Market research
“A” Business by Any Other Name: Firm Name Choice as a Signal of Firm Quality
Ryan McDevitt
Journal of Political Economy, August 2014, Pages 909-944
Abstract:
This paper considers when a firm’s deliberately chosen name can signal meaningful information. The average plumbing firm whose name begins with A or a number receives five times more service complaints than other firms and also charges higher prices. Relatedly, plumbers with A names advertise more in the Yellow Pages and on Google, and doing so is positively correlated with receiving complaints. As the use of A names is more prevalent in larger markets, I reconcile these findings with a simple model in which firms have different qualities and consumers have heterogeneous search costs.
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Suspense-Optimal College Football Play-Offs
Jarrod Olson & Daniel Stone
Journal of Sports Economics, forthcoming
Abstract:
U.S. college football’s traditional bowl system, and lack of a postseason play-off tournament, has been controversial for years. The conventional wisdom is that a play-off would be a more fair way to determine the national champion, and more fun for fans to watch. The colleges finally agreed to begin a play-off in the 2014-2015 season, but with just four teams, and speculation continues that more teams will be added soon. A subtle downside to adding play-off teams is that it reduces the significance of regular season games. We use the framework of Ely, Frankel, and Kamenica (in press) to directly estimate the utility fans would get from this significance, that is, utility from suspense, under a range of play-off scenarios. Our results consistently indicate that play-off expansion causes a loss in regular season suspense utility greater than the gain in the postseason, implying the traditional bowl system (two team play-off) is suspense-optimal. We analyze and discuss implications for TV viewership and other contexts.
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Paul Rozin et al.
Psychological Science, forthcoming
Abstract:
Perceptual processes generally enhance borders, because of their high information value. Mach bands are an example in vision. In the social world, borders are also of special significance; one side of a border is generally more esteemed or valued than the other. We claim that entities (individuals, groups) that are just over the border on the positive side tend to exaggerate their membership on the positive side (asymmetrical social Mach bands). We demonstrate this by showing that (a) master’s-degree universities use the word university to describe themselves more than major graduate universities do, (b) small international airports use the word international to describe themselves more than major airports do, and (c) University of Pennsylvania students, who are affiliated with a “marginal” Ivy League school, use the word Ivy to describe their school more than Harvard students do.
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Creating Reciprocal Value Through Operational Transparency
Ryan Buell, Tami Kim & Chia-Jung Tsay
Harvard Working Paper, May 2014
Abstract:
We investigate whether organizations can create value by introducing visual transparency between consumers and producers. Although existing theory posits that increased contact between the two parties can diminish work performance, we conducted two field and two laboratory experiments in food service contexts that suggest that the introduction of operational transparency improves service quality and efficiency. The introduction of reciprocal operational transparency contributed to a 22.5% increase in customer-reported quality and reduced throughput times to 67.5% of standard. Customers who observed employees engaged in labor perceived greater effort, appreciated that effort, and valued the service more. Employees who observed customers felt more appreciated, and in turn, were more satisfied with their work and exerted increased levels of effort. We find that transparency, by visually revealing operating processes to both producers and consumers, generates a positive feedback loop through which value is created for both parties.
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Navigating by the Stars: What Do Online User Ratings Reveal About Product Quality?
Bart de Langhe, Philip Fernbach & Donald Lichtenstein
University of Colorado Working Paper, April 2014
Abstract:
Consumers increasingly turn to online user ratings to inform purchase decisions, but little is known about whether these ratings are valid indicators of product quality. We developed a database of (1) quality scores from Consumer Reports, (2) user ratings from Amazon.com, (3) selling prices from Amazon.com, and (4) brand perceptions from a proprietary industry survey. Analyses reveal that the average and number of user ratings are only weakly related to quality and far less diagnostic than price (Study 1). Yet, when consumers infer quality, they rely mostly on the average user rating and much less on the number of ratings and price (Study 2). The dissociation between user ratings and quality can be traced in part to the influence of firm marketing actions on users’ evaluations. Controlling for quality, average user ratings are higher for more expensive products, higher for brands with a reputation for offering more functional and emotional benefits, and lower for brands with a reputation for affordability (Study 3). We conclude that consumer trust in online user ratings is largely misplaced.
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Counterfactual Decomposition of Movie Star Effects with Star Selection
Angela (Xia) Liu, Tridib Mazumdar & Bo Li
Management Science, forthcoming
Abstract:
We investigate the effects of a movie star on the movie's opening week theater allocations and box office revenue. Because the pairing of a star and a movie involves a bilateral matching process between the studio and the star, the star (hence the nonstar) movie samples are nonrandom and the star variable is potentially endogenous. To assess the star as well as movie characteristics effects, we utilize a switching model to account for endogenous assignment of stars and nonstars into respective movie samples. In addition to controlling for selection biases, the endogenous switching model generates managerially relevant insights into the factors that influence a star's assignment to a movie. Additionally, because the star and nonstar movie characteristics (e.g., movie budget, distribution, genre, etc.) are often systematically different, we counterfactually estimate the theater allocations and revenues that nonstars (stars) would have generated had they acted in movies endowed with the same characteristics as the star (nonstar) movies. The decomposition analysis, conducted at different quantiles of theater and revenue distributions, shows that the presence of a star has a much stronger effect on theater allocations than the movie characteristics have. However, the revenue difference is entirely contributed by the differences in the characteristics of the star and nonstar movies. Thus, the star effects on revenue come indirectly through the theater allocations as well as from the characteristics of the movies in which they participate.
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When the Leader Follows: Avoiding Dethronement through Imitation
Jan-Michael Ross & Dmitry Sharapov
Academy of Management Journal, forthcoming
Abstract:
When is imitation of follower actions an effective competitive strategy for a leader? Building on prior work in competitive dynamics from the Austrian School perspective, we propose that imitation can be an effective means of staying ahead, even in the absence of mimetic social pressures. This is because the leader's imitation of follower actions represents equilibrating moves to maintain the status quo in reaction to the disequilibrating actions that the follower undertakes to catch up with the leader. Furthermore, reduction of difference in competitive positioning between leader and follower serves the same purpose, and both imitation strategies are complementary. These effects of 'action imitation' and 'positioning imitation', we argue, are moderated by the degree of environmental uncertainty, by the extent of the leader's initial advantage, and by the difference between leader and follower capabilities. Our theoretical arguments are supported by an analysis of data on head-to-head boat races from the America's Cup World Series. By developing mechanisms which take endogenous and exogenous contingencies of competitive interactions into account, this paper advances competitive dynamics as a predictive theory of performance outcomes.
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Exposure to Product Placement in Text Can Influence Consumer Judgments
Benjamin Storm & Eve Stoller
Applied Cognitive Psychology, forthcoming
Abstract:
Five experiments explored the consequences of exposure to product placement in text. In each experiment, participants read three short stories containing the names of several brand-name products. When given a surprise judgment task asking them to rate their likelihood of purchasing a number of brands — some of which were placed and some of which were not placed — participants rated placed brands significantly higher than non-placed brands. This effect of product placement was observed even when participants were warned about product placement prior to reading the stories, and even when participants reported having a negative opinion about product placement as a form of advertisement. Under some conditions, however, the effect did interact with brand familiarity, such that judgments of familiar brands were affected less by product placement than were judgments of unfamiliar brands.
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Consumer Demand for the Fair Trade Label: Evidence from a Multi-Store Field Experiment
Jens Hainmueller, Michael Hiscox & Sandra Sequeira
Review of Economics and Statistics, forthcoming
Abstract:
We provide new evidence on consumer demand for ethical products from experiments conducted in a U.S. grocery store chain. We find that sales of the two most popular coffees rose by almost 10% when they carried a Fair Trade label as compared to a generic placebo label. Demand for the higher priced coffee remained steady when its price was raised by 8%, but demand for the lower priced coffee was elastic: a 9% price increase led to a 30% decline in sales. While consumers attach value to ethical sourcing, there is significant heterogeneity in willingness to pay for it.
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Jeffrey Prince & Daniel Simon
Management Science, forthcoming
Abstract:
We examine if and how incumbent firms respond to entry and entry threats using nonprice modes of competition. Our analysis focuses on airline service quality. We find that incumbent on-time performance (OTP) actually worsens in response to entry, and even entry threats, by Southwest Airlines. Since Southwest is both a top-performing airline in OTP and a low-cost carrier (LCC), we conjecture that this response by incumbents may be due to a cost-cutting strategy that allows for intense postentry price competition along with preentry deterrence, or it may be due to a postentry differentiation strategy along with preentry accommodation. Further analysis of entry and entry threats by other airlines is inconclusive, providing evidence that is partially consistent with both hypotheses. Nonetheless, the phenomenon of worsening OTP can only be observed when the (potential) entrant is a LCC (Southwest, Jet Blue, and AirTran).
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Do Pharmacists Buy Bayer? Informed Shoppers and the Brand Premium
Bart Bronnenberg et al.
NBER Working Paper, July 2014
Abstract:
We estimate the effect of information on consumers' willingness to pay for national brands in physically homogeneous product categories. We measure consumer information using education, occupation, and a survey-based measure of product knowledge. In a detailed case study of headache remedies we find that more informed consumers are less likely to pay extra to buy national brands, with pharmacists choosing them over store brands only 9 percent of the time, compared to 26 percent of the time for the average consumer. In a similar case study of pantry staples such as salt and sugar, we show that chefs devote 12 percentage points less of their purchases to national brands than demographically similar non-chefs. We extend our analysis to cover 50 retail health categories and 241 food and drink categories and use the resulting estimates to fit a stylized model of demand and pricing. The model allows us to quantify the extent to which brand premia result from misinformation, and the way more accurate beliefs would change the division of surplus among manufacturers, retailers, and consumers.
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John Peloza, Christine Ye & William Montford
Journal of Public Policy & Marketing, forthcoming
Abstract:
Research demonstrates that consumers frequently engage in inference making when evaluating food products. These inferences can be highly inaccurate, leading to unintended, unhealthy consumer choices. Previous research has examined the role of inference making in consumption settings from either an intra- or inter-attribute perspective. The current research highlights extra-attribute inferences, in which consumers use corporate-level information to make inferences about product level attributes. Across four studies the authors demonstrate the existence of a health halo resulting from corporate social responsibility (CSR) activities. When consumers evaluate food products marketed by firms with strong CSR reputations, they underestimate the calorie content. Further, the authors demonstrate that this calorie underestimation can lead to overconsumption by consumers.
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Wesley Hartmann & Daniel Klapper
Stanford Working Paper, June 2014
Abstract:
We explore the effects of television advertising in the setting of the NFL’s Super Bowl telecast. The Super Bowl is the largest advertising event of the year and is well suited for measurement. The event has the potential to create significant increases in “brand capital” because ratings average over 40 percent of households and ads are a focal point of the broadcast. Furthermore, variation in exposures is exogenous because a brand cannot choose how many impressions it receives in each market. Viewership is determined based on local preferences for watching the two competing teams. With this significant and exogenous variation in Super Bowl advertising exposures we test whether advertisers’ sales are affected accordingly. We run our analysis using Nielsen ratings and store level sales data in the beer and soda categories. We find that Super Bowl ads generate significant increases in revenue and volume per household. However, when two major brands both advertise, they erode most of the gain. The largest effects occur during weeks with spikes in other sports events suggesting that placing an advertisement in the most watched sporting event of the year generates associations with sports more broadly. We test this using local viewership data of NCAA basketball in the second month after the Super Bowl and find strong evidence that advertising can generate or augment complementarities between a brand and the ways potential consumers spend their time.
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Consumer Price Search and Platform Design in Internet Commerce
Michael Dinerstein et al.
NBER Working Paper, August 2014
Abstract:
Search frictions can explain why the "law of one price" fails in retail markets and why even firms selling commodity products have pricing power. In online commerce, physical search costs are low, yet price dispersion is common. We use browsing data from eBay to estimate a model of consumer search and price competition when retailers offer homogeneous goods. We find that retail margins are on the order of 10%, and use the model to analyze the design of search rankings. Our model explains most of the effects of a major re-design of eBay's product search, and allows us to identify conditions where narrowing consumer choice sets can be pro-competitive. Finally, we examine a subsequent A/B experiment run by eBay that illustrates the greater difficulties in designing search algorithms for differentiated products, where price is only one of the relevant product attributes.
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The role of customer expectations in name-your-own-price markets
Scott Fay & Seung Hwan (Shawn) Lee
Journal of Business Research, forthcoming
Abstract:
This research analyzes how consumers' bidding costs and expectations about the threshold price impact a Name-Your-Own-Price (NYOP) retailer. We find that an NYOP retailer's profit may increase if consumers learn the product's true price threshold distribution. Inaccurate expectations can be detrimental to the firm either if consumers are too optimistic (i.e., expect the threshold price to be lower, on average, than really is) OR if consumers are overly pessimistic (i.e., expect the price threshold to be much higher than it is in reality). Furthermore, if customers accurately anticipate the true distribution of threshold prices, a seller may benefit from either (1) rejecting profitable bids in order to induce higher expectations of the threshold price (and thus higher bids) or (2) accepting bids below its costs (in order to raise participation rates). Using data from a real-world NYOP retailer, we find that bidding behavior is consistent with our analytical predictions.
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Richard Melstrom
Journal of Cultural Economics, August 2014, Pages 223-236
Abstract:
This paper presents individual demand models for three historic battlefield sites maintained by the US National Park Service. Preserved battlefields are valuable cultural resources that make up a significant portion of the US National Park system, but have received scant attention from economists. The demand for trips is modeled as a count data process. Visitor data for these battlefields were collected on-site, so the models account for truncation in the observed number of trips and endogenous stratification. The travel cost method, which is seeing increasing application in cultural heritage research, is used to estimate the use value of each battlefield. The results indicate an average individual willingness to pay for a battlefield trip ranging from about $8–$25, depending on the site.
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Hyojung Park & Glen Cameron
Journalism & Mass Communication Quarterly, September 2014, Pages 487-507
Abstract:
The purpose of this study was to understand better how a conversational human voice versus a corporate tone of voice in blogs affects key publics’ responses to an organization in the context of a crisis, using a 2 (tone of voice: human/organizational) × 2 (source: public relations executive/private citizen) × 2 (crisis response: defensive/accommodative) mixed experimental design. Results indicate that first-person voice and personal narratives increased perceptions of social presence and interactivity in online communication. These perceptions subsequently resulted in positive post-crisis outcomes, such as reputation and behavioral intentions.