Journal of Marketing Research 47(4): 577-593 Abstract The authors examine incumbent retailers' reactions to a Wal-Mart entry and the impact of these reactions on the retailers' sales. They compile a unique data set that consists of incumbent supermarkets, drugstores, and mass merchandisers in the vicinity of seven Wal-Mart entries, as well as control stores not exposed to the entries. The data set includes weekly store movement data for 46 product categories before and after each entry and allows the authors to measure reactions and sales outcomes using a before-and-after-with-control-group analysis. They find that, overall, incumbents suffer significant sales losses as a result of a Wal-Mart entry, but there is substantial variation across retail formats, stores, and categories both in incumbent reactions and in their sales outcomes. Moreover, they find that a retailer's sales outcomes are significantly affected by its reactions, and the relationship between reactions and sales outcomes varies across retail formats. These findings provide valuable insights into how retailers in different formats can adjust their marketing mix to mitigate the impact of a Wal-Mart entry.

The Theory and Practice of Myopic Management

(2010-07-12)

Journal of Marketing Research 47(4): 594-611 Abstract This article reviews the theory and empirical evidence of myopic management as it pertains to marketing practice. It documents empirically the stock market's inability to properly value marketing and innovation activity in the face of the potential for myopic management. The author assesses the total financial consequences of myopic management (the practice of cutting marketing and research-and-development spending to inflate earnings) and finds that myopia has a long-term net negative impact on firm value. Myopic management is contrasted with accounting accruals-based earnings inflation, and the author shows that the real activities (i.e., myopic management), and not the accounting numbers manipulation, have the greater negative impact on future financial performance. These results are consistent across alternative abnormal return measures and alternative benchmarks. The author argues that shareholders, managers, and marketing researchers can play a role in limiting myopic management practices.

Customer Satisfaction Heterogeneity and Shareholder Value

(2010-07-12)

Journal of Marketing Research 47(4): 612-626 Abstract It is widely recognized that business growth and shareholder value are engineered on the basis of investments aimed at acquiring and retaining customers. Along with this premise, however, the literature reveals a growing recognition that the manner in which important customer-based outcomes are constructed in the short term has vital implications for long-term firm performance. Adopting the view that customer satisfaction is a stochastic marketplace asset, the authors advance a mean-variance perspective that enables them to test two conjectures: (1) Objective service quality and advertising affect not only the level of customer satisfaction but also the heterogeneity in customer satisfaction, and (2) shareholder value is shaped by the interplay of satisfaction level and heterogeneity, through their impact on retention sales, acquisition sales, and servicing costs. The authors test these conjectures using secondary data from diverse sources that describe the dynamics in the U.S. airlines industry during a nine-year period (1997-2005). The results, derived from estimating structural models that account for the impact of several meaningful control variables, provide strong support for both conjectures. Importantly, the findings indicate that the return on satisfaction to shareholder value decreases by almost 70% in going from low to high satisfaction heterogeneity; at the same time, increasing levels of satisfaction heterogeneity serves to reduce the volatility in shareholder value.

Heuristics and Biases in Data-Based Decision Making: Effects of Experience, Training, and Graphical Data Displays

(2010-07-12)

Journal of Marketing Research 47(4): 627-642 Abstract Managers use numerical data as the basis for many decisions. This research investigates how data on prior advertising expenditures and sales outcomes are used in budget allocation decisions and attempts to answer three important questions about data-based inferences. First, do biases exist that are strong enough to lead to seriously suboptimal decisions? Second, do graphical data displays, real-world experience, or explicit training reduce any observed biases? Third, are the observed biases well explained by a relatively small set of natural heuristics that managers use when making data-based allocation decisions? The results suggest answers of yes, no, and yes, respectively. The authors identify three broad classes of heuristics: difference-based (which assess causation by comparing adjacent changes in expenditures to changes in sales), trend-based (which assess causation by comparing overall trends in expenditures and sales), and exemplar-based (which emulate the allocation pattern of the observations with the highest sales). All three heuristics create biases in some situations. Overall, exemplar-based heuristics were used most frequently and induced the greatest biasing of the three (sometimes allocating the most to an advertising medium that was uncorrelated with sales). Difference-based heuristics were used less frequently but generated the most extreme allocations. Trend-based heuristics were used the least.

Determining Influential Users in Internet Social Networks

(2010-07-12)

Journal of Marketing Research 47(4): 643-658 Abstract The success of Internet social networking sites depends on the number and activity levels of their user members. Although users typically have numerous connections to other site members (i.e., friends), only a fraction of those so-called friends may actually influence a member's site usage. Because the influence of potentially hundreds of friends needs to be evaluated for each user, inferring precisely who is influential--and, therefore, of managerial interest for advertising targeting and retention efforts--is difficult. The authors develop an approach to determine which users have significant effects on the activities of others using the longitudinal records of members' log-in activity. They propose a nonstandard form of Bayesian shrinkage implemented in a Poisson regression. Instead of shrinking across panelists, strength is pooled across variables within the model for each user. The approach identifies the specific users who most influence others' activity and does so considerably better than simpler alternatives. For the social networking site data, the authors find that, on average, approximately one-fifth of a user's friends actually influence his or her activity level on the site.

Categories Create Mind-Sets: The Effect of Exposure to Broad Versus Narrow Categorizations on Subsequent, Unrelated Decisions

(2010-07-12)

Journal of Marketing Research 47(4): 659-671 Abstract The authors find that exposure to different types of categories or assortments in a task creates a mind-set that changes how consumers process information in subsequent tasks. That is, these mind-sets have a spillover effect that alters consumers' decision making in a variety of subsequent and unrelated tasks, from basic cognitive behaviors (e.g., grouping) and consumer decisions (e.g., new product adoptions) to more general decision-making strategies (e.g., susceptibility to heuristics). Consumers previously exposed to broad assortments or categorizations base their decisions on fewer pieces of information, typically those made salient by the environment. In contrast, consumers previously exposed to narrow assortments or categorizations employ multiple pieces of information, both salient and nonsalient, without exerting any extra effort. Consequently, prior exposure to broad versus narrow categorizations leads to greater susceptibility to some common context effects and to heuristic decision making.

Mind-Set Metrics in Market Response Models: An Integrative Approach

(2010-07-12)

Journal of Marketing Research 47(4): 672-684 Abstract Demonstrations of marketing effectiveness currently proceed along two parallel tracks: Quantitative researchers model the direct sales effects of the marketing mix, and advertising and branding experts trace customer mind-set metrics (e.g., awareness, affect). The authors merge the two tracks and analyze the added explanatory value of including customer mind-set metrics in a sales response model that already accounts for short- and long-term effects of advertising, price, distribution, and promotion. Vector autoregressive modeling of the metrics for more than 60 brands of four consumer goods shows that advertising awareness, brand consideration, and brand liking account for almost one-third of explained sales variance. Competitive and own mind-set metrics make a similar contribution. Wear-in times reveal that mind-set metrics can be used as advance warning signals that allow enough time for managerial action before market performance itself is affected. Specific marketing actions affect specific mind-set metrics, with the strongest overall impact for distribution. The findings suggest that modelers should include mind-set metrics in sales response models and branding experts should include competition in their tracking research.

Measuring Consumer Preferences for Complex Products: A Compositional Approach Based on Paired Comparisons

(2010-07-12)

Journal of Marketing Research 47(4): 685-698 Abstract Conjoint analysis has become a widely accepted tool for preference measurement in marketing research, though its applicability and performance strongly depend on the complexity of the product or service. Therefore, self-explicated approaches are still frequently used because of their simple design, which facilitates preference elicitation when large numbers of attributes need to be considered. However, the direct measurement of preferences, or rather utilities, has been criticized as being imprecise in many cases. Against this background, the authors present a compositional consumer preference measurement approach based on paired comparisons, otherwise known as PCPM. The trade-off character of paired comparisons ensures that the stated judgments are more intuitive than traditional self-explicated preference statements. In contrast to the latter, PCPM accounts for response errors and thus allows for the elicitation of more precise preferences. The authors benchmark PCPM against adaptive conjoint analysis and computer-assisted self-explication of multiattributed preferences to demonstrate its relative validity and predictive accuracy in two empirical studies using complex, high-involvement products. They find that PCPM yields better results than the benchmark approaches with respect to interview length, individual hit rates, and aggregate choice share predictions.

A Comparative Study on Parameter Recovery of Three Approaches to Structural Equation Modeling

(2010-07-12)

Journal of Marketing Research 47(4): 699-712 Abstract Traditionally, two approaches have been employed for structural equation modeling: covariance structure analysis and partial least squares. A third alternative, generalized structured component analysis, was introduced recently in the psychometric literature. The authors conduct a simulation study to evaluate the relative performance of these three approaches in terms of parameter recovery under different experimental conditions of sample size, data distribution, and model specification. In this study, model specification is the only meaningful condition in differentiating the performance of the three approaches in parameter recovery. Specifically, when the model is correctly specified, covariance structure analysis tends to recover parameters better than the other two approaches. Conversely, when the model is misspecified, generalized structured component analysis tends to recover parameters better. Finally, partial least squares exhibits inferior performance in parameter recovery compared with the other approaches. In particular, this tendency is salient when the model involves cross-loadings. Thus, generalized structured component analysis may be a good alternative to partial least squares for structural equation modeling and is recommended over covariance structure analysis unless correct model specification is ensured.

A Silver Lining of Standing in Line: Queuing Increases Value of Products

(2010-07-12)

Journal of Marketing Research 47(4): 713-724 Abstract This article examines a silver lining of standing in line: Consumers infer that products are more valuable when others are behind them. Specifically, the value of a product increases as more people line up behind a person (Study 1) and when others are present (versus absent) behind a person in line (Study 2). Value increases further when directing consumers' attention to the presence of others behind them--that is, when they look backward versus forward (Study 3) and when the queue structure emphasizes the last person to join rather than the person being served (Study 4). This effect of people in line behind them is associated with increased expenditures by queuing consumers (Study 5).

The Effect of Decision Order on Purchase Quantity Decisions

(2010-07-12)

Journal of Marketing Research 47(4): 725-737 Abstract Consumers often resolve trade-offs in a particular order. For example, when making flavor and size decisions, consumers might first decide which flavors to choose and then decide which sizes of those flavors to choose. This research examines the effect of decision order on purchase quantity decisions. The authors build on prior work on decision difficulty and conflict to show that consumers choose more overall, and more variety, when they consider a less replaceable attribute in an earlier, rather than a later, stage in the purchase decision. For example, consumers choose a greater quantity when flavor (or brand) decisions precede, rather than follow, size decisions. The authors find that the degree of attribute replaceability also moderates the effect of decision order on quantity chosen. Furthermore, marketers can influence the amount chosen by altering the organization of the shelf display. Finally, the authors find that when consumers explicitly consider the possibility of deferring their decisions, the effect of decision order declines.

Categorization Effects in Value Judgments: Averaging Bias in Evaluating Combinations of Vices and Virtues

(2010-07-12)

Journal of Marketing Research 47(4): 738-747 Abstract How do consumers evaluate combinations of items representing conflicting goals? In this research, the authors examine how consumers form value judgments of combinations of options representing health and indulgence goals, focusing on how people estimate the calorie content of such options. The authors show that when evaluating combinations of healthy (virtue) and indulgent (vice) options, consumers tend to systematically underestimate the combined calorie content, such that they end up averaging rather than adding the calories contained in the vice and the virtue. The authors attribute this bias to the qualitative nature of people's information processing, which stems from their tendency to categorize food items according to a good/bad dichotomy into virtues and vices. The authors document this averaging bias in a series of four empirical studies that investigate the underlying mechanism and identify boundary conditions.

Store Within a Store

(2010-07-12)

Journal of Marketing Research 47(4): 748-763 Abstract In a store-within-a-store arrangement, retailers essentially rent out retail space to manufacturers and give them complete autonomy over retail decisions, such as pricing and in-store service. This intriguing retailing format appears in an increasing number of large department stores worldwide. The authors use a theoretical model to investigate the economic incentives a retailer faces when deciding on this arrangement. The retailer's trade-off is between channel efficiency and interbrand competition, moderated by returns to in-store service and increased store traffic. The retailer cannot credibly commit to the retail prices and service levels that the manufacturers effect in an integrated channel, so it decides instead to allow them to set up stores within its store. Thus, the stores-within-a-store phenomenon emerges when a powerful retailer, ironically, gives manufacturers autonomy in its retail space. An extension of the model to the case of competing retailers shows that the store-within-a-store arrangement can moderate interstore competition.

Managing Sales Force Product Perceptions and Control Systems in the Success of New Product Introductions

(2010-07-12)

Journal of Marketing Research 47(4): 764-776 Abstract Given the importance of new products, firms may be prone to overmanage sales personnel by using behavior-based control systems that dictate the performance of particular activities related to the introduction. Such controls may be especially tempting given the findings that favorable salesperson product perceptions actually yield less effort on the new product, and behavior-based controls can offset this tendency. However, using longitudinal data from a sample of 226 salespeople, along with external ratings from customers and archival measures of effort and sales performance, the authors demonstrate that such a strategy is shortsighted. Behavior-based controls constrain a salesperson's ability to appropriately allocate effort across his or her customer base, negatively affecting customer product perceptions and, ultimately, new product sales. In contrast, outcome-based control systems enable salespeople to work smarter, and their corresponding effort on behalf of the new product has a more positive effect on customer product perceptions and new product sales.

Social Loss Aversion and Optimal Contest Design

(2010-07-12)

Journal of Marketing Research 47(4): 777-787 Abstract When managers are designing a contest to motivate effort by salespeople, service employees, franchisees, or product development teams, a key question is, What should the optimal proportion of winners and losers be? Prevailing marketing theory predicts that the proportion of winners in a contest should always be lower than the proportion of losers. Not only has this theory not been empirically tested, but it is also based on the assumption that contestants care solely about the value of the prizes they receive. This self-interested assumption has been increasingly challenged in marketing and economics. This article uses a behavioral economics model to formalize the idea that if contestants also care about their contest outcomes relative to other contestants, changing the proportion of winners in a contest can alter the reference points contestants use to make these social comparisons. Consequently, a contest with a higher proportion of winners than losers can yield greater effort than one with fewer winners than losers if the degree of social loss aversion in the contestants is sufficiently strong. Two incentive-aligned experiments show that this prediction can be valid in situations with public announcements of contest outcomes.