Picking winners
Mind the Gap: How Smaller Numerical Differences Can Increase Product Attractiveness
Meyrav Shoham, Sarit Moldovan & Yael Steinhart
Journal of Consumer Research, forthcoming
Abstract:
Consumers often encounter product-related numerical information, such as attribute ratings and version numbers. This research demonstrates that a smaller (compared to a larger) numerical difference can increase perceived improvement and enhance product appeal. We find that when a product's version number or a rating changes from a decimal number to an integer (e.g., 2.4 to 3), product appeal is enhanced compared to when the change is between two integers (e.g., 2 to 3), even though the latter difference is mathematically larger. This effect occurs when the meaning of the numerical information is unclear, leading consumers to try and infer what it represents. We suggest that a decimal number is inferred to be part of a fine-grained scale, in which decimals are the intermediate values and integers are endpoints or category boundaries. The switch from a decimal to an integer is therefore perceived as skipping over intermediate values and crossing a category boundary. This suggests that the product has made a substantive improvement, making it more appealing. A consecutive integer-to-integer change does not provide a cue to support such inferences. In five studies, we demonstrate the decimal-to-integer effect, its underlying process, and its boundary conditions.
When Moderation Fosters Persuasion: The Persuasive Power of Deviatory Reviews
Daniella Kupor & Zakary Tormala
Journal of Consumer Research, forthcoming
Abstract:
When people seek to persuade others to purchase a particular product or service, they often give an extremely favorable review of it as a means of doing so. Despite the intuitive appeal of this strategy, the current research demonstrates that a moderately positive review is sometimes more persuasive. In particular, when the perceived default evaluation in a given context is extremely positive, moderately positive reviews that deviate from that default can become more persuasive. In contrast, when the perceived default is moderately positive, extremely positive reviews tend to be more persuasive. This deviation effect occurs because reviews that deviate from the perceived default are believed to be more thoughtful, and thus accurate, which enhances their persuasive impact. This effect is demonstrated in eight experiments set in a diverse range of consumer contexts.
The Long Shadow of Rivalry: Rivalry Motivates Performance Today and Tomorrow
Brian Pike, Gavin Kilduff & Adam Galinsky
Psychological Science, forthcoming
Abstract:
Research has established that competing head to head against a rival boosts motivation and performance. The present research investigated whether rivalry can affect performance over time and in contests without rivals. We examined the long-term effects of rivalry through archival analyses of postseason performance in multiple high-stakes sports contexts: National Collegiate Athletic Association (NCAA) Division I Men's Basketball and the major U.S. professional sports leagues: National Basketball Association (NBA), National Football League (NFL), Major League Baseball (MLB), and National Hockey League (NHL). Econometric analyses revealed that postseason performance of a focal team's rival in year N predicted that focal team's postseason performance in year N + 1. Follow-up analyses suggested that the performance boost was especially pronounced when one's rival won the previous tournament. These results establish that rivalry has a long shadow: A rival team's success exerts such a powerful motivational force that it drives performance outside of direct competition with one's rival and even after a significant delay.
The Impact of E-book Distribution on Print Sales: Analysis of a Natural Experiment
Hailiang Chen, Yu Jeffrey Hu & Michael Smith
Management Science, forthcoming
Abstract:
Digital distribution introduces many new strategic questions for the creative industries - notably, how the use of new digital channels will impact sales in established channels. We analyze this question in the context of e-book and hardcover sales by exploiting a natural experiment that exogenously delayed the release of a publisher's new Kindle e-books in April and May 2010. Using new books released simultaneously in e-book and print formats in March and June 2010 as the control group, we find that delaying e-book availability results in a 43.8% decrease in e-book sales but no increase in print book sales on Amazon.com or among other online or offline retailers. We also find that the decrease in e-book sales is greater for books with less prerelease buzz. Together, we find no evidence of strong cannibalization between print books and e-books in the short term and no support for the sequential distribution of books in print versions followed by e-book versions.
Gains from digitization: Evidence from gift-giving in music
Marc Bourreau & Pınar Doğan
Journal of Economic Behavior & Organization, May 2018, Pages 106-122
Abstract:
In this paper, we focus on recorded music gifts during the holiday season and estimate the reduction in deadweight loss due to the transition from physical CD gift-giving to digital music gift-giving with gift cards. Based on our survey data, we find that music CD gifts generate an average deadweight loss between 15% and 38% of the price. According to our estimates of gift music album sales which are based on U.S. data, the welfare gains from digitization, in terms of eliminated deadweight loss as a percentage of total spending on music albums, were between 5% and 13% during the week when digital sales peak in 2014.
The Customer May Not Always Be Right: Customer Compatibility and Service Performance
Ryan Buell, Dennis Campbell & Frances Frei
Harvard Working Paper, March 2018
Abstract:
This paper investigates the impact of customer compatibility - the degree of fit between the needs of customers and the capabilities of the operations serving them - on customer experiences and firm performance. We decompose the variance of 58,294 face-to-face retail banking transactions, quantifying the relative importance of customer, employee, process, location, and market-level effects on customer satisfaction. In our models, which explain roughly a quarter of the aggregate variance in customer satisfaction, differences among customers account for 96-97% of this variance. Further analysis reveals that customers report relatively consistent satisfaction across transactions, but that some customers are habitually more satisfied than others. An empirical investigation of the satisfaction of 149,389 customers interacting with 166 banks over a five-year period provides evidence that these customer-level differences are explained in part by customer compatibility. Customers whose needs diverge more starkly from those of their bank's average customers report significantly lower levels of satisfaction on a broad range of operating dimensions. Consistently, banks that serve customer bases with more dispersed needs receive lower satisfaction scores than banks serving customer bases with less dispersed needs. Finally, a longitudinal analysis of the deposit growth of all federally insured banks in the United States from 2006-2017 reveals that customer compatibility affects financial performance. Branches with more divergent customers grow deposits more slowly than branches with less divergent customers. Institutions serving customer bases with more dispersed needs have branches that exhibit slower deposit growth than those of institutions serving customer bases with less dispersed needs.
When Showrooming Increases Retailer Profit
Dmitri Kuksov & Chenxi Liao
Journal of Marketing Research, forthcoming
Abstract:
Showrooming, the phenomenon of consumers visiting a brick-and-mortar store to learn about products but then buying online to obtain lower prices, is attracting increased attention both in business practice and in academic literature. It is usually considered a major threat to the brick-and-mortar retailers; "how to fight it" seems the only consideration. However, the manufacturer's need for retail informational services has always been one of the essential reasons for retailers to exist and a means for retailers to achieve profitability. The popular arguments about the threat of showrooming ignore the strategic role of the manufacturer in the distribution channel. This paper analytically shows that when the manufacturer's decisions are added to the consideration (i.e., when the manufacturer-retailer contract is endogenous), the ability of consumers to engage in showrooming may lead to increased, rather than decreased, profitability of brick-and-mortar retailer(s). Thus, retail efforts to restrict showrooming behavior may be misguided. This result holds even if the manufacturer is restricted to wholesale-only contracts and is not allowed to price discriminate between channels.
Humanizing Products with Handwritten Typefaces
Roland Schroll, Benedikt Schnurr & Dhruv Grewal
Journal of Consumer Research, forthcoming
Abstract:
The loss of a sense of humanness that stems from increasing mechanization, automation, and digitization gives firms an impetus to develop effective ways to humanize products. On the basis of knowledge activation theory, this article systematically investigates a novel humanization approach: the use of typefaces that appear to be handwritten. Across several laboratory and field studies, the authors provide evidence of the positive effect of handwritten typefaces, reveal the mechanisms that lead to these outcomes, and outline some boundary conditions. Specifically, the results show that handwritten typefaces create perceptions of human presence, which lead to more favorable product evaluations (and behavior) by enhancing the emotional attachment between the consumer and the product. However, these effects are mitigated for brands to which consumers already feel a sense of attachment. Finally, the effects reverse when the products are functionally positioned or functional in nature. The present article thus extends understanding of humanization processes and provides guidelines for how and when brands should use handwritten typefaces.
Spillovers from good-news and other bankruptcies: Real effects and price responses
Nina Baranchuk & Michael Rebello
Journal of Financial Economics, forthcoming
Abstract:
We model debt restructurings that could endogenously end in bankruptcy, and study spillovers to competitors' operating decisions, profits, restructuring outcomes and security prices. We show that while bankruptcy could cause the firm's share price to drop, bankruptcy always signals good news about the firm. We identify the conditions under which a bankruptcy also signals good news about competitors. We demonstrate that when a firm's bankruptcy costs are relatively small, bankruptcy raises its share price while lowering the prices of competitors' shares and debt as well as boosting the probability that they will enter bankruptcy. When there is little information asymmetry about the firm's prospects, or the information asymmetry is about industry prospects, bankruptcy raises competitors' share and debt prices and lowers their probability of bankruptcy.
Seeing Stars: How the Binary Bias Distorts the Interpretation of Customer Ratings
Matthew Fisher, George Newman & Ravi Dhar
Journal of Consumer Research, forthcoming
Abstract:
Across many different contexts, individuals consult customer ratings to inform their purchase decisions. The present studies document a novel phenomenon, dubbed 'the binary bias,' which plays an important role in how individuals evaluate customer reviews. Our main proposal is that people tend to make a categorical distinction between "positive" ratings (e.g., 4s and 5s) and "negative" ratings (e.g., 1s and 2s). However, within those bins, people do not sufficiently distinguish between more extreme values (5s and 1s) and less extreme values (4s and 2s). As a result, people's subjective representations of distributions are heavily impacted by the extent to which those distributions are "imbalanced" (having more 4s and 5s vs. more 1s and 2s). Ten studies demonstrate that this effect has important consequences for people's product evaluations and purchase decisions. Additionally, we show this effect is not driven by the salience of particular bars, unrealistic distributions, certain statistical properties of a distribution, or diminishing subjective utility. Furthermore, we demonstrate this phenomenon's relevance to other domains besides product reviews, and discuss the implications for existing research on how people integrate conflicting evidence.
Heterogeneous Veblen Effects: Evidence from the Car Rental Market
Rafael Becerril Arreola
University of South Carolina Working Paper, February 2018
Abstract:
Veblen effects occur when product prices serve as signals of consumer wealth and thus influence consumer demand. This study quantifies heterogeneous Veblen effects with a quasiexperimental approach that addresses identification threats relevant to social influence and supply factors while controlling for alternative social processes and the effects of prices on affordability and perceived quality. Using four-dimensional panel data on car rentals, the study explains rental choices in terms of the different levels of relative wealth signaled by different vehicles at different locations. The individual-level estimates reveal that both wealth signaling and countersignaling are common among travelers and that the average product-specific elasticity of choice probability with respect to signaled wealth is, about a third as large as the elasticity with respect to rental fees.
Apples, Oranges and Erasers: The Effect of Considering Similar versus Dissimilar Alternatives on Purchase Decisions
Elizabeth Friedman, Jennifer Savary & Ravi Dhar
Journal of Consumer Research, forthcoming
Abstract:
When deciding whether to buy an item, consumers sometimes think about other ways they could spend their money. Past research has explored how increasing the salience of outside options (i.e., alternatives not immediately available in the choice set) influences purchase decisions, but whether the type of alternative considered systematically affects buying behavior remains an open question. Ten studies find that relative to considering alternatives that are similar to the target, considering dissimilar alternatives leads to a greater decrease in purchase intent for the target. When consumers consider a dissimilar alternative, a competing non-focal goal is activated, which decreases the perceived importance of the focal goal served by the target option. Consistent with this proposed mechanism, the relative importance of the focal goal versus the non-focal goal mediates the effect of alternative type on purchase intent, and the effect attenuates when the focal goal is shielded from activation of competing goals. We conclude with a discussion of the theoretical and practical implications of our findings.