Satisfied customers
Do ratings of firms converge? Implications for managers, investors and strategy researchers
Aaron Chatterji et al.
Strategic Management Journal, forthcoming
Abstract:
Raters of firms play an important role in assessing domains ranging from sustainability to corporate governance to best places to work. Managers, investors, and scholars increasingly rely on these ratings to make strategic decisions, invest trillions of dollars in capital and study corporate social responsibility (CSR), guided by the implicit assumption that the ratings are valid. We document the surprising lack of agreement across social ratings from six well-established raters. These differences remain even when we adjust for explicit differences in the definition of CSR held by different raters, implying the ratings have low validity. Our results suggest that users of social ratings should exercise caution in interpreting their connection to actual CSR and that raters should conduct regular evaluations of their ratings.
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Paying Up for Fair Pay: Consumers Prefer Firms with Lower CEO-to-Worker Pay Ratios
Bhavya Mohan, Michael Norton & Rohit Deshpande
Harvard Working Paper, May 2015
Abstract:
Prior research examining consumer expectations of equity and price fairness has not addressed wage fairness, as measured by a firm's pay ratio. Pending legislation will require American public companies to disclose the pay ratio of CEO wage to the average employee's wage. Our six studies show that pay ratio disclosure affects purchase intention of consumers via perceptions of wage fairness. The disclosure of a retailer's high pay ratio (e.g., 1000 to 1) reduces purchase intention relative to firms with lower ratios (e.g., 5 to 1 or 60 to 1, Studies 1A, 1B, and 1C). Lower pay ratios improve consumer perceptions across a range of products at different price points (Study 2A and 2B), increase consumer ratings of both firm warmth and firm competence (Study 3), and enhance perceptions of Democrats and Independents without alienating Republican consumers (Study 4). A firm with a high ratio must offer a 50% price discount to garner as favorable consumer impressions as a firm that charges full price but features a lower ratio (Study 5).
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A taste for temperance: How American beer got to be so bland
Ranjit Dighe
Business History, forthcoming
Abstract:
This article examines the historical origins of bland American beer. The US was not strongly associated with a particular beer type until German immigrants popularised lager beer. Lager, refreshing and mildly intoxicating, met the demands of America's growing working class. Over time, American lager became lighter and blander. This article emphasises America's uncommonly strong temperance movement, which put the industry on the defensive. Brewers pushed their product as 'the beverage of moderation,' and consumers sought out light, relatively non-intoxicating beers. The recent 'craft beer revolution' is explained as a backlash aided by a changing consumer culture and improved information technology.
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Robert Lull & Brad Bushman
Psychological Bulletin, forthcoming
Abstract:
It is commonly assumed that sex and violence sell. However, we predicted that sex and violence would have the opposite effect. We based our predictions on the evolution and emotional arousal theoretical framework, which states that people are evolutionarily predisposed to attend to emotionally arousing cues such as sex and violence. Thus, sexual and violent cues demand more cognitive resources than nonsexual and nonviolent cues. Using this framework, we meta-analyzed the effects of sexual media, violent media, sexual ads, and violent ads on the advertising outcomes of brand memory, brand attitudes, and buying intentions. The meta-analysis included 53 experiments involving 8,489 participants. Analyses found that brands advertised in violent media content were remembered less often, evaluated less favorably, and less likely to be purchased than brands advertised in nonviolent, nonsexual media. Brands advertised using sexual ads were evaluated less favorably than brands advertised using nonviolent, nonsexual ads. There were no significant effects of sexual media on memory or buying intentions. There were no significant effects of sexual or violent ads on memory or buying intentions. As intensity of sexual ad content increased, memory, attitudes, and buying intentions decreased. When media content and ad content were congruent (e.g., violent ad in a violent program), memory improved and buying intentions increased. Violence and sex never helped and often hurt ad effectiveness. These results support the evolution and emotional arousal framework. Thus, advertisers should consider the effects of media content, ad content, content intensity, and congruity to design and place more effective ads.
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Marketing Department Power and Firm Performance
Hui Feng, Neil Morgan & Lopo Rego
Journal of Marketing, forthcoming
Abstract:
This study empirically investigates marketing department power within U.S. firms over the 1993-2008 period and assesses its impact on firm performance. Using a new objective measure of marketing department power and a cross-industry sample of 612 public firms in the U.S., results reveal that marketing department power generally increased over this time period. Further, our analyses show that a powerful marketing department enhances firms' longer-term future Total Shareholder Returns (TSR) above and beyond its positive effect on firms' short-term Return on Assets (ROA). The findings also reveal that a firm's long run market-based asset building and short run market-based asset leveraging capabilities partially mediate the effect of a firm's marketing department power on its longer-term shareholder value performance, and fully mediate the effect on its short-term ROA performance. This research provides new insights for marketing scholars and managers concerning marketing's influence within the firm and how investments in building a powerful marketing department impact firm performance.
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Corporate social responsibility and the cost of corporate bonds
Wenxia Ge & Mingzhi Liu
Journal of Accounting and Public Policy, forthcoming
Abstract:
This study examines how a firm's corporate social responsibility (CSR) performance is associated with the cost of its new bond issues. Using credit ratings as an ex ante cost of debt, we find that better CSR performance is associated with better credit ratings. After controlling for credit ratings, our results show that better CSR performance is associated with lower yield spreads but some of the effect is absorbed by credit ratings. When we examine CSR strengths and concerns separately, we find that a higher CSR strength (concern) score is associated with lower (higher) yield spreads. Our results on the effect of firm performance on seven individual CSR dimensions are generally consistent with our main findings. Our results indicate that firms with better CSR performance are able to issue bonds at lower cost and that both CSR strengths and concerns are considered by bondholders. Additional subsample test results suggest that the association between CSR performance and bond yield spreads is more pronounced in investment-grade and non-Rule 144a bonds, for financially healthier bond issuers, for issuers with weaker corporate governance and higher information asymmetry, and for issuers operating in environmentally sensitive industries.
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Amit Kumar & Thomas Gilovich
Journal of Consumer Psychology, forthcoming
Abstract:
Extending previous research on the hedonic benefits of spending money on doing rather than having, this paper investigates when people prefer to consume experiential and material purchases. We contend that the preferred timing of consumption tends to be more immediate for things (like clothing and gadgets) than for experiences (like vacations and meals out). First, we examine whether consumers exhibit a stronger preference to delay consumption of experiential purchases compared to material goods. When asked to make choices about their optimal consumption times, people exhibit a relative preference to have now and do later. In the next set of studies, we found that this difference in preferred consumption led participants to opt for a lesser material item now over a superior item later, but to wait for a superior experiential purchase rather than settle for a lesser experience now. This tendency is due to the fact that consumers derive more utility from waiting for experiences than from waiting for possessions. Finally, we provide evidence that these preferences affect people's real-world decisions about when to consume.
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Halo (Spillover) Effects in Social Media: Do Product Recalls of One Brand Hurt or Help Rival Brands?
Abhishek Borah & Gerard Tellis
Journal of Marketing Research, forthcoming
Abstract:
Online chatter is important because it is spontaneous, passionate, information rich, granular, and live. Thus, it can forewarn and be diagnostic about potential problems with automobile models, known as nameplates. The authors define perverse halo (or negative spillover) as the phenomenon whereby negative chatter about one nameplate increases negative chatter for another nameplate. The authors test the existence of such perverse halo for 48 nameplates from 4 different brands during a series of automobile recalls. The analysis is by individual and panel Vector AutoRegressive models. Perverse halo is extensive. It occurs for nameplates within the same brand across segments and across brands within segments. It is strongest between brands of the same country. Perverse halo is asymmetric, being stronger from a dominant brand to a less dominant brand than vice versa. Apology advertising about recalls has harmful effects on both the recalled brand and its rivals. Further, these halo effects impact downstream performance metrics such as sales and stock market performance. Online chatter amplifies the negative effect of recalls on downstream sales by about 4.5 times.
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The Unfavorable Economics of Measuring the Returns to Advertising
Randall Lewis & Justin Rao
Quarterly Journal of Economics, forthcoming
Abstract:
Twenty-five large field experiments with major U.S. retailers and brokerages, most reaching millions of customers and collectively representing $2.8 million in digital advertising expenditure, reveal that measuring the returns to advertising is difficult. The median confidence interval on return on investment is over one-hundred percentage points wide. Detailed sales data show that, relative to the per capita cost of the advertising, individual-level sales are very volatile; a coefficient of variation of ten is common. Hence, informative advertising experiments can easily require more than ten million person-weeks, making experiments costly and potentially infeasible for many firms. Despite these unfavorable economics, randomized control trials represent progress by injecting new, unbiased information into the market. The inference challenges revealed in the field experiments also show that selection bias, due to the targeted nature of advertising, is a crippling concern for widely-employed observational methods.
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The Informational Role of Product Trade-Ins for Pricing Durable Goods
Ohjin Kwon et al.
Journal of Industrial Economics, forthcoming
Abstract:
This research theorizes that sellers of durable goods can utilize inferences about the buyer's willingness to pay based not only on her decision to trade in the old good but also on its characteristics. We find empirical support for this theory using transaction data for new car purchases. The results support the notion that dealers infer a higher willingness to pay and charge higher prices to consumers who trade in a used vehicle than to those who do not. We also find that dealers charge even higher prices to those consumers who trade in used cars that are similar to the new one.
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From Finance to Marketing: Impact of Financial Leverage on Customer Satisfaction
Ashwin Malshe & Manoj Agarwal
Journal of Marketing, forthcoming
Abstract:
The authors study how a firm's financial leverage affects marketing outcomes and consequent firm value. They find that leverage has a dual effect - it reduces customer satisfaction and moderates the relationship between satisfaction and firm value. Due to the burden of making regular interest payments to debt holders, managers face pressure to generate adequate cash flows. The authors theorize that this may lead marketers to adopt short-term actions such as cutting advertising and R&D spending, which can hurt customer satisfaction by lowering perceived quality and perceived value. Further, higher leverage reduces financial flexibility by constraining marketers from exploiting growth opportunities resulting from higher customer satisfaction. The authors empirically show that leverage leads to lower customer satisfaction with advertising intensity mediating this effect. The negative impact of leverage on satisfaction is more pronounced for service firms and firms in competitive markets. Finally, leverage negatively moderates the customer satisfaction-firm value link. Increases in customer satisfaction are value enhancing at modest levels of leverage, but at very high levels of leverage, increases in satisfaction are value-reducing.
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Cost Conscious? The Neural and Behavioral Impact of Price Primacy on Decision Making
Uma Karmarkar, Baba Shiv & Brian Knutson
Journal of Marketing Research, forthcoming
Abstract:
Price is a key factor in most purchases, but it can be presented at different stages of decision making. The authors examine the sequence-dependent effects of price and product information on the decision-making process at both neural and behavioral levels. During functional magnetic resonance imaging, the price of a product was shown to participants either before or after the product itself was presented. Early exposure to price, or "price primacy," altered the process of valuation, as observed in altered patterns of activity in the medial prefrontal cortex immediately before making a purchase decision. Specifically, whereas viewing products first resulted in evaluations strongly related to products' attractiveness or desirability, viewing prices first appeared to promote overall evaluations related to products' monetary worth. Consistent with this framework, the authors show that price primacy can increase purchase of bargain-priced products when their worth is easily recognized. Together, these results suggest that price primacy highlights considerations of product worth and can thereby influence purchasing.
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Saying No to the Glow: When Consumers Avoid Arrogant Brands
Nira Munichor & Yael Steinhart
Journal of Consumer Psychology, forthcoming
Abstract:
Arrogant brands have a multifaceted influence on consumers: Although consumers appreciate arrogant brands as reflecting high status and quality, arrogance can also make consumers feel inferior. Consumers whose self is a priori threatened may consequently "say no to the glow" and avoid arrogant brands. Results from six experiments using fictitious or actual arrogant brands show that when consumers experience prior self-threat, they may avoid brands that convey arrogance in favor of a competing, less-arrogant alternative. Such avoidance helps self-threatened consumers restore their self-perceptions and feel better about themselves.
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Using EEG to Predict Consumers' Future Choices
Ariel Telpaz, Ryan Webb & Dino Levy
Journal of Marketing Research, forthcoming
Abstract:
It is well established that neural imaging technology can predict preferences for consumer products. However, the applicability of this method to consumer marketing research remains uncertain, partly because of the expense required. In this article, the authors demonstrate that neural measurements made with a relatively low-cost and widely available measurement method - electroencephalography (EEG) - can predict future choices of consumer products. In the experiment, participants viewed individual consumer products in isolation, without making any actual choices, while their neural activity was measured with EEG. At the end of the experiment, participants were offered choices between pairs of the same products. The authors find that neural activity measured from a midfrontal electrode displays an increase in the N200 component and a weaker theta band power that correlates with a more preferred product. Using recent techniques for relating neural measurements to choice prediction, they demonstrate that these measures predict subsequent choices. Moreover, the accuracy of prediction depends on both the ordinal and cardinal distance of the EEG data; the larger the difference in EEG activity between two products, the better the predictive accuracy.