Shopping for Information: Implications of Consumer Learning for Optimal Pricing and Product Design*

I study a seller's pricing problem where consumers perform costly product research about value before purchase. They buy the product when sufficiently optimistic about value and cease research when sufficiently pessimistic. I find that the seller encourages product research when prior belief about value is high, even though he could sell immediately for a high price. The prior affects both expected value and how additional information changes consumers' beliefs. I show that an increase in research cost affects equilibrium price nonmonotonically. Finally, when the seller chooses price and product value dispersion, the optimal level of dispersion need not be extremal.     

Pricing the razor: A note on two-part tariffs

The “razor-and-blades” pricing strategy involves setting a low price for a durable basic product (razors) and a high price for a complementary consumable (blades). In a timeless model, Oi (1971) showed that if consumers' demand curves differ and do not cross and unit costs are constant, a monopolist should always price blades above cost. This note studies the optimal razor price. With a uniform distribution of parallel linear demand curves it is never optimal to sell the razor below cost, while with two types of consumers and non-crossing linear demands it is optimal to do so for some parameter values.     

分散决策下的双渠道供应链补偿策略——基于消费者渠道选择行为

为了有效解决由于对消费者的争夺从而引发的渠道之间关于定价、服务水平、利润等方面的冲突,基于消费者渠道选择行为,构建了网络直销市场与传统零售市场需求模型和双渠道供应链利润模型,运用Stackelberg模型,在制造商与零售商实施分决策时,通过制造商对零售商实施补偿激励前后的对比,分析了消费者渠道选择行为对网络直销渠道和传统零售渠道定价、制造商与零售商利润以及供应链总利润的影响,并求得最优定价及制造商的最优补偿额度和零售商的最优销售努力水平,进行了不同情况下的双渠道供应链利润的比较分析。结果表明,无论制造商是否实施补偿激励,都应随着网络消费者比例的增加而增加其网络直销价格;零售商的零售渠道价格应根据网络消费者比例的增加先降低到一定水平后再提升。当更多的消费者选择网络直销渠道时,制造商的补偿激励水平和零售商的销售努力程度均会下降。制造商应提高其补偿水平,进而激发零售商提高销售的努力水平,并使双方利润及供应链总利润最大化。研究结果为基于消费者选择行为的供应链补偿研究提供了新方法,对双渠道的供应链补偿研究有借鉴意义。     

Manipulation Through Biased Product Reviews*

We study a signal-jamming model of product review manipulation in which rational consumers consult product reviews and price to better estimate a product's quality, and a firm, whose quality is either high or low, chooses its price and how much bias to insert into product reviews. We show that both firm types always exert positive effort to manipulate product reviews, and, depending on the equilibrium price level, one or both of them can increase its sales. When the high-type firm exerts more effort than the low-type, review manipulation benefits consumers by raising [lowering] their demand for the high-quality [low-quality] product.     

Can data-driven precision marketing promote user ad clicks? Evidence from advertising in WeChat moments

Data-driven precision marketing (e.g. personalized online ads based on big data analysis or optimal personalized recommendation algorithms) has been regarded as a crucial way for manufacturers to improve the marketing effect. However, the current studies leave much to be further explored. This study constructed a conceptual model based on cue utilization theory focusing on the effects of consumer perceptions to the personalized online ads on click-through intention. Empirical results based on data from a survey of 446 WeChat moments users in China showed that: (1) consumer's ad click-through intention increased as a result of employing a higher extent of product involvement, brand familiarity, visual attractiveness and information quality to consumer; (2) trust played a role of mediation in the processes of visual attractiveness and information quality affecting click-through intention; (3) the higher product involvement also stimulated the consumer's privacy concerns, which played negative moderating effects on the positive impacts of product involvement, brand familiarity and trust on click-through intention. The findings contributed to the precision marketing literature by enriching an understanding of psychological mechanism underlying consumers' perception and cognitive factors toward the personalized online ads.     

Seller–Buyer Interactions During the Commercialization of Technological Process Innovations

For buyers and sellers alike, high-tech process innovations can be a double-edged sword. On the one hand, technological process innovations (e.g., computer hardware and software, factory automation equipment) offer buyers the potential for reduced production costs and enhanced product quality. However, early adoption of such innovations is often a risky proposition. For the seller, successful commercialization requires stimulating not only adoption, but also successful implementation of the innovation. In other words, effective management of seller—buyer relations during the development and commercialization process go a long way toward determining the success of a high-tech process innovation. Gerard A. Athaide, Patricia W. Meyers, and David L. Wilemon examine the relationship marketing activities employed by successful sellers of high-tech process innovations. They identify eight strategic marketing objectives that underlie these relationship marketing activities: product customization, information gathering on product performance, product education and training, ongoing product support, proactive political involvement (to encourage support for the innovation from the various affected parties in the buyer's organization), product demonstration and trial, real-time problem-solving assistance, and clarification of the product's relative advantage. Their findings suggest that successful sellers engage in relationship marketing activities throughout all phases of the commercialization process. Rather than simply trying to close a deal, these firms seek active involvement from potential customers, ranging from codesigning of products to seeking feedback on product-related problems or desired modifications. This broader scope of customer involvement necessitates cooperation among various groups in the seller's organization. Product development and engineering work closely with the customer during product customization. Those groups must communicate effectively with the salespeople who demonstrate the product and with the customer support people who obtain feedback and provide real-time problem-solving support. In other words, these relationship marketing activities cut across functional barriers. Consequently, a clear understanding of the buyer's needs and environment is essential throughout the seller's organization, not just in the sales and marketing departments.     

Complementarity,Compatibility, and Product Change: Breaking with the Past?

Product managers are caught between a rock and a cliche (or two). The market response to “new” Coke seems to support those who argue, “If it ain't broke, don't fix it.” On the other hand, rapidly shrinking product life-cycles lend credence to the notion that the only constant is change. Preserving the status quo places both the product and the company on a fast track to obsolescence. To remain competitive, companies need a structured approach to understanding and managing product change. Anirudh Dhebar offers such an approach by focusing on three interrelationships in which a product is involved. These interrelationships, or complementarities, are between a product and its users, other products with which the product is typically used, and databases that are created and repeatedly modified with the help of the product. These complementarities define the context in which the product is used. By understanding them, a company can better anticipate how a planned product change will affect consumers. In planning product changes, it is important to remember that effective use of the product requires compatibility between the product and its complements. A change that somehow disrupts the product's complementarities can be viewed as a break with the past. In other words, such a change creates a new version of the product which is incompatible with the old version. This type of change results in a switching cost for the consumer. That is, the consumer may have to invest time, money, and effort to reestablishing the complementarities that have been disrupted by the product change. For example, if a new software release includes significant changes to the user interface, consumers must weigh the potential benefits of any new features against the time and effort involved in relearning the interface. If these switching costs are too high, the new release will fail in the marketplace. When planning product changes, a company must recognize the extent of a product's complementarities, and assess how a break in any of them will affect consumers' switching costs. It is important to recognize that the switching costs and the perceived benefits of the new product version may not be the same for all consumers. Finally, careful consideration must be given to the implementation of the product change. For example, the company must decide whether to offer some sort of bridge that helps consumers make the break with the past. The company also needs to decide whether the change is implemented throughout the product line or only in selected models.     

Price dispersion and seller heterogeneity in retail food markets

Price dispersion, i.e. a homogeneous product being sold at different prices by different sellers, is among the most replicated findings in empirical economics. The paper assesses the extent and determinants of spatial price dispersion for 14 perfectly homogeneous food products in more than 400 retailers in a market characterized by the persistence of a large number of relatively small traditional food stores, alongside large supermarkets. The extent of observed price dispersion is quite high. When prices in an urban area (where the spatial concentration of sellers is higher) are compared with those in smaller towns and rural areas, differences in search costs and the potentially higher degree of competition do not yield lower prices. Other counteracting factors, including differences in seller costs and consumer incomes, make prices, on average, higher in the urban area for 11 of the 14 products considered. For many, but not all, the products supermarkets proved to be less expensive than traditional retailers, although average savings from food shopping at supermarkets were extremely low. Finally, the results of the study provide evidence that retailers have different pricing strategies and these differences also emerge for supermarkets belonging to the same chain. The results presented in the paper suggest that a variety of factors play a role in explaining price dispersion. In addition to differences in seller costs, the contemporaneous heterogeneity of retailers (in terms of services provided) and consumers (in terms of search costs and preferences) makes the emergence of monopolistic competition possible as well as allowing small traditional food retailers to remain in business.     

Intra-operator mobile plan switching: Evidence from linked survey and billing microdata

This paper examines consumers' intra-operator mobile phone plan switching in Ireland. It models the factors associated with switching outcomes, including the direction of change in expenditure and whether those who are observed to switch plans tend to arrive at more or less optimal plans given their usage. A dataset is employed that combines survey responses from mobile consumers with the same consumers' actual usage data in the period 2017–2019; this was collected by Ireland's national regulatory authority. The cost each consumer would have incurred on every plan offered in the market based on their observed usage is estimated. Using models that allow for selection into switching, associations between switching outcomes and demographic and user characteristics are modelled. Controls are included for plan and user attributes, including demographics and proxies for user sophistication and access to alternative communication options. A substantial proportion of intra-operator switchers in the sample increase expenditures when they switch plan. While many switchers move to plans that are more optimal given their usage, a slight majority move to plans that charge a higher price premium over the best available plan (based on observables) than the consumer's previous plan did. Few observable characteristics of consumers or plans seem to be significantly associated with which switches achieve greater optimality, although fixed operator effects are large and significant. These findings add to the weight of evidence which finds that many consumers fail to arrive at the best price even after switching.     

Securing business-to-business relationships: The impact of switching costs

While the relationship marketing literature acknowledges the importance of switching costs for increasing customer retention, little is known about its relevance in industrial markets. In particular, it is unclear whether switching costs, and associated dimensions, impact on behavioral outcomes of buyer–seller relationships in business-to-business (B2B) markets. In order to contribute to theory development in this important area, our research first explores the dimensions of switching costs for the B2B domain and also tests the relative impact of these dimensions on business customers' actual purchase behavior. Results suggest that switching costs in B2B settings are a multi-faceted construct, including (i) procedural, (ii) financial, and (iii) relational switching costs. Moreover, we find relational switching costs to be most important for securing B2B buyer–seller relationships since they impact a customer's (a) share-of-wallet, (b) cross-buying behavior, and (c) actual switching behavior. While procedural switching costs only influence share-of-wallet, financial switching costs solely impact customer's cross-buying behavior. These findings contribute to a better understanding on how to secure B2B buyer–seller relationships.     

Identifying customer behavioral factors and price premiums of green building purchasing

In recent years, global urbanization and overdevelopment have resulted in environmental degradation and an energy crisis. Promoting green buildings is among the most effective methods for achieving environmental sustainability. Although the initial costs of green buildings are higher than those of ordinary buildings, people perceive that the environmental benefits of green buildings justify their higher price premiums. From a developer's perspective, devising optimal pricing strategies according to customer-perceived prices and developers' expected profit is complex and difficult. Hence, in this study, we developed a framework based on the Howard–Sheth model of consumer behavior to identify behavioral factors that may affect consumer purchases of green buildings. An artificial neural network (ANN) was then used to develop a pricing model for predicting the price premiums of green buildings. The results revealed that the ANN model's overall prediction capability was 94%; the model's robustness was demonstrated by comparing the results produced using the model with those produced using a multiple regression analysis. In addition, the characteristics of consumers who were willing to accept higher price premiums for green buildings were identified and discussed. The proposed model can be applied as an effective decision-support tool for green building pricing and formulating marketing strategies.     

Competing with complementors: An empirical look at Amazon.com

Research Summary : Platform owners sometimes enter complementors' product spaces and compete against them. Using data from Amazon.com to study Amazon's entry pattern into third‐party sellers' product spaces, we find that Amazon is more likely to target successful product spaces. We also find that Amazon is less likely to enter product spaces that require greater seller efforts to grow, suggesting that complementors' platform‐specific investments influence platform owners' entry decisions. While Amazon's entry discourages affected third‐party sellers from subsequently pursuing growth on the platform, it increases product demand and reduces shipping costs for consumers. We consider the implications of these findings for complementors in platform‐based markets. Managerial Summary : Platform owners can exert considerable influence over their complementors' welfare. Many complementors with successful products are pushed out of markets because platform owners enter their product spaces and compete directly with them. To mitigate such risks, complementors could build their businesses by aggregating nonblockbuster products or focusing on products requiring significant platform‐specific investments to grow. They should also develop capabilities in new product discovery so that they could continually bring innovative products to their platforms.     

基于顾客价值的证券交易渠道选择研究

随着分销渠道的迅速发展和多渠道变得越来越普遍,消费者研究不仅要关注产品选择,还要去理解消费者进行渠道选择的理由。文章以证券交易为例,从顾客的角度来研究个体消费者对渠道的感知。通过间接研究（对学术和实践文献的回顾）和直接的消费者访谈相结合的方法,最终识别出了一系列的感知成本和收益。认为,证券交易中的渠道选择取决于下列因素：服务质量,价格,时间／精力成本,便利性,感知风险,体验价值。     

Signaling Quality: An Examination of the Effects of Marketing‐ and Nonmarketing‐Controlled Signals on Perceptions of Automotive Brand Quality

When introducing new products to market, firms often leverage marketing signals in an effort to increase perceptions of product quality. While prior research mostly focuses on marketing‐controlled signals that firms can directly influence to affect consumer perceptions of product quality, the proliferation of nonmarketing‐controlled signals in the form of third‐party product reviews introduces a new layer of complexity to a consumer's inference process. Given the fact that propagation of marketing signals and third‐party reviews has made the marketplace more interactive, it is no longer diagnostic to analyze the impact of various quality signals on consumer perceptions, separately. The purpose of this study is twofold. There has been extant research on the individual effects of marketing‐controlled signals on quality perception, but research providing a simultaneous examination of multiple signals is scarce. The first purpose is to examine interaction effects between various marketing signals on consumer perceptions of quality. Firms may be able to control the communication strategy of internal signals (e.g., price, advertising), but third‐party signals are external to the firm, and hence are often perceived as being more credible and less biased than marketing signals. Despite the popularity of third‐party product reviews, there is scarce empirical research about how they impact perceptions in the presence of marketing‐controlled quality signals. Thus, the second purpose is to examine the interaction effects between marketing signals and independent third‐party reviews on perceived product quality. This study advances existing models of market signaling to account for the potential interactions between various types of quality signals. Hypotheses are tested using a longitudinal data set comprising all car brands that have existed in the U.S. automotive industry between 1990 and 2007. The automotive industry provides an ideal context for the analyses as quality is an indispensable yet not easily discernible attribute of cars. Furthermore, consumer perceptions of the quality of new vehicle introductions can have a profound effect on product performance. Data are compiled from various secondary sources, including Harris Interactive's Equitrend, Consumer Reports, and TNS Media Intelligence, among others. Econometric techniques are used to estimate the empirical model. Findings show that effects of quality signals are codependent such that third‐party quality ratings reduce the effectiveness of pricing and advertising, whereas they enhance the credibility of warranty signal. Furthermore, warranty positively interacts with price and advertising. It is also demonstrated that car sales in the previous period and the country of origin of the car brand significantly impact perceived quality. Overall, the research findings can help car manufacturers better understand how their initial product configurations and marketing strategies impact the perception of new vehicle introductions.     

Reputation and prices on the e-market: Evidence from a major French platform

We use an exhaustive data set from one of France's largest e-commerce platforms, PriceMinister.com, to estimate a statistical causal effect of a seller's reputation (rating and size) on transaction prices. We go beyond the results currently available by tackling the issue of seller unobserved heterogeneity and the dynamics of reputation in price equations. We can also produce results for a large range of product categories (books, CDs, video games or DVDs), product conditions (used or new) and seller types (individual or professional sellers). Our results show large-scale empirical evidence of a significant, positive and strong effect of seller reputation on prices.     

A Dynamic Model of Auctions with Buy‐It‐Now: Theory and Evidence

In the ascending‐price auctions with Yahoo!‐type buy‐it‐now (BIN), we characterize and derive the closed‐form solution for the optimal bidding strategy of the bidders and the optimal BIN price of the seller when they are both risk‐averse. The seller is shown to be strictly better off with the BIN option, while the bidders are better off only when their valuation is high enough. The theory also implies that the expected transaction price is higher in an auction with an optimal BIN price than one without a BIN option. This prediction is confirmed by our data collected from Taiwan's Yahoo! auctions.     

Optimal development budgets tied to the marketing mix

The purpose of this paper is to forge a link between optimal levels of the three principal marketing mix instruments—price, promotion and product quality—and the development expenditures devoted to the quality improvement of a firm's existing product. Using the latest operational marketing mix model which prescribes quantitatively what the optimal quality of a brand should be, a simple function relating this optimal quality to desirable development outlays is suggested and some of its implications are explored.     

“Am I Getting It or Not?” The Practices Involved in “Trying to Consume” a New Technology

In recent years, high rates of failure of technology‐based products have spurred interest in understanding the psychological and sociological barriers to consumer learning of technological innovations. The main focus of this research was to examine the learning process and consumers’ coping mechanisms when they encounter technological innovations. A study was designed to understand the learning process in real time as consumers engaged in a set of activities associated with the novel interface. The goal was to investigate how consumers cope with high levels of complexity during their initial interactions with a technology‐based product and how their coping strategies may hinder the learning process. Verbal protocol measures were used in order to understand the consumer's learning process as he or she interacts with a technology‐based product in real time. They were told that they would have to think aloud while performing certain tasks and that their thoughts would be recorded for further analysis. The personal digital assistant (PDA) with handwriting recognition as its interface was chosen for this study. The main task for the participants was to learn how to use Graffiti writing—i.e., the product's handwriting recognition software. We proceeded to a thematic analysis in which interpretations were generated by the researchers going back and forth between the transcribed texts, the developing interpretation, the new interface itself, and also the relevant literature. The results suggest that the new product's interface serves to structure the consumer's learning process even as he or she responds in relatively unstructured ways. The findings identify three basic factors that interfere with the learning process during consumers’ initial interactions with a technological innovation: interface and functionality practices, social influence, and causal attributions. Specifically, the results suggest that in designing technology‐based products there is a gap between the levels of know‐how between the manufacturer and the user. The challenge for manufacturers is to understand the consumer's learning experience and coping strategies and provide mechanisms that would make the transition easy and intuitive. This could be achieved by incorporating into the new interface some degree of flexibility that will allow consumers to modify tasks based on their preferences, or by including indicators that will provide feedback to the user. Furthermore, in the context of communication strategies, in order to minimize the negative impact that prior knowledge and social influence may have on learning, marketers could communicate specific steps describing how to use the new interface.     

Optimal reserve prices in sealed-bid auctions with reference effects

The reference effect and loss aversion are incorporated into the buyer’s utility in the symmetric independent private value models of sealed-bid auctions. The buyer’s equilibrium bidding strategy and the seller’s optimal reserve price are derived for the first-price and second-price sealed-bid auctions. In both auction mechanisms, the seller’s optimal reserve price and expected revenue are increasing in the reference point. We compare the seller’s expected revenues as well as the optimal reserve prices in the two auctions. The results show that the seller will set a higher optimal reserve price but obtain lower optimal expected revenue in the second-price auction compared to the first-price auction. Further, we extend the model to the gain-seeking case, and endogenize the reference point as the ex-ante expected price of the item in equilibrium. In contrast to the loss-averse case, the seller will set a lower optimal reserve price but obtain higher optimal expected revenue in the second-price auction compared to the first-price auction if the buyers are gain-seeking. With an endogenous reference point, similar results are obtained in terms of revenue comparison between the two auctions.     

Controlling Sellers Who Provide Advice: Regulation and Competition*

A monopoly seller advising buyers about which of two goods fits their needs may be tempted to recommend the higher margin good. For the seller to collect information about a buyer’s needs and provide truthful advice, the profits from selling both goods must be similar enough, i.e., within an implementability cone. The optimal regulation controls pricing distortions and information-collection incentives separately via price regulation and fixed rewards respectively. This no longer holds when the seller has private information about costs as both problems interact. We study whether competition and the threat by buyers to switch sellers can substitute for regulation.