Neo‐Rawlsian Fringes: A New Approach to Market Segmentation and New Product Development*

Prior research into the link between new product development and market segmentation has focused on two main approaches: (1) design, segment, and do limited competitive evaluation; and (2) segment first, design second. This paper proposes a third approach, which is to simultaneously design, perform segmentation according to benefit and to evaluate against competitive designs. This research uses a benefit segmentation technique based on conjoint analysis (or other techniques that relate product attributes to consumer utility) in which the segments emerge simultaneously with the design based on certain design principles or “strategies.” Herein a method is proposed to narrow down the many possible feasible designs (combinations of attributes) to a finite set and to examine the appeal of each design. Five distinct design strategies are proposed for modeling and studying competitive reaction. These include “traditional” ones such as differentiation and new ones whose fringe customers have high utility. The paper shows that these five strategies are adequate for modeling competitive reaction using simulation. Another contribution of the paper is the way competitive reaction is modeled. In generating and evaluating a design the desire herein is also to assess the defensibility of the design and include it in the evaluation criteria. These issues are addressed by decomposing the solution procedure into two phases. In the first phase, different optimal designs are created based on predefined product development strategies. In the second, these optimal designs are compared against one another with regard to market share and potential to secure market leadership. This work shows that the nature of competition as well as the variability of customer preferences are critical to how a strategy performs. This process uncovers a surprisingly robust design strategy—developing attributes such that a “lower fringe” is most satisfied—that even achieves market dominance under certain conditions. This methodology is also applied to partworth data on refrigerators, which provides a concrete example of the concepts and demonstrates results consistent with the propositions developed earlier in the paper.     

Extending the competitive marketing strategy paradigm: The role of strategic reference points theory

The purpose of this article is to extend and integrate the new strategic reference points theory (SRP), developed in the strategic management area, into the discipline of strategic marketing management. The major new tenets of the theory are the inclusion of cognitive, organizational processes and benchmarking simultaneously. First, the authors describe the impact of the marketing SRP on marketing strategic choice behavior captured in the tradeoff between risk and return (risk avert vs. risk lover) as was proposed by prospect theory. Then, they explore the performance consequences of integrating the newly formed stages while considering organizational process and implementation issues of reference points such as content, configuration, consensus, and change. Aviv Shoham is a senior lecturer of marketing at the William Davidson Faculty of Industrial Engineering and Management, Technion-Israel Institute of Technology, Technion City, Haifa. Avi Fiegenbaum is an associate professor of management at the William Davidson Faculty of Industrial Engineering and Management, Technion-Israel Institute of Technology, Technion City, Haifa.     

Cross-Country Productivity Comparisons: The “Revealed Superiority” Approach

This paper proposes a novel non-parametric methodology for comparing total factor productivity (TFP) across countries and over time. It develops the principle of revealed superiority along the lines of Samuelson's principle of revealed preferences. Specifically, we compare the aggregate actual profits in each country to the hypothetical profits it would have earned if, facing its own prices, it had employed another country's inputs and produced its output. We show that our procedure reveals the true TFP ranking under relatively mild assumptions. We apply our method by ranking a panel of the 25 richest economies relative to one another and over time and find that the United States enjoys the highest TFP whereas Singapore has the lowest.     

Optimal Price Rules,Administered Prices and Suboptimal Prevention: Evidence from a Medicare Program

Pricing methodologies in Medicare vary from one component of the system to another, often leading to conflicting incentives. Failure to recognize linkages may result in inefficient allocation of resources and higher overall costs. To motivate the analysis, I derive pricing rules for a welfare-maximizing regulator. I show that while optimal inpatient payments are standard Ramsey prices, optimal outpatient payments must incorporate net loss due to unnecessary hospitalizations, as well as supply elasticities. Ignoring this leads the myopic regulator to underprovide preventive services. The dialysis program is a useful case for empirical investigation, since payments for maintenance care are more rigidly determined than payments for related hospital care. Given constant prices, empirical analysis focuses on the effect of dialysis intensity on hospital use. Results indicate that greater dialysis intensity reduces hospital use, even at levels considered more than adequate. A simple cost-benefit calculation suggests that for every dollar of additional spending on outpatient intensity, about $2 in hospital expenditures can be saved. This suggests that the current pricing structure within aspects of the Medicare program is inefficient, underscoring the problem of regulatory myopia.     

Dynamic and risk measurement perspectives on bowman's risk-return paradox for strategic management: An empirical study

Bowman's (1980, 1982) widely quoted papers have reported the existence of a risk-return paradox for strategic management. In this paper the authors examine the dynamic behavior of the risk-return relationship and analyze whether the risk-return paradox is stable across time. The analysis involves tracking Bowman's so-called negative association ratio across time. Using accounting measures of risk and return, it is demonstrated that while the paradox holds during the 1970s, the finding does not hold in the environment of the 1960s. Further, the paradox disappears if market-based risk measures are used. Some implications for strategic management are then discussed and attention is directed towards the meaning of risk in the context of strategic management. In addition, possible explanations for this paradox are evaluated and directions for further research are suggested.     

State Dependence at Internet Portals

This study offers evidence of the existence of switching costs on the Internet. It uses more flexible methods than previously possible to separate switching costs from serially correlated unobservables at Internet portals. The data contain nearly 1,000 observations per household, allowing for household-specific regressions that control for all household-specific heterogeneity. The results show that households exhibit switching costs. The loyalty generated by these costs drives a large fraction of portal visits and generates considerable revenues; however, these revenues are not large enough to justify the losses incurred by Internet portals in the 1990s while building market share. The results also suggest that random coefficients models overestimate true state dependence.     

Two Closed-Form Formulas for the Futures Price in the Presence of a Quality Option

The paper derives closed-form formulas for the futures pricein the presence of a multi-asset quality option. This is donefor two cases: In the first one the underlying assets are zerocoupon bonds with different maturities in the single-factorVasicek model. In the second one these are commodities in amulti-factor setting, again with Vasicek interest rate uncertainty.     

Hospital performance standards and medical pricing: The impact of information disclosure in cardiac care

A policy concern is that the initiation of Hospital Compare (HC) reporting in Medicare provided leverage to insurers in price negotiations for lowering private sector prices without regard to hospital performance. Using the sequential Nash bargaining framework we provide economic intuition to the contrary: while average hospital prices decline under quality disclosures, hospitals with above‐average quality are able to exert a stronger bargaining position, consequently capturing prices above the market rate. To explore this issue empirically we estimate variants of difference‐in‐difference models, examining the effects of the three main scores (heart attack, heart failure, and combined mortalities) on transaction prices of related hospital procedures. States which had similar mandated reporting systems in place before the initiation of HC form the control group. Analyzing claims data of privately insured patients, we find that HC exerted downward pressure on prices. However, hospitals rated “above‐average” captured higher prices, thereby offsetting the overall policy effect fully or partially. Leads and lags analysis lends further support for our difference‐in‐difference approach. We find that highly ranked hospitals received a quality premium of 8–14%, comparable to price effects found in other health care markets. We conclude that HC was effective at constraining prices without penalizing high performers.     

Working Weeks,Rave Weekends: Identity Fragmentation and the Emergence of New Communities

Popular music is one of the most ubiquitous forms of contemporary culture. This paper looks at the phenomenon known as rave or dance culture in Britain. It examines the nature of the consumer experience at a dance club through the use of a two stage methodology. Based on observations and the collection of phenomenological data, the findings suggest that the experience is linked to a series of behaviours, which are related to fragmentation and identity. These include narcissistic identity, the emergence of new communities, the need for escape, engagement and prolonged hedonism. The paper examines these concepts in relation to postmodern consumption. In particular, an evaluation of postmodern theory and its focus on fragmentation and the project of the self is offered, by arguing for a return to "community".     

Reputation Building: Small Business Strategies for Successful Venture Development

A positive corporate reputation can be crucial to successful venture development. Making use of the Strategic Reference Point theory, four reputation strategies were conceptualized: 1) dynamic exploitation of existing assets; 2) development of core competencies; 3) image management; and 4) strategic alliances. In a comprehensive investigation of three software enterprises in Israel, companies were found to differ in policies that possibly could lead to a good reputation. One company emphasized the long–term establishment of core competencies and remained a fairly unknown enterprise. A second company accentuated the short–term exploitation of assets and had a middling success in reputation building. A third enterprise invested in a broad spectrum of reputation building strategies and quickly developed a reputation for excellence in the field. In conclusion, corporate success often depends on the extent to which managers develop an integrated package of policies for systematically building the intangible asset of corporate reputation.