Estimating Firm-Specific and Relational Properties in Interorganizational Relationships in Marketing

ABSTRACT

This research attempts to distinguish empirically between the potential influence of a manufacturer as compared to the influence of a manufacturer's salesperson over an industrial distributor. Given the existence of such a distinction, the scope of such influence is examined with regard to a distributor's business in eight different areas of potential influence: price, order quantity, product line, advertising and sales promotion, customer service, inventory, customer credit, and display. Data were collected from 412 industrial distributors in a marketing channel. The authors utilized regression analysis to distinguish between manufacturer and manufacturer salesperson power. Then, factor analysis was utilized to determine if the salesperson does have power over policy areas apart from that of the manufacturer. Research results suggest that the manufacturer's salesperson, compared with the manufacturer, possesses a different domain of power than does the manufacturer in a channel containing an industrial distributor.     

Retail services and firm profit in a dual-channel market

With the rapid development of the Internet, many manufacturers nowadays use online technology to engage in direct sales. The mix of retailing with a direct channel adds a new dimension of competition and complementarity to a product's distribution channels. Our model focuses on the strategic role played by the retail services in a dual-channel competitive market. The manufacturer uses a direct channel as an effective tool to motivate the retailer to improve its retail services and profits from it. While operated by the manufacturer to motivate retailer to perform more effectively from the manufacturer's perspective, the direct channel may not always be detrimental to the retailer because the retailer can obtain a lower wholesale price from the manufacturer and a higher sales volume from the improved retail services. In our research, our results suggest that the improved retail services effectively alleviate the channel competition and conflict and improve the supply chain performance in a competitive market.     

Cross-channel effects of omnichannel retail marketing strategies: A review of extant data-driven research

The authors review 50 empirical retailing research papers that have appeared over the last 20 years to take stock of what we know, need to know better, and do not know yet about within-retailer cross-channel effects of omnichannel retail marketing strategies on (a) consumer responses over their purchase journeys, i.e., online and/or offline search, purchase intention, frequency, amount, returns, loyalty, and (b) the retail firm's aggregate outcomes (e.g., sales, costs, profits, product returns) by channel and overall. Specifically, the authors focus on five strategies: (1) the addition of online channel by an offline retailer; (2) the addition (or subtraction) of offline channels by an online retailer; (3) addition of mobile shopping channel (website and/or app) by offline and/or online retailer; (4) cross-channel integration strategies; and (5) retail marketing mix strategies. The author/s integrate findings from empirical research on these strategies into a number of ‘insights’ about ‘what we know’. Prominent among these are the following: Adding a transactional online channel to an offline channel improves the retailer's overall sales even though offline channel sales can be cannibalized to some degree. Adding an offline channel by an online retailer, however, boosts online channel sales as well as overall sales of the retailer. Similarly, adding a mobile shopping channel usually increases customer purchase frequency and amount and overall sales of the retailer in the long-term. Strategies for greater cross-channel integration generally have a positive effect on a retailer's overall performance while online advertising has positive effects on offline channel consideration and sales as well as overall sales of a multichannel retailer. Other insights or findings that need further study or open questions are also identified. The paper closes with managerial implications of the derived empirical insights, and suggestions for future research.     

Channel Selection,Control and Satisfaction of Manufacturers in the Korean Pharmaceutical Market

We hypothesize that percent of foreign capital, firm size, product substitutability, product life cycles, competition, and technological uncertainty affect the reliance of integrated channels. Also, we predict that when the reliance on integrated channels is low, the effects of the power sources for firms on channel control will be more evident. In addition, using more integrated channels and having more control over other channel members are hypothesized to affect the manufacturer's channel satisfaction. Using data collected from 62 manufacturers in the Korean pharmaceutical market, we report empirical findings generally supporting the research hypotheses. The results and implications are also discussed.     

On manufacturers complementing the traditional retail channel with a direct online channel

With the explosion of the Internet and the reach that it affords, many manufacturers have complemented their existing retail channels with an online channel, which allows them to sell directly to their consumers. Interestingly, there is a significant variation within product categories in manufacturer's use of the Internet as a direct distribution channel. The main objective of this study is to examine the strategic forces that may influence the manufacturer's decision to complement the retail channel with a direct online channel. In particular, we are interested in answering the following questions:

1. Why is it that in some markets only a few firms find it optimal to complement their retail channels with a direct Internet channel while other firms do not?
2. What strategic role (if any), does the direct Internet channel serve and how do market characteristics impact this role?

To address these issues we develop a model with a single strategic manufacturer serving a market through a single strategic retailer. In addition to the focal manufacturer's product the retailer carries products of competing manufacturers. Consumers in this market are one of two types. They are either brand loyal or store loyal. The retailer sets the retail price and the level of retail support, which impact the demand for the manufacturer's product. The retailer's decisions in turn depend on the wholesale price as well as the Internet price of the product if the manufacturer decides to complement the retail channel with an online channel. Our analysis reveals that the optimality of complementing the retail channel with an online channel and the role served by the latter depends critically upon the level of support that the retailer allocates to the manufacturer's product in the absence of the online channel. The level of support allocated by the retailer, in the absence of the online channel, depends upon the retail margins on the manufacturer's product relative to that on rival products in the product category. When the size of the brand loyal segment is small relative to the size of the store loyal segment then in the absence of the online channel, the manufacturer can lower wholesale price and enhance retail support, especially when the retail margins on the rival products are low. In contrast, when the size of the loyal segment is large and the retail margins on rival products are high the manufacturer will find it more profitable to charge a high wholesale price even if that induces the retailer to extend low levels of support. If the manufacturer decides to complement the retail channel with an online channel, some consumers who would have purchased from the retailer might prefer to purchase online. Our analysis reveals that when consumers' sensitivity to price differences across the competing channels exceeds a certain threshold it is not optimal for the manufacturer to complement the retail channel with an online channel. However, this price sensitivity threshold itself depends upon product/market characteristics, suggesting that manufacturers seeking to complement their retail channels with an online channel should look beyond the nature of threat the online channel poses to the retail channel in devising their optimal distribution strategies. When the retail margins on rival products are sufficiently small, complementing the retail channel with an online channel when optimal allows the manufacturer to price discriminate and enhance profits. In contrast when retail margins on rival products are sufficiently high, complementing the retail channel with an online channel serves to enhance retail support. We also identify market conditions under which profits of both the manufacturer and the retailer are greater with the online channel than that without it. This is particularly interesting since the online channel competes with the retail channel.     

How does the added new online channel impact the supporting advertising expenditure?

This research addresses the strategic effect of a newly added online channel on a manufacturer’s supportive advertising expenditure once a manufacturer opts to open an online channel to compete with its retailer. We first study the manufacturer–traditional retailer supply chain and consider three different scenarios: (1) product is less compatible with the online channel than with the traditional channel; (2) product is more compatible with the online channel than with the traditional channel; (3) product has the same compatibility with the online channel as with the traditional channel. Our results show that the added online channel significantly impacts the manufacturer’s investment in supportive advertising. Depending on the different product categories, the impact of the newly added online channel on the supportive advertising expenditure also will be different. Furthermore, we extend our model to study the manufacturer–online retailer supply chain and investigate the effect of that added online channel on the manufacturer’s supportive advertising to the online retailer. Based on our results, the manufacturer can utilize our findings to improve its decision-making when it plans to open an online channel to improve its product distribution.     

Interplays between manufacturer advertising and retailer store brand introduction: Agency vs. wholesale contracts

In retail supply chains, manufacturers' advertising for national brands and retailers' store brand introduction may relate to each other, and two types of contracts, i.e., agency contract and wholesale contract, are widely used. This paper uses game-theoretic models to investigate the strategic interaction between a manufacturer's advertising strategy and a retailer's store brand introduction strategy. We derive the equilibrium outcomes, including wholesale price, retail price, market demand, retailer's and manufacturer's profits under different contract forms. We find that when the product cost is small relative to the perceived value of the store brand, the introduction of a store brand will benefit the retailer. The retailer is more likely to introduce store brands under the wholesale contract than under the agency contract. In addition, compared with the wholesale contract, the agency contract may increase both the manufacturer's and the retailer's profits and lead to Pareto improvement for them.     

Advertising budgets in competitive environments

Firms can approach advertising competition either by setting advertising budgets (as in the percentage of sales method) or target sales levels (as in the objective and task approach). We study firms’ incentives to adopt one or the other posture using a two-stage model of duopolistic competition. In the first stage, each firm chooses to commit either to an advertising budget, letting its sales follow from the market response function, or to a desired sales level, promising to adjust its advertising spending accordingly. In the second stage, firms choose the actual levels of their advertising budget or sales target. When prices are exogenous, we show that, due to strategic effects, if a firm benefits from its rival’s advertising (as when advertising increases awareness of the product category) then setting an advertising budget dominates setting a sales target. On the other hand, if a firm is harmed by its rival’s advertising (as when advertising increases the firm’s share of a fixed market), then committing to a sales level dominates. We extend these results in several directions and show that when firms engage in price competition as well as advertising the nature of advertising and product-market competition interact to determine whether setting an advertising budget or sales target dominates.

Expanding to direct channel: Market coverages as entry barrier

A direct marketer can be either a manufacturer selling directly to the final consumers or a retailer that sells an assortment of products from multiple manufacturers. From a manufacturer's point of view, expanding to an online direct channel seems very attractive because intermediaries can be bypassed in reaching final consumers, while the Internet has substantially lowered the entry barrier. With the rapid diffusion of electronic commerce, numerous manufacturers have been considering a direct online channel as an alternative or a supplement to existing retailer channels. However, we observe in the real market that not many manufacturers are fully engaged in online retailing. One major factor frequently mentioned is the conflict with existing dealers who will not be pleased with a manufacturer's attempt to cannibalize their sales. This paper attempts to provide another explanation by comparing theoretical market coverage of manufacturers in a direct channel and a channel with intermediaries. We show that the direct channel can support fewer firms than the traditional retailer channel does, which becomes an effective entry barrier to latecomers. In equilibrium, the products are positively but finitely differentiated in their qualities, and the top two quality tiers would capture more than 75% of the direct channel's market potential (i.e., the “finiteness property”). Thus latecomers would find it difficult to gain a substantial market share against the existing pioneers in the competitive direct market unless they can find other meaningful ways to differentiate horizontally. The sales data of the online retail industry supports our finding.     

Advertising Repetition as a Signal of Quality: If It's Advertised So Much,Something Must Be Wrong

Abstract

The author proposes that consumers infer brand quality from the level of advertising repetition for unfamiliar brands. Consumers are posited to associate high product quality with high levels of repetition because they see repetition as costly and think higher costs reflect the manufacturer's commitment to the product. However, at very high levels of repetition, consumers may perceive the expenditures as excessive and begin to doubt the manufacturer's confidence in product quality, which would lead to an inverted-U relationship between advertising repetition and product quality perceptions. The author demonstrates that the relationship between repetition and perceived brand quality is mediated by perceptions of the manufacturer's effort and confidence in quality rather than by irritation or boredom. The hypotheses were tested in an experiment in which the level of repetition and the color of the ad were varied.     

Should manufacturers open live streaming shopping channels?

Live streaming shopping, as a novel sales channel, has caught much attention from researchers and practitioners. Its unique features, such as the commission rate, fixed fee and number of followers of the live streamer, appear different from traditional wholesale-contract sales channels. But few studies have examined the impact of these factors on manufacturers’ opening live streaming shopping channel decisions. To address this gap, we develop game theoretic models to examine whether a manufacturer should hire a live streamer to open a live streaming shopping channel on an e-commerce platform where the manufacturer's direct channel and third-party e-retailer co-exist. We consider the impact of the commission rate, fixed fee and number of followers of the live streamer on the operating decisions and profits of the manufacturer and e-retailer. Then we identify the threshold-conditions where the manufacturer and e-retailer are better off or worse off by opening a live streaming shopping channel. We show that opening a live streaming shopping channel may hurt or harm the manufacturer's profit, depending on the interaction of above three factors. The manufacturer may be willing to open a live streaming shopping channel when the commission rate and fixed fee are both small, or when the commission rate and number of followers are both large and the fixed fee is small. The e-retailer could also benefit from opening a live streaming shopping channel. These insights appear novel in the literature. We further show that opening a live streaming shopping channel could improve the consumer surplus. We extend our model to price competition to verify our main conclusions. These insights may help manufacturers decide whether or not to open live streaming shopping channels and help manufacturers and extant retailers develop optimal operating decisions and improve profits when participating in live streaming shopping.     

Revenue management in a multi-level multi-channel supply chain considering pricing,greening, and advertising decisions

This paper explores coordinated decisions regarding a multi-level multi-channel supply chain considering the price of sale channels, the advertisement level, and the green policy of the products. The main objective is to maximize the total profit of the Supply Chain (SC) by considering the profitability of entities. In this regard, two kinds of selling channels (i.e. online and in-person) are extended to enable all the entities to sell the product through their own channels. Demands in both types of channels depend on price, greenness, and advertisement. In the studied SC, the manufacturer not only produces the products and sells them to the distributor and the customer but it also decides on the greening and advertising levels. As a contribution, the demand functions simultaneously consider environmental and financial issues. Besides, since each member has its own selling channel, it should determine the price based on three criteria: advertising costs, greening costs, and other members' pricing decisions. For this purpose, three models including Centralized Supply Chain (CSC), Decentralized Supply Chain (DCSC), and Modified Centralized Supply Chain (MCSC) are developed and then solved to cope with various real-world situations. Based on the findings, although the SC gains the most profitability under the CSC model, the manufacturer faces a considerable loss. To overcome this issue, the MCSC model ensures the manufacturer's profit while keeping the price, greenness, and advertisement competitive. Also, the profitability of the MCSC model is more than that of under the DCSC model. The proposed models' performance for different situations is corroborated using several examples and various analyses, along with a real case study. The results acknowledge the applicability of the models and give practical insights for experts.     

Incorporating long-term effects in determining the effectiveness of different types of online advertising

Although online advertising has become a full member of the marketing mix and is still growing in importance, studies of long-term, or lagged, advertising effects have generally either neglected online advertising channels or have treated online advertising as one homogeneous block. We analyze the short- and long-term effectiveness of different types of online advertising channels by incorporating separate time lags for each advertising channel. We look at the sales effect of email, banner, and price comparison advertising (PCA) using a sample of 2.8 million purchases and more than 1.1 million individual costumers aggregated to 365 days. Our analysis shows that email advertising has the longest effect, followed by banner advertising and PCA. We find that the length of the effect does not always go hand in hand with its intensity since, for example, banner advertising lasts longer than PCA but performs worse in terms of actual sales. This research yields important insights for theory and practice since it shows how to model long-term advertising effects and provides meaningful insights for improving the allocation of advertising budgets.     

The impact of online display advertising and paid search advertising relative to offline advertising on firm performance and firm value

This research examines the impact of online display advertising and paid search advertising relative to offline advertising on firm performance and firm value. Using proprietary data on annualized advertising expenditures for 1651 firms spanning seven years, we document that both display advertising and paid search advertising exhibit positive effects on firm performance (measured by sales) and firm value (measured by Tobin's q). Paid search advertising has a more positive effect on sales than offline advertising, consistent with paid search being closest to the actual purchase decision and having enhanced targeting abilities. Display advertising exhibits a relatively more positive effect on Tobin's q than offline advertising, consistent with its long-term effects. The findings suggest heterogeneous economic benefits across different types of advertising, with direct implications for managers in analyzing advertising effectiveness and external stakeholders in assessing firm performance.     

Acquiring customers through online marketplaces? The effect of marketplace sales on sales in a retailer's own channels

Online retailers are increasingly using third-party online marketplaces (e.g., Amazon, Taobao) as an alternative sales channel to their website. While cross-channel sales elasticities have been established for many sales channel combinations (e.g., adding bricks to clicks), we lack an understanding of whether the use of third-party marketplaces grows or cannibalizes a retailer's sales. Practitioners argue that firms can build their e-commerce business through acquiring customers by selling on the marketplace. Indeed, a marketplace could complement a retailer's offering (e.g., acquiring new customer segments), although inventory effects might mitigate this complementarity. Alternatively, cannibalization might occur from losing customers from one's website to the online marketplace. The present research investigates which of the two opposing forces prevails using a time series of category sales data from one of the largest global marketplace sellers. The authors use vector autoregressive modeling to show that marketplace sales increase sales on a retailer's website (0.014% for every 1% in marketplace sales). This effect is strongest for categories with large choice and low product prices. Acquiring customers through the marketplace might be cheaper than through other sources (estimated at 24% of initial sales). However, online retailers should be aware that this strategy strengthens the marketplace and may have potential negative long-term consequences (e.g., through marketplace control of the customer relationship).     

Optimal Timing of Advertising with Demand Spillovers

We construct a model of a horizontally differentiated duopoly with demand spillovers in which advertising influences the willingness-to-pay of consumers for products and thereby affects not only market share, but also the level of market demand. Furthermore, firms decide the timing as well as the level of advertising. We first derive a subgame perfect Nash equilibrium and Stackelberg equilibria in the advertising competition. Then, using the framework of an endogenous timing decision game with an observable delay (i.e., Hamilton and Slutsky, Games Econ Behavior 2: 29–46, 1990), we consider the optimal timing of advertising. We demonstrate that the optimal timing depends on the degree of demand spillovers and the product substitutability. In particular, if there are sufficient asymmetric demand spillovers between firms, there is a unique Stackelberg equilibrium in the advertising competition, in which the firm providing the product with small (large) demand spillovers chooses to invest in advertising early (late), regardless of the mode of competition.     

Does online observational learning matter? Empirical evidence from panel data

The information presented on a product sales page plays an important role in consumers' purchase decisions. This study examines the persuasive effect, whether a customer's choice is heavily driven by information inferred from others' behavior, and how these impacts are moderated by market age and product type. Results show that online customer choice was significantly affected by historical cumulative sales and times saved. Positive cumulative sales and shop service quality have a significant positive impact on product sales. The times saved have no direct impact on product sales. For different types of products, the times saved of experiential products has a significant impact on product sales, while the shop service quality information of search products has a greater impact on product sales. The influence of online observation learning on product sales will be significantly moderated by a combination of product type and market age. These findings not only offer important theoretical contributions to e-commerce research but also provide practical implications for online sellers and managers of social commerce platforms.     

Export Involvement and Channel Conflict in a Manufacturer-Intermediary Relationship

Numerous articles have been published regarding the strained relationships between highly involved export manufacturers and their international intermediaries. While channel conflict is frequently cited as a major reason for such strained trade relationships, few research studies examine the relationship between a manufacturer's export involvement and channel conflict. In this paper, we develop hypotheses linking the three major domains of export involvement to the initial stages of channel conflict. The results indicate that a manufacturer's conflict with its principal international intermediary decreases with greater manufacturer dependence on the principal intermediary, increases as resources are committed to exporting, and decreases with the manufacturer's foreign market knowledge.     

The commercial contribution of clinical studies for pharmaceutical drugs

Pharmaceutical drugs are rigorously evaluated through clinical studies. The commercial consequences of such clinical studies, both to the promotion for and sales of drugs, are largely under-researched. The present study answers the following research questions: 1) How does the evolution of clinical study outcomes affect product sales? 2) How does the evolution of clinical study outcomes affect a firm's promotion expenditures to physicians and consumers? 3) Is the assessment of the responsiveness of sales to promotion expenditures biased when the analyst omits the role of clinical studies? We summarize a comprehensive body of clinical studies in three metrics: valence, dispersion, and volume. We extend the literature with the following findings. A higher valence and volume of clinical studies (i.e., more positive and larger number of studies) increase sales. A higher valence of clinical studies increases spending on both direct-to-consumer advertising and direct-to-physician promotion. A higher dispersion among clinical studies decreases spending on direct-to-consumer advertising. A higher volume of clinical studies has no effect on direct-to-physician promotion, but decreases direct-to-consumer advertising. Furthermore, the results show that omitting these metrics from a market response model leads to an overestimation of the responsiveness of sales to promotion expenditures.     

Cross channel effects of search engine advertising on brick & mortar retail sales: Meta analysis of large scale field experiments on Google.com

We investigate the cross channel effects of search engine advertising on Google.com on sales in brick and mortar retail stores. Obtaining causal and actionable estimates in this context is challenging: Brick and mortar store sales vary widely on a weekly basis; offline media dominate the marketing budget; search advertising and demand are contemporaneously correlated; and estimates have to be credible to overcome agency issues between the online and offline marketing groups. We report on a meta-analysis of a population of 15 independent field experiments, in which 13 well-known U.S. multi-channel retailers spent over $4 Million in incremental search advertising. In test markets category keywords were maintained in positions 1-3 for 76 product categories with no search advertising on these keywords in the control markets. Outcomes measured include sales in the advertised categories, total store sales and Return on Ad Spending. We estimate the average effect of each outcome for this population of experiments using a Hierarchical Bayesian (HB) model. The estimates from the HB model provide causal evidence that increasing search engine advertising on broad keywords on Google.com had a positive effect on sales in brick and mortar stores for the advertised categories for this population of retailers. There also was a positive effect on total store sales. Hence the increase in sales in the advertised categories was incremental to the retailer net of any sales borrowed from non-advertised categories. The total store sales increase was a meaningful improvement compared to the baseline sales growth rates. The average Return on Ad Spend (ROAS) is positive, but does not breakeven on average although several retailers achieved or exceeded break-even based only on brick and mortar sales. We examine the robustness of our findings to alternative assumptions about the data specific to this set of experiments. Our estimates suggest online and offline are linked markets, that media planners should account for the offline effects in the planning and execution of search advertising campaigns, and that these effects should be adjusted by category and retailer. Extensive replication and a unique research protocol ensure that our results are general and credible.