A major issue that dominates the current thinking of catalogers is how to send mail more efficien... more A major issue that dominates the current thinking of catalogers is how to send mail more efficiently in order to increase response rates and decrease wasteful mailing activity. Currently cataloguers assume that a mailing decision should be made when expected profit (or lifetime value) is positive or at best when expected profit exceeds a certain threshold. We offer a new perspective. We suggest that a customer be sent the current catalog only if the expected profit with the current catalog exceeds the expected profit without the current catalog.
I n goal-oriented services, consumers want to get transported from one well-defined state (start)... more I n goal-oriented services, consumers want to get transported from one well-defined state (start) to another (destination) state without much concern for intermediate states. A cost-based evaluation of such services should depend on the total cost associated with the service-i.e., the price and the amount of time taken for completion. In this paper, we demonstrate that the characteristics of the path to the final destination also influence evaluation and choice. Specifically, we show that segments of idle time and travel away from the final destination are seen as obstacles in the progress towards the destination, and hence lower the choice likelihood of the path. Further, we show that the earlier such obstacles occur during the service, the lower is the choice likelihood. We present an analytical model of consumer choice and test its predictions in a series of experiments. Our results show that in choosing between two services that cover the same displacement in the same time (i.e., identical average progress), consumer choice is driven by the perception of progress towards the goal (i.e., by virtual progress). In a final experiment, we show that the effects of virtual progress may outweigh the effects of actual average progress.
R ewarding customers with own products or services has become an increasingly popular practice ac... more R ewarding customers with own products or services has become an increasingly popular practice across a spectrum of industries such as airlines, hotels, and telecommunication. In these service industries, firms face demand uncertainty and strict short-term capacity constraint. When the market demand is low, firms hold excess capacities that would lead to intense price competition. In this paper we study the adoption and design of reward programs in the context of capacity management. We demonstrate that it is optimal for firms to offer capacity rewards when the market demand varies from one period to the other. By offering the reward programs, firms can effectively reduce available capacities when the market demand is low, and hence credibly show their unwillingness to undersell. Such a commitment can encourage their competitors to set their prices high. When firms provide reward programs, if a firm sets a higher price than the other and sells less today, in the future the firm can benefit from the other firm's larger reduction in available capacity through rewards. Thus, reward programs also provide additional incentives for firms to set higher current prices. Finally, since reward programs can add flexibility in adjusting the available capacities to the market demand, firms increase the size of regular capacities with reward programs.
Sales contests are commonly used by firms as a short-term motivational device to increase salespe... more Sales contests are commonly used by firms as a short-term motivational device to increase salespeople's efforts. Conceptually, sales contests and piece-rate schemes, such as salary, commission, or quotas, differ in that in sales contests payment to salespeople is based on ...
Abstract Reward programs, a promotional tool to develop customer loyalty, offer incentives to con... more Abstract Reward programs, a promotional tool to develop customer loyalty, offer incentives to consumers on the basis of cu-mulative purchases of a given product or service from a firm. Reward programs have become increasingly common in many industries. The best-known ...
Sweepstakes and contests are an extremely common promotional strategy used by firms. The sweepsta... more Sweepstakes and contests are an extremely common promotional strategy used by firms. The sweepstakes and contests often differ significantly in the design of reward structure. For example, in 1999, Godiva Chocolates conducted a sweepstakes where one box of chocolates contained a diamond jewellery. The chance of winning was 1 in 320,000. In 2000, M&M conducted a contest where the Grand Prize of a $1,000,000 had winning odds of 1 in 380,000,000 and a million second prizes of a coupon redeemable for a M&M packet had the odds of 1 in 380. In a contest conducted by Planters in 2000, the first prize too was a $1 m (odds 1 in 5,000,000) but there were only 100 second prizes of a NFL football jacket with odds of 1 in 50,000. In 1999, Old Navy conducted a sweepstake where there were 4,552 first prize winners who got $100 gift cards with the odds of winning 1 in 1,000, the 9,105 second prize of $ 20 gift certificates had odds of 1 in 500 and the 13,660 third prizes of $10 certificates and 883,476 fourth prizes of $5 had winning odds of 1 in 333 and 1 in 50 respectively. These examples raise the issue of how reward structure would affect consumer valuation and participation. The objective of this paper is to obtain an understanding of how consumers' valuation of sweepstakes varies on the basis of differing consumer segments and the characteristics of the consumers.
W e investigate the salesforce compensation strategy of a firm selling products in a category tha... more W e investigate the salesforce compensation strategy of a firm selling products in a category that several consumers find technically sophisticated, such as electronics or financial products with legal fine print. Consumers are unable to judge the value difference between a baseline product and a product upgrade with add-on features. While the firm and the salespeople are informed of the value of these features, consumers are uncertain. Thus, consumers have to rely on sales assistance to evaluate alternatives. The salesperson decision variables include selling effort and whether to "oversell" the consumer by overclaiming the value of added features. Because sales revenue depends on both the salesperson's selling effort and consumers' valuation of the added features, the salesforce incentive scheme (which can consist of salary, sales commission, or consumer satisfaction-based commission) may induce the short-term oriented salesperson to misrepresent the value of the upgrade. Exaggeration of the value of the added features, however, results in reduced satisfaction levels leading to lower profits for the firm. We show that a salesperson selling products where the value of the upgrade is low prefers to make higher claims when the sales commission rate is sufficiently high. We conjecture that consumers aware of the incentive structure facing the salesperson expect the true value of the add-on feature to be lower than the claimed value. We study the optimal compensation scheme of a firm, which has to communicate her true type and retain its salesforce credibility. We identify the conditions under which a highupgrade-type firm indicates its true value by altering sales commission rate and satisfactionbased commission rate.
This article describes an empirical study of the rise and fall of star athletes, using data from ... more This article describes an empirical study of the rise and fall of star athletes, using data from the National Basketball Association (NBA) from 1987 to 2008. We measure star status by the number and share of all-star votes, and apply both Tobit regression and hazard models to investigate the determining factors for star status. We find that the attainment of star status begins with the athlete's exceptional individual performance. We also find that having won a championship in the past can have a long-lasting effect on a player's popularity. The popularity of an athlete depends on his team in two ways: The attainment of star status is associated with strong team performance, and star teammates can reinforce each other's popularity. Interestingly, while stars can move from a losing team to a winning team to extend their star life, a team change can be very risky for new stars. Our results also suggest that teams with a large fan base, winning records, and star players should leverage these assets in attracting and retaining star players.
B rands often form alliances to enhance their brand equities. In this paper, we examine the allia... more B rands often form alliances to enhance their brand equities. In this paper, we examine the alliances between professional athletes (athlete brands) and sports teams (team brands) in the National Basketball Association (NBA). Athletes and teams match to maximize the total added value created by the brand alliance. To understand this total value, we estimate a structural two-sided matching model using a maximum score method. Using data on the free-agency contracts signed in the NBA during the four-year period from 1994 to 1997, we find that both older players and players with higher performance are more likely to match with teams with more wins. However, controlling for performance, we find that brand alliances between high brand equity players (defined as receiving enough votes to be an all-star starter) and medium brand equity teams (defined by stadium and broadcast revenues) generate the highest value. This suggests that top brands are not necessarily best off matching with other top brands. We also provide suggestive evidence that the maximum salary policy implemented in 1998 influenced matches based on brand equity spillovers more than matches based on performance complementarities.
This paper studies the optimal product and pricing decisions in a crowdfunding mechanism by which... more This paper studies the optimal product and pricing decisions in a crowdfunding mechanism by which a project between a creator and many buyers will be realized only if the total funds committed by the buyers reach a specified goal. When the buyers are sufficiently heterogenous in their product valuations, the creator should offer a line of products with different levels of product quality. Compared to the traditional situation where orders are placed and fulfilled individually, with the crowdfunding mechanism, a product line is more likely than a single product to be optimal and the quality gap between products is smaller. The paper also shows the effect of the crowdfunding mechanism on pricing dynamics over time. Together, these results underscore the substantial influence of the emerging crowdfunding mechanisms on common marketing decisions.
A major issue that dominates the current thinking of catalogers is how to send mail more efficien... more A major issue that dominates the current thinking of catalogers is how to send mail more efficiently in order to increase response rates and decrease wasteful mailing activity. Currently cataloguers assume that a mailing decision should be made when expected profit (or lifetime value) is positive or at best when expected profit exceeds a certain threshold. We offer a new perspective. We suggest that a customer be sent the current catalog only if the expected profit with the current catalog exceeds the expected profit without the current catalog.
I n goal-oriented services, consumers want to get transported from one well-defined state (start)... more I n goal-oriented services, consumers want to get transported from one well-defined state (start) to another (destination) state without much concern for intermediate states. A cost-based evaluation of such services should depend on the total cost associated with the service-i.e., the price and the amount of time taken for completion. In this paper, we demonstrate that the characteristics of the path to the final destination also influence evaluation and choice. Specifically, we show that segments of idle time and travel away from the final destination are seen as obstacles in the progress towards the destination, and hence lower the choice likelihood of the path. Further, we show that the earlier such obstacles occur during the service, the lower is the choice likelihood. We present an analytical model of consumer choice and test its predictions in a series of experiments. Our results show that in choosing between two services that cover the same displacement in the same time (i.e., identical average progress), consumer choice is driven by the perception of progress towards the goal (i.e., by virtual progress). In a final experiment, we show that the effects of virtual progress may outweigh the effects of actual average progress.
R ewarding customers with own products or services has become an increasingly popular practice ac... more R ewarding customers with own products or services has become an increasingly popular practice across a spectrum of industries such as airlines, hotels, and telecommunication. In these service industries, firms face demand uncertainty and strict short-term capacity constraint. When the market demand is low, firms hold excess capacities that would lead to intense price competition. In this paper we study the adoption and design of reward programs in the context of capacity management. We demonstrate that it is optimal for firms to offer capacity rewards when the market demand varies from one period to the other. By offering the reward programs, firms can effectively reduce available capacities when the market demand is low, and hence credibly show their unwillingness to undersell. Such a commitment can encourage their competitors to set their prices high. When firms provide reward programs, if a firm sets a higher price than the other and sells less today, in the future the firm can benefit from the other firm's larger reduction in available capacity through rewards. Thus, reward programs also provide additional incentives for firms to set higher current prices. Finally, since reward programs can add flexibility in adjusting the available capacities to the market demand, firms increase the size of regular capacities with reward programs.
Sales contests are commonly used by firms as a short-term motivational device to increase salespe... more Sales contests are commonly used by firms as a short-term motivational device to increase salespeople's efforts. Conceptually, sales contests and piece-rate schemes, such as salary, commission, or quotas, differ in that in sales contests payment to salespeople is based on ...
Abstract Reward programs, a promotional tool to develop customer loyalty, offer incentives to con... more Abstract Reward programs, a promotional tool to develop customer loyalty, offer incentives to consumers on the basis of cu-mulative purchases of a given product or service from a firm. Reward programs have become increasingly common in many industries. The best-known ...
Sweepstakes and contests are an extremely common promotional strategy used by firms. The sweepsta... more Sweepstakes and contests are an extremely common promotional strategy used by firms. The sweepstakes and contests often differ significantly in the design of reward structure. For example, in 1999, Godiva Chocolates conducted a sweepstakes where one box of chocolates contained a diamond jewellery. The chance of winning was 1 in 320,000. In 2000, M&M conducted a contest where the Grand Prize of a $1,000,000 had winning odds of 1 in 380,000,000 and a million second prizes of a coupon redeemable for a M&M packet had the odds of 1 in 380. In a contest conducted by Planters in 2000, the first prize too was a $1 m (odds 1 in 5,000,000) but there were only 100 second prizes of a NFL football jacket with odds of 1 in 50,000. In 1999, Old Navy conducted a sweepstake where there were 4,552 first prize winners who got $100 gift cards with the odds of winning 1 in 1,000, the 9,105 second prize of $ 20 gift certificates had odds of 1 in 500 and the 13,660 third prizes of $10 certificates and 883,476 fourth prizes of $5 had winning odds of 1 in 333 and 1 in 50 respectively. These examples raise the issue of how reward structure would affect consumer valuation and participation. The objective of this paper is to obtain an understanding of how consumers' valuation of sweepstakes varies on the basis of differing consumer segments and the characteristics of the consumers.
W e investigate the salesforce compensation strategy of a firm selling products in a category tha... more W e investigate the salesforce compensation strategy of a firm selling products in a category that several consumers find technically sophisticated, such as electronics or financial products with legal fine print. Consumers are unable to judge the value difference between a baseline product and a product upgrade with add-on features. While the firm and the salespeople are informed of the value of these features, consumers are uncertain. Thus, consumers have to rely on sales assistance to evaluate alternatives. The salesperson decision variables include selling effort and whether to "oversell" the consumer by overclaiming the value of added features. Because sales revenue depends on both the salesperson's selling effort and consumers' valuation of the added features, the salesforce incentive scheme (which can consist of salary, sales commission, or consumer satisfaction-based commission) may induce the short-term oriented salesperson to misrepresent the value of the upgrade. Exaggeration of the value of the added features, however, results in reduced satisfaction levels leading to lower profits for the firm. We show that a salesperson selling products where the value of the upgrade is low prefers to make higher claims when the sales commission rate is sufficiently high. We conjecture that consumers aware of the incentive structure facing the salesperson expect the true value of the add-on feature to be lower than the claimed value. We study the optimal compensation scheme of a firm, which has to communicate her true type and retain its salesforce credibility. We identify the conditions under which a highupgrade-type firm indicates its true value by altering sales commission rate and satisfactionbased commission rate.
This article describes an empirical study of the rise and fall of star athletes, using data from ... more This article describes an empirical study of the rise and fall of star athletes, using data from the National Basketball Association (NBA) from 1987 to 2008. We measure star status by the number and share of all-star votes, and apply both Tobit regression and hazard models to investigate the determining factors for star status. We find that the attainment of star status begins with the athlete's exceptional individual performance. We also find that having won a championship in the past can have a long-lasting effect on a player's popularity. The popularity of an athlete depends on his team in two ways: The attainment of star status is associated with strong team performance, and star teammates can reinforce each other's popularity. Interestingly, while stars can move from a losing team to a winning team to extend their star life, a team change can be very risky for new stars. Our results also suggest that teams with a large fan base, winning records, and star players should leverage these assets in attracting and retaining star players.
B rands often form alliances to enhance their brand equities. In this paper, we examine the allia... more B rands often form alliances to enhance their brand equities. In this paper, we examine the alliances between professional athletes (athlete brands) and sports teams (team brands) in the National Basketball Association (NBA). Athletes and teams match to maximize the total added value created by the brand alliance. To understand this total value, we estimate a structural two-sided matching model using a maximum score method. Using data on the free-agency contracts signed in the NBA during the four-year period from 1994 to 1997, we find that both older players and players with higher performance are more likely to match with teams with more wins. However, controlling for performance, we find that brand alliances between high brand equity players (defined as receiving enough votes to be an all-star starter) and medium brand equity teams (defined by stadium and broadcast revenues) generate the highest value. This suggests that top brands are not necessarily best off matching with other top brands. We also provide suggestive evidence that the maximum salary policy implemented in 1998 influenced matches based on brand equity spillovers more than matches based on performance complementarities.
This paper studies the optimal product and pricing decisions in a crowdfunding mechanism by which... more This paper studies the optimal product and pricing decisions in a crowdfunding mechanism by which a project between a creator and many buyers will be realized only if the total funds committed by the buyers reach a specified goal. When the buyers are sufficiently heterogenous in their product valuations, the creator should offer a line of products with different levels of product quality. Compared to the traditional situation where orders are placed and fulfilled individually, with the crowdfunding mechanism, a product line is more likely than a single product to be optimal and the quality gap between products is smaller. The paper also shows the effect of the crowdfunding mechanism on pricing dynamics over time. Together, these results underscore the substantial influence of the emerging crowdfunding mechanisms on common marketing decisions.
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