Everything has a price
Competition of a Different Flavor: How a Strategic Group Identity Shapes Competition and Cooperation
Scott Sonenshein, Kristen Nault & Otilia Obodaru
Administrative Science Quarterly, forthcoming
Abstract:
Using an inductive study of 41 gourmet food trucks, we develop theory about how firms form a strategic group identity that shapes both competitive and cooperative behaviors among its members. Based on an analysis of group prototypes, we find that members cooperate to help each other meet the central tendencies of the group — the properties that typical group members have — and yet compete to strive for the ideal tendencies of the group — the attributes of members held in highest regard. These competitive and cooperative dynamics lead to three surprising consequences in light of previous research on strategic groups: (1) existing members of the strategic group help new firms enter the market; (2) resource scarcity leads to cooperation, not competition; and (3) when competition does emerge, it focuses on status within the group and not on price. To make sense of these empirical puzzles, we develop theory around the micro identity processes that allow a strategic group’s identity to persist and to shape its member firms’ behaviors, which alters how scholars understand the inner workings of strategic groups and their impact on both firms and markets.
The Perils of Proclaiming an Authentic Organizational Identity
Balázs Kovács, Glenn Carroll & David Lehman
Sociological Science, January 2017
Abstract:
An emerging body of research consistently demonstrates that individuals in developed consumer markets value authenticity. But how individuals respond to organizations that tout their identities as authentic is not so well understood. We argue that organizational attempts at explicitly proclaiming their own identity as authentic will generally be regarded by individuals with skepticism and devaluation. Across two studies with different research designs, we find consistent empirical evidence that individuals devalue organizations making identity self-claims of authenticity. The first study analyzed authenticity claims made in the texts of menus from 1,393 restaurants in Los Angeles and their corresponding 450,492 online consumer reviews recorded from 2009 to 2016. The second study used a controlled, minimalistic experimental setting with fictitious restaurant menus that examined reactions to generic authenticity self-claims. The findings illuminate how individuals respond to organizational identity claims about authenticity and raise interesting questions about other types of identity claims.
How much compensation is too much? An investigation of the effectiveness of financial overcompensation as a means to enhance customer loyalty
Tessa Haesevoets et al.
Judgment and Decision Making, March 2017, Pages 183–197
Abstract:
The present paper examines the effectiveness of financial overcompensation as a means to enhance customer loyalty after a product failure. Overcompensation implies that customers are entitled to a refund that is larger than the purchase price. It is, however, still unclear whether large overcompensations entail saturation effects, or alternatively, result in an actual drop in customer loyalty. We predicted that the overcompensation-loyalty relationship is generally characterized by an inverted U-shaped function. In line with this prediction, the results of four studies showed that mild overcompensations had, on average, a positive effect on customer loyalty beyond equal compensation, but only up to compensation levels of approximately 150% of the purchase price of faulty products. Beyond this level, the effectiveness of overcompensation diminished, eventually leading to a general drop in customer loyalty. Despite this overall pattern, two studies revealed robust individual differences in how customers react to increasing overcompensation. A majority of customers increased their loyalty when the overcompensation enlarged, but the curve flattened out in the high range. However, there was also a smaller portion of customers who reacted negatively to every form of overcompensation. A practical implication of these findings, therefore, is that companies should not offer compensations that are greater than 150% of the initial price, as these do not contribute to greater loyalty in any category of customers.
Standards of Beauty: The Impact of Mannequins in the Retail Context
Jennifer Argo & Darren Dahl
Journal of Consumer Research, forthcoming
Abstract:
Across six studies, a female mannequin is demonstrated to have negative implications for both male and female consumers low in appearance self-esteem. In particular, consumers who are lower in appearance self-esteem evaluate a product displayed by a mannequin more negatively as compared with consumers higher in appearance self-esteem. As mannequins signal the normative standard of beauty and consumers with low self-esteem in regard to their appearance believe they fail to meet this standard, these consumers become threatened by the beauty standard when exposed to a mannequin and in response denigrate the product the mannequin is displaying. Evidence for the underlying process is provided in three ways: 1) the finding that the effect for male and female consumers with low appearance self-esteem only arises when the mannequin is displaying an appearance-related product, 2) through mediation analysis that demonstrates that the mannequin conveys society’s standard of beauty and that this negatively impacts product evaluations, and 3) the mitigation of the effect by removing the presence of threat via a self-affirmation task or decreasing the mannequin’s beauty (e.g., marking its face, removing its hair, or removing its head). Multiple avenues for future research are forwarded.
It’s Too Pretty to Use! When and How Enhanced Product Aesthetics Discourage Usage and Lower Consumption Enjoyment
Freeman Wu et al.
Journal of Consumer Research, forthcoming
Abstract:
Marketers invest a lot of resources in product aesthetics and design, but does this strategy always lead to favorable consumer outcomes? While prior research suggests enhanced aesthetics should have a uniformly positive influence on pre-usage evaluations and choice, the present research examines the downstream effects of nondurable product aesthetics on consumption behavior and post-consumption affect. First, we document an inhibiting effect of aesthetics on actual consumption. We find that highly aesthetic products elicit greater perceptions of effort in their creation, and that consumers have an intrinsic appreciation for such effort. Because the consumption process indirectly destroys the effort invested to make the product beautiful, people reduce consumption of such products because usage would entail destroying something they naturally appreciate. Second, we show that in cases where individuals do consume a beautiful product, they exhibit lower consumption enjoyment and increased negative affect. These negative post-consumption outcomes are mediated in parallel by concerns over having actually destroyed the effort that made the product beautiful as well as the decrements in beauty that become visible when aesthetic products are made less attractive through consumption. Across a series of studies, we challenge the common assumption that enhanced aesthetics always lead to positive consumer outcomes.
Raising search costs to deter window shopping can increase profits and welfare
Greg Taylor
RAND Journal of Economics, Summer 2017, Pages 387–408
Abstract:
Consumers tend to browse products they are interested in and firms often invest resources in selling to them. A consequence, I show, is that it is optimal for a firm to increase the cost of browsing (even though this drives away potential customers) because doing so allows it to target sales efforts at those consumers most likely to buy. Despite representing pure waste, this can increase welfare by facilitating efficient allocation of sales or marketing resources. For a similar reason, consumers often benefit from search costs in aggregate, and prefer them to other means of screening, such as price increases.
How Unequal Perceptions of User Reviews Impact Price Competition
Pelin Pekgün, Michael Galbreth & Bikram Ghosh
Decision Sciences, forthcoming
Abstract:
When a consumer cannot fully assess her valuations of competing products prior to purchase, she must make a purchase decision based on imperfect product information. However, with the advent of online channels for widely disseminating individual user reviews, consumers are now able to learn from the experiences of others and update their expectations regarding product valuations. We analyze the interaction of user reviews and experience uncertainty, with a specific focus on the potential for negative and positive reviews to be weighted differently in a consumer's assessment of the valence of the posted reviews. We find that overweighting of negative reviews by consumers can lead to surprising results in terms of pricing and profits in a competitive context. In particular, if consumer awareness is higher for the lower quality product, it can charge higher prices and realize higher profits in equilibrium than its higher quality competitor when consumers are strongly influenced by negative reviews. We also show that a higher weighting on positive reviews by consumers always helps the firm with a lower consumer awareness.
Winner-take-all or long tail? A behavioral model of markets with increasing returns
P.J. Lamberson
System Dynamics Review, July-December 2016, Pages 233–260
Abstract:
This paper develops a model of consumer choice that demonstrates why some markets with increasing returns converge to a winner-take-all outcome while many others have a power law market share distribution with a “long tail” of small-share products. The model takes the standard winner-take-all model of increasing returns and adds a simple behavioral assumption: when faced with complex choices, decision makers first quickly eliminate many of the available options using a simple heuristic before selecting from the remaining feasible set. We examine the market-level consequences of this model using an agent-based simulation. Under a wide range of parameters the model produces a power law share distribution. But when consumers have very large feasible sets the market converges to a winner-take-all outcome, and when consumers have very small feasible sets the model produces an evenly split market.