the context of online grocery stores, we categorize four types of decision aids that are commonly available, namely, those 1) for nutritional needs, 2) for brand preference, 3) for economic needs, and 4) personalized shopping lists. We construct a Non-homogeneous Hidden Markov Model (NHMM) of category purchase incidence and purchase quantity, in which purchase behavior may vary over time across hidden states as driven by usage experience with different decision aids. Our data are provided by a leading Internet grocery retailer which was among the very first to sell groceries online. The dataset was collected during the period when the retailer first launched its web business, which makes it particularly suited to study the evolution of online purchase behavior. Our preliminary results indicate that online consumers evolve through distinct states of purchase behavior over time, and that usage experiences with different decision aids indeed play different roles in the process. Findings from this study will enrich the understanding of how purchase behavior may evolve over time on the Internet, and will provide valuable insights for marketers to improvement the design of online store environments, as well as to modify promotion messages adaptively according to consumers’ evolving purchase behavior. ■ SA04 Legends Ballroom V Structural Models III Contributed Session Chair: Andre Bonfrer, Professor of Marketing, Australian National University, LF Crisp Building, College of Business and Economics, Acton, 2601, Australia, andre.bonfrer@anu.edu.au 1 - An Equilibrium Analysis of Online Social Content-sharing Websites Tony Bao, PhD Candidate, Cornell University, 360 W 34th St, Apt. 7M, New York, NY, 10001, United States of America, tb232@cornell.edu, David Crandall User-generated content sharing sites have become very popular in the last few years, but very little work has addressed how to model the dynamics of user interactions on these sites. Two distinguishing features of user-generated content – being free and non-rival – preclude application of the celebrated market equilibrium theory. We develop a content equilibrium from first principles. Consumers searching content take the sampling probability distribution as given in deciding consumption, and producers are motivated by attracting endorsements. Sampling probability is a key policy instrument. Endorsement may explain why a small number of producers generate most content. Individual behaviors alone cannot explain genesis and persistence of sampling probability and endorsement. Consumers and producers can be compatible, and their interaction gives rise to endogenous sampling probability and endorsement. Inequality arises: higher quality producers always earn more endorsements and produce more content, and higher quality content is easier to find. We show that despite this inequality, content systems are optimal for consumer welfare. We use this framework to show how content website operators can adjust policies in order to achieve the operator’s objectives. . 72 2 - Uncovering the Dynamics of Product and Process Innovation: An Analysis of Dynamic Discrete Games Xi Chen, Hong Kong Unviersity of Science and Technology, Clear Water Bay, Kowloon, Hong Kong - PRC, chenxinh@ust.hk, John Dong Innovation is arguably vital to today’s industry competition, as innovative firms sustain competitive advantage in the market. While it has been long to suggest that innovation activity is a process of interactions among firms, a paucity of evidence was found to uncover this dynamic decision-making across time from R&D investment to profit gain. In addition, past research omitted the importance of forward-looking in firms’ making these decisions. How is firms’ R&D investment converted to profit gain through different types of innovation is also unclear in the literature. We develop a dynamic game-theoretic model to formally analyze firms’ forward-looking decisions of R&D investment over time by considering interactions among firms inoligopoly settings.We separate the effects of product and process innovation on profit as these two types of innovation help sales promotion and costs reduction, respectively. Using a unique panel data set fromGermany, we are able to estimate our model and find empirical evidence.This paper contributes to marketing literature by more realistic modeling and examining the dynamics of how firms decide R&D investmentby considering their competitors’ strategic actions and gain competitive advantage through product and process innovation in a framework of dynamic discrete games. 3 - Market Size, Quality, and Competition in Portuguese Driving Schools David Muir, PhD Student, The Wharton School/University of Pennsylvania, 3000 Steinberg Hall-Dietrich Hall, 3620 Locust Walk, Philadelphia, PA, 19104-6302, United States of America, muir@wharton.upenn.edu, Maria Ana Vitorino, Katja Seim Using a novel data set of Portuguese driving exam information from the first half of 2009, we explore the equilibrium market structure of Portuguese driving schools and provide evidence as to whether exogenous or endogenous sunk costs play a role in determining the equilibrium structure of the driving school industry in Portugal. The data reveal that larger markets exhibit less variable mean school pass rates and greater concentration than correspondingly smaller markets, where we define and measure per-municipality market size by the total number of learner’s permits issued, population, or population density. Specifically, we explore the extent to which larger markets have a tendency to be more concentrated due to greater fixed cost investments in quality, which would impose greater barriers to entry to potential entrants in these markets. With greater investments in school quality, we ex-ante expect the mean school pass rates to be higher with lower variance. Here we measure quality as the per-school mean pass rate: schools with higher and less variable pass rates are likened to be of greater quality. Hence, using a variety of concentration and market size measures for robustness, we test Sutton’s theory of endogenous sunk costs (1991) as it relates to investments in quality in the Portuguese driving school market. We further explore alternative theoretical explanations for these and other empirical regularities in the data. 4 - Investigating Income Dynamics Using the BLP Market Share Model Andre Bonfrer, Professor of Marketing, Australian National University, LF Crisp Building, College of Business and Economics, Acton, 2601, Australia, andre.bonfrer@anu.edu.au, Anirban Mukherjee We examine how changes in household demographics (income dynamics) alter preferences for white goods and the implications for marketers’ pricing and assortment decisions. Prior studies of differentiated products have used a single measure of current income and abstracted from the role of income dynamics on consumer preferences. We use a novel dataset from Household Income and Labor Dynamics in Australia (HILDA) survey to study a number of different ways that income dynamics may affect consumer preferences, including income changes due to exogenous shocks (e.g. arising from public policy decisions such as tax-rebate incentives), permanent versus transitory income changes, and expected versus unexpected income changes. In the empirical work, we build on the Berry- Levinsohn-Pakes market share model to allow for a richer representation of the demographic drivers of preferences. We estimate the model on sales data for washing machines and refrigerators in Australia. We find that income dynamics affect both price elasticity and consumer preferences for other attributes (such as energy efficiency).
■ SA05 Legends Ballroom VI Game Theory IV: Signaling Contributed Session Chair: Yuanfang Lin, University of Alberta, 3-23L Business Building, Edmonton, AB, T6G 2R6, Canada, yuanfang.lin@ualberta.ca 1 - The Green Monoploist Kyung Jin Lim, University of North Carolina at Chapel Hill, Kenan- Flagler Business School, Chapel Hill, NC, United States of America, Kyung_Jin_Lim@unc.edu, Sridhar Balasubramanian, Pradeep Bhardwaj Consumers are now increasingly sensitive to the environmental impact of their product choices. In response, firms have adopted multiple approaches to becoming “green.” In this paper, we examine how a monopolist can design a portfolio of carbon footprint reduction strategies. We develop an analytical model of a market with two consumer segments – receptive consumers and skeptic consumers – that differ in their acceptance toward firm’s carbon emission management claims. We demonstrate how a monopolist serving this market can maximize profits by balancing decisions related to carbon offsetting, the degree of processing – which can impact product quality, and price. We delineate key interdependencies between these decisions and other production parameters in terms of their effects on outcomes of interest to consumers, the environment, and the firm. For example, we demonstrate that, surprisingly, improvements in quality efficiency – the quality level associated a certain amount of processing – can increase profits but harm the environment. We also demonstrate that, under certain conditions, an increase in process inefficiency – defined as the amount of emissions associated with a unit of processing – can lead to lower product-level and aggregate emissions. Paradoxically, ‘dirtier’ technologies can lead to greener outcomes. 2 - Mass Behavior in a World of Connected Strangers Jurui Zhang, University of Arizona, 1130 E Helen Street, Room 320C, Tucson, AZ, 85721-0050, United States of America, juruizh@email.arizona.edu, Yong Liu, Yubo Chen Networks and the relationships embedded in them are critical determinants of how people communicate, form beliefs, and behave. The emergence of eCommerce platforms such as Amazon and eBay and social media websites such as Facebook and Twitter has made the action of “strangers” more observable to others. At the same time, the actions of “friends” also have become more visible than ever before. Since observation learning and herding behavior are important cognitive and behavioral phenomenon of consumers, it is interesting to examine how different types of networks (e.g., strong vs. weak tie networks) may carry information, both observed and through private signals, and be influential in shaping beliefs and actions. This study investigates how information accumulates and how mass behavior could form in different networks. A theoretical model is developed to examine Bayesian equilibrium of mass behavior through observational learning over weak vs. strong tie networks. We also test the key theoretical results using lab experiments to demonstrate validity and enhance insights. 3 - Informational Effect of Soldout Products on Consumer Search Behavior and Product Evaluation Yuanfang Lin, University of Alberta, 3-23L Business Building, Edmonton, AB, T6G 2R6, Canada, yuanfang.lin@ualberta.ca, Paul Messinger, Xin Ge Consumers often encounter soldout products during the search and purchase decision-making process. The objective of this paper is to explore how the presence of a soldout product provides an informative signal to consumers about the value of the soldout and related products and thereby influences consumer shopping behavior. In particular, we consider the following research questions: (1) Will observing a soldout product option make consumers more willing to search for information about related products in the category? (2) Will the presence of a soldout product increase consumers’ perceived desirability of an available option that has similar attributes to the soldout product? (3) Will consumer preference towards an available product option increase when there is a soldout product in the environment with superior/inferior attributes? To develop hypotheses concerning these questions, we build an analytical model where a consumer’s utility is defined in two-dimensional attribute space for product options in a given category. Given uncertainty about their tastes, consumers are assumed to hold some prior beliefs concerning the exact attribute levels of a product option, and of the corresponding utility weight on each product attribute in the utility function. Through Bayesian updating, the presence of a soldout product option induces consumers to rationally form posterior beliefs regarding those utility parameters for the soldout product and for available options remaining in their choice set. Implications from such a Bayesian updating process thus generate hypotheses concerning the above research questions. We test these hypotheses through a series of laboratory studies to provide behavioral evidence supporting our analytical predictions. MARKETING SCIENCE CONFERENCE – 2011 SA06 73 ■ SA06 Legends Ballroom VII Channels VI: General Contributed Session Chair: Joseph Lajos, Assistant Professor of Marketing, HEC Paris School of Management, Groupe HEC, 1 Rue de la Libération, Jouy en Josas, 78351, France, lajos@hec.fr 1 - Impact of Consumer Returns on the Manufacturer’s Optimal Returns Policy Thanh Tran, Assistant Professor of Marketing, University of Central Oklahoma, 100 N. University Drive, Department of Marketing, Edmond, OK, 73034, United States of America, ttran29@uco.edu, Ramarao Desiraju In practice, most retailers accept returns from consumers. Interestingly, much of the extant literature on a manufacturer’s optimal returns policy—-that is offered to the retailers—-does not take into account the returns that retailers accept from consumers. The decision to accept returns from consumers clearly affects the retailer’s stocking and pricing choices; since these choices also impact the manufacturer’s profit, it is important to assess how the manufacturer’s optimal returns policy may be modified. Therefore, we add to the existing literature by developing and analyzing a mathematical model to characterize the inter-relationship between the returns policies of the retailers and the manufacturer. Our analysis reveals that when consumer returns are accounted for, the optimality of accepting returns from retailers depends critically on the magnitudes of the prevailing rate of consumer returns, the degree of consumers’ risk aversion, production cost and the marginal cost of stockouts. In particular, we show that even when demand may be anticipated without error, the manufacturer can sometimes induce its retailers to compete more intensely. We explain the intuition underlying these results and suggest directions for further work. 2 - The Effects of Asymmetric Interdependence on Asymmetric Conflict - Using Response Surface Analysis Hyang Mi Kim, Korea University, LG-POSCO Buidling 507, Seoul, Korea, Republic of, khm1231@korea.ac.kr, Jae Wook Kim The role of interdependence has been regarded by researchers as an antecedent of many outcomes of various relationships. By reviewing the results of the previous research, we are able to observe mixed results with conflict issues and questioned why. We think several reasons, the first, it is a measurement problem. Even though interdependence involves relative concepts, previous researchers have measured dependence by one party in dyads. Furthermore, operational definitions are differently identified in each research. The second, it is related to theoretical approach; previous studies have its own limitation to explain every situation and condition clearly, and assume a linear relationship between interdependence and outcomes. Therefore, we examine the relationship between interdependence asymmetry and the phases of conflict by using Response Surface Analysis. And we measured dependence directly from bilateral parties and composed various combinations (i.e., bilateral self-perception, unilateral self-perception, and bilateral partner-perception of dependence). Our research gains 96-perfect paired data from the fire-fighting equipment industry. As a result of analysis, the relationship between interdependence asymmetry and the phases of conflict are a nonlinear relationship (i.e., inverted U shape). In the case of bilateral self perception, the results are all significant. But in other data, the results are not. In this study, there is no difference between interdependence asymmetry and phases of conflict, which is not consistent with prior research. Also, the measurement issues have been pointed out prior research, and our results support. Finally, the case of bilateral self perception is the most properly measured composition to identify the role of interdependence. 3 - Do Channel Roles and the Sales-distribution Relationship Differ Between Countries? Joseph Lajos, Assistant Professor of Marketing, HEC Paris School of Management, Groupe HEC, 1 Rue de la Liberation, Jouy en Josas, 78351, France, lajos@hec.fr, Hubert Gatignon, Erin Anderson Although it is intuitive that retailers should increase coverage of products that are selling well, it is somewhat less intuitive that retailers should take the risk of increasing coverage before sales increases have materialized in an effort to push these products on consumers. This is especially true for innovative new durable products which can be both risky and expensive for retailers to hold in inventory. In this research note, we use a simultaneous equation model to analyze sales and distribution coverage of two brands of an innovative new consumer durable in competing types of distribution channels in four European countries in order to examine whether retailers in different countries make their coverage decisions for a new durable product in the same ways, and if not, to explore the conditions under which they are likely to engage in market-making.
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