2012 INFORMS Marketing Science Conference June 7
2012 INFORMS Marketing Science Conference June 7
2012 INFORMS Marketing Science Conference June 7
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4 - Understanding Customers` Substitution Patterns when Branded<br />
Items Become Unavailable<br />
Jana Diels, Humboldt-Universitaat zu Berlin,<br />
Wirtschaftswissenschaftliche Fakultaat, Spandauer Str. 1, Berlin,<br />
Germany, diels@wiwi.hu-berlin.de, Lutz Hildebrandt,<br />
Nicole Wiebach<br />
At the point-of-sale customers are often faced with unexpected situations of reduced<br />
choice sets, e.g. caused by delistings or temporary out-of-stocks. Accordingly, it is of<br />
major importance for retailers and manufacturers to gain insight into individual<br />
substitution patterns if choice sets are reduced. Previous experimental research,<br />
predominantly directed to product introduction, has revealed that changes in the set<br />
of alternatives significantly affect customers` preferences and hence, their product<br />
choice. The objective of this research is to analyze whether the unavailability of an<br />
item induces comparable systematic shifts in choice probabilities as in the product<br />
entry case. Furthermore, a theoretical framework to understand, predict and use<br />
substitution patterns is derived by using context and phantom theory. In a series of<br />
experiments, we find strong support for the existence of certain context effects when<br />
items are permanently removed or temporarily out-of-stock. Thereby, the importance<br />
of context theory as major theoretical approach to explain switching patterns for<br />
product unavailability is approved. Moreover, implications for retailers when making<br />
assortment and inventory decisions can be derived. The results of a real-life quasiexperiment<br />
further suggest that manufacturers may encounter substantially larger<br />
losses than retailers when items are delisted from the assortment. With regard to<br />
temporal unavailability, the outcome of an online experiment extends existing outof-stock<br />
research by (1) demonstrating that a negative similarity effect arises in outof-stock<br />
situations, (2) highlighting the relevance of promotion as an essential driver<br />
for out-of-stock reactions, and (3) including a so far neglected option – branch<br />
switching.<br />
■ TA11<br />
Champions Center I<br />
Direct <strong>Marketing</strong><br />
Contributed Session<br />
Chair: Eric Schwartz, The Wharton School, 3730 Walnut Street,<br />
JMHH 700, Philadelphia, PA, 19103, United States of America,<br />
ericschw@wharton.upenn.edu<br />
1 - Calibration? Definition, Motivation and Insights Learned from a Direct<br />
<strong>Marketing</strong> Setting<br />
Kristof Coussement, IESEG School of Management, 3 Rue de la<br />
Digue, Lille, 59000, France, k.coussement@ieseg.fr, Wouter Buckinx<br />
Calibration refers to the adjustment of the posterior probabilities output by a<br />
classification algorithm towards the true prior probability distribution of the target<br />
classes. This adjustment is necessary to account for the difference in prior<br />
distributions between the training set and the test set. This article proposes a new<br />
calibration method, called the probability-mapping approach. Two types of mapping<br />
are proposed: linear and non-linear probability mapping. These new calibration<br />
techniques are applied to 9 real-life direct marketing datasets. The newly-proposed<br />
techniques are compared with the original, non-calibrated posterior probabilities and<br />
the adjusted posterior probabilities obtained using the rescaling algorithm of Saerens,<br />
Latinne, & Decaestecker (2002). The results recommend that marketing researchers<br />
must calibrate the posterior probabilities obtained from the classifier. Moreover, it is<br />
shown that using a ‘simple’ rescaling algorithm is not a first and workable solution,<br />
because the results suggest applying the newly-proposed non-linear probabilitymapping<br />
approach for best calibration performance.<br />
2 - Optimizing Target Selection of Direct Mailing by Charities<br />
Remco Prins, VU University Amsterdam, FEWEB <strong>Marketing</strong> - Office<br />
2E-19, De Boelelaan 1105, Amsterdam, 1081 HV, Netherlands,<br />
rprins@feweb.vu.nl, Bas Donkers<br />
When determining the effectiveness of existing target selection procedures in direct<br />
mailing campaigns, correcting for the resulting endogenous sample composition can<br />
be a complicated procedure. In the present study, we propose a method to determine<br />
the effectiveness of target selection procedures using an additional experimental<br />
mailing to a randomly selected group of customers. Through this field experiment, we<br />
can provide clear cut directions for improving target selection rules, without the need<br />
for explicit corrections for the impact of previous target selection activities. The<br />
proposed approach also easily allows an estimation of the net effect of sending an<br />
additional mailing, after correcting for possible cannibalization effects. We apply this<br />
method to the direct mail campaigns of four large Dutch charitable organizations. The<br />
results provide directions for improvement for each of the charities, in terms of<br />
selection rules and mail frequency.<br />
3 - Test and Learn: A Reinforcement Learning Perspective<br />
Eric Schwartz, The Wharton School, 3730 Walnut Street,<br />
JMHH 700, Philadelphia, PA, 19103, United States of America,<br />
ericschw@wharton.upenn.edu<br />
Firms run experiments to test and learn about marketing actions. However, running<br />
many so-called A/B or multivariate tests can be slow and costly, and the results from<br />
one test do not give necessarily inform what the next test should be. We frame this as<br />
an optimization problem, known as the multi-armed bandit problem, involving the<br />
tradeoff between exploring uncertain actions and exploiting what has been learned so<br />
far. The problem occurs in a range of domains from personalized website design to<br />
MARKETING SCIENCE CONFERENCE – 2011 TA12<br />
7<br />
targeted direct marketing. For instance, in customer relationship management,<br />
marketers may predict future customer value, but which actions they should select<br />
for which customers and in which contexts or channels? To provide new insight on<br />
this problem, we use a model-based algorithm to determine an optimal policy of how<br />
to run a sequence of tests to learn about the effectiveness of those actions in the most<br />
cost-efficient way. To do this, we introduce the reinforcement learning framework to<br />
the marketing literature. This approach generalizes methods commonly used in<br />
marketing to solve dynamic optimization problems. Unlike prior methods, our<br />
approach accommodates a selection among many different actions. By considering<br />
the similarity of those actions, the firm may learn about the effectiveness of action<br />
without before ever testing it. As one example, we investigate firms with a customerbase<br />
engaging in activity for free with the goal of converting some of them into<br />
paying customers. Finally, we discuss the design of field experiments for<br />
implementation of the optimal sequential marketing tests.<br />
■ TA12<br />
Champions Center II<br />
Branding<br />
Contributed Session<br />
Chair: Xiaoying Zheng, PhD Student, Guanghua School of Management,<br />
Peking University, Zhong Guan Xin Yuan No.4 Building, Beijing, 100871,<br />
China, zhengxiaoyingpku@gmail.com<br />
1 - Customer Based Multidimensional Brand Equity and<br />
Asymmetric Risk<br />
Kyoung Nam Ha, Doctoral Candidate, University of Washington,<br />
24003 SE 12th Pl, Sammamish, WA, 98075, United States of America,<br />
knha@u.washington.edu, Robert Jacobson, Gary Erickson<br />
Based on market asset theory, we investigate brand asset in influencing a firm’s<br />
performance, in particular, a firm’s risk. Building on a literature in marketing that<br />
suggests several components in constituting brand value and in finance that<br />
emphasizes the role of asymmetries in the systematic risk, we assess the extent to<br />
which dimensions of brand equity (Differentiation, Relevance, Esteem, Knowledge,<br />
and Energy) influence the downside risk, upside risk, and the differential between<br />
upside and downside risk. We find that (i) Esteem has a negative effect on the risk<br />
differential, which comes from a more pronounced positive effect on downside risk,<br />
and (ii) Energy has a positive effect on the risk differential, which comes from a more<br />
pronounced positive effect on upside risk. We also find that (iii) Knowledge has a<br />
negative effect on downside risk as well as upside risk, and, thus, it does not have a<br />
statistically significant effect on the risk differential. The empirical analysis highlights<br />
the limitations of working with an aggregate measure of beta (which aggregates over<br />
both upturns and downturns) as well as an aggregate measure of brand equity<br />
(which aggregates distinct brand equity dimensions). By showing which brand<br />
characteristics indeed affect a firm’s risk beyond simply proving the theory in<br />
marketing that brand equity will have effect on a firm’s performance, this study<br />
provides managers more pragmatic information and sophisticated insights in making<br />
strategic decisions.<br />
2 - Brand Equity and Product Recalls<br />
Sheila Goins, Assistant Professor, University of Iowa, S320 Pappajohn<br />
Business Building, Iowa City, IA, 52242-0944,<br />
United States of America, sheila-goins@uiowa.edu, Qiang Fei,<br />
Lopo Rego, Cathy Cole<br />
<strong>Marketing</strong> managers and scholars have long recognized brands as fundamental<br />
market based firm assets. The marketing literature provides compelling theoretical<br />
rationale and empirical evidence linking strong brands with competitive advantages,<br />
customer commitment and decreased price sensitivity, thus contributing to firm<br />
performance. However, little is known about how customer brand perceptions<br />
influence customer response and firm performance in light of negative events such as<br />
product recalls. The literature offers competing views with both “customer brand<br />
commitment insulate the company,” and “the bigger they are, the harder they fall”<br />
arguments being offered. Using a multi-method approach and customer-based brand<br />
equity metrics, we explore how customer brand perceptions influence the firm’s<br />
product and financial market performance following a recall announcement. We<br />
empirically test the product market using experimental data, while the financial<br />
market is tested via an event study method. We also examine competitive dynamics<br />
in product recalls. Our experimental findings reveal brand quality as critical to recall<br />
effects: lower quality recalled brands exhibit smaller decreases in brand perceptions<br />
than higher quality recalled brands. We also identify asymmetric competitive<br />
dynamics: recalling a high quality brand causes positive increases in lower quality<br />
brand evaluations, while high quality brand evaluations do not change when a low<br />
quality brand is recalled. Findings from the event study confirm the relevance of<br />
customer perceptions: firms with strong brands experience less negative abnormal<br />
returns in response to brand recalls. Our findings also indicate competitive<br />
asymmetries and distinct time horizons for shareholder responses for focal and<br />
competitor firms.