nep-mkt New Economics Papers
on Marketing
Issue of 2008‒10‒21
twenty papers chosen by
Joao Carlos Correia Leitao
Technical University of Lisbon

  1. Message on a Bottle: Colours and Shapes in Wine Labels By de Mello, Luiz; Pires Gonçalves, Ricardo
  2. E-business Development Key Areas By Suchánek, Petr
  3. Point of Sales Promotions and Buying Stimulation in Retail Stores By Rajagopal
  4. An Agent-based Model of Retail Location with Complementary Goods By Arthur Huang; David Levinson
  5. WHO BENEFITS FROM ONLINE PRIVACY? By Curtis Taylor; Liad Wagman;
  6. A Dynamic Model of Sponsored Search Advertising By Song Yao; Carl F. Mela;
  7. A Relationship Approach to Brand Equity By Carlos Brito
  8. Opinion leaders in the domain of consumer electronics and their use of external search channels By Frank van Rijnsoever
  9. Introduction of Software Products and Services Through "Public" Beta Launches By Amit Mehra; Gireesh Shrimali;
  10. Consumer Search on the Internet By Babur De los Santos; ;
  11. Managing customer relationships through price and service quality By Bitran, Gabriel R.; Rocha e Oliveira, Paulo; Schilkrut, Ariel
  12. Estimating search with learning By Sergei Koulayev
  13. Decomposing the Congestion Effect and the Cross-Platform Effect in Two-Sided Networks: A Field Experiment By Catherine Tucker; Juanjuan Zhang;
  14. Consumer Behavior: Product Characteristics and Quality Perception By Pires Gonçalves, Ricardo
  15. Linking Reputations: The Signaling and Feedback Effects of Umbrella Branding By Miklos-Thal, Jeanine
  16. The use of prepaid cards for banking the poor By Prior, Francesc; Santoma, Javier
  17. Quantifying the Benefits of Entry into Local Phone Service, By Nicholas Economides; V. Brian Viard; Katja Seim
  18. Características estructurales de las organizaciones deportivas: Diferenciación en los clubes de fútbol profesional de élite en España. By Gomez, Sandalio; Marti, Carlos; Opazo, Magdalena
  19. Bridging Sales and Services Quality Functions in Retailing of High Technology Consumer Products By Rajagopal
  20. Pricing and Multi-Market Contact in the Cable TV Industry By Robert Seamans; ;

  1. By: de Mello, Luiz; Pires Gonçalves, Ricardo
    Abstract: Wine consumers rely mainly on the label to infer the quality of a bottle. But there is little empirical research on how colours can be interacted with shapes in the design of wine labels. This study draws from an experiment using data from Spain and shows that there are strong preferences for selected colour-shape combinations in label design. Surprisingly, colour alone does not elicit as strong preferences as certain shapes do, at least when they are assessed irrespectively of the shapes featured in the label. Other combinations, on the other hand, are very resilient, especially those that contain colour hues, such as brown, yellow, black and green, in labels with salient rectangular and hexagonal patterns.
    Keywords: Wine; Label; Colour; Shape
    JEL: M31 L66 M39 C91
    Date: 2008–05
  2. By: Suchánek, Petr
    Abstract: At present e-business is standard alternative and its development is very fast. E-commerce is subset of e-business. E-commerce is implementation of the business transactions on the internet (internet stores, booking system, and so on). E-business and e-commerce have directly dependence on information and communication technology (ICT). Many conditions have to be satisfied to e-business systems operate all right and bring contribution. The fundamental element is e-business strategy. Aims, procedures, methods, inputs, outputs and the like have to be analyzed in e-business strategy. Individual parts may be under consideration and analyzed in singles steps or in parallel with regards to contexture. Once of the e-commerce key area is internet stores development. Internet stores are realized as a web sites published on internet. Web sites make possible communication between custom and operators information system. Internet store web sites have to fulfil the quite of number of conditions. Principal aim of the internet store web sites is effort to internet store web sites be displayed in one of the forefront in internet browser after request of user. To this goal for example Search Engine Optimization (SEO) or method of paid references can be used. Both methods are very important for internet marketing and they also can be used together. Data from internet store web sites are computing in firm information system. On this account we have to directly defined dataflow between internet store websites and information system. We can buy software for e-business support from provider or new software can be developed. In both cases we have to pay attention to risk areas. Conditions of successful implementation of e-business in firm are in the end of the article.
    Keywords: e-business; e-commerce; e-business strategy; procedural and technological audit; internet stores; optimization; search engine optimization; paid links; information and communication technologies; return on investment.
    JEL: M31 A19 M21
    Date: 2008
  3. By: Rajagopal (Tecnológico de Monterrey, Campus Ciudad de México)
    Abstract: This paper analyzes drivers of compulsive buying behavior induced by store based promotion through empirical investigation in Mexico. The buying behavior in reference to point of sales promotions offered by retailing firms and determinants of sensitivity towards stimulating shopping arousal and satisfaction among customer in building store loyalty have been discussed in the paper. This study also builds arguments around convergence of attractiveness of point of sales promotions and effectiveness of customer services as a tool for gaining competitive advantage in the retail business environment. The results indicate that point of sales promotion programs have become the principal tool of retailing in Mexico to acquire new customers and retain the loyal customers. It is also found during the study that loyal customers are attracted to the store brands during the promotional offers while new shoppers are price sensitive and are attracted by the in-store ambience of sales promotions and volume discounts.
    Keywords: Sales promotion, shopping arousal, store loyalty, buying behavior, retailing, customer relations
    JEL: L81 M31
    Date: 2008–09
  4. By: Arthur Huang; David Levinson (Nexus (Networks, Economics, and Urban Systems) Research Group, Department of Civil Engineering, University of Minnesota)
    Abstract: This paper examines the emergence of retail clusters on a supply chain network comprised of suppliers, retailers, and consumers. An agent-based model is proposed to investigate retail location distribution in a market of two complementary goods. The methodology controls for supplier locales and unit sales prices of retailers and suppliers; a consumer's willingness to patronize a retailer depends on the total travel distance of buying both goods. On a circle comprised of discrete locations, retailers play a non-cooperative game of location choice to maximize individual proÞts. Our Þndings suggest that the number of clusters in equilibrium follow a power-law distribution and that hierarchical distribution patterns are much more likely to occur than the spread-out ones. In addition, retailers of complementary goods tend to co-locate at supplier locales. Sensitivity tests on the number of retailers and retailers' sequence of moving are also performed.
    Keywords: clustering, agent-based model, location choice, power-law distribution pattern, retailing
    JEL: R30 L22
    Date: 2008
  5. By: Curtis Taylor (Department of Economics, Duke University); Liad Wagman (Department of Economics, Duke University);
    Abstract: When firms can identify their past customers, they may use information about purchase histories in order to price discriminate. We present a model with a monopolist and a continuum of heterogeneous consumers, where consumers can opt out from being identified, possibly at a cost. We find that when consumers can costlessly opt out, they all individually choose privacy, which results in the highest profit for the monopolist. In fact, all consumers are better off when opting out is costly. When valuations are uniformly distributed, social surplus is non-monotonic in the cost of opting out and is highest when opting out is prohibitively costly. We introduce the notion of a privacy gatekeeper --- a third party that is able to act as a privacy conduit and set the cost of opting out. We prove that the privacy gatekeeper only charges the firm in equilibrium, making privacy costless to consumers.
    Keywords: Privacy, price discrimination, anonymity, opt out, e-commerce
    JEL: C73 D81
    Date: 2008–09
  6. By: Song Yao (Fuqua School of Business, Duke University); Carl F. Mela (Fuqua School of Business, Duke University);
    Abstract: Sponsored search advertising is ascendant---Jupiter Research reports expenditures rose 28% in 2007 to $8.9B and will continue to rise at a 15% CAGR, making it one of the major trends to affect the marketing landscape. Yet little, if any empirical research focuses upon search engine marketing strategy by integrating the behavior of various agents in sponsored search advertising (i.e., searchers, advertisers, and the search engine platform). The dynamic structural model we propose serves as a foundation to explore these and other sponsored search advertising phenomena. Fitting the model to a proprietary data set provided by an anonymous search engine, we conduct several policy simulations to illustrate the benefits of our approach. First, we explore how information asymmetries between search engines and advertisers can be exploited to enhance platform revenues. This has consequences for the pricing of market intelligence. Second, we assess the effect of allowing advertisers to bid not only on key words, but also by consumers searching histories and demographics thereby creating a more targeted model of advertising. Third, we explore several different auction pricing mechanisms and assess the role of each on engine and advertiser profits and revenues. Finally, we consider the role of consumer search tools such as sorting on consumer and advertiser behavior and engine revenues. One key finding is that the estimated advertiser value for a click on its sponsored link averages about 24 cents. Given the typical $22 retail price of the software products advertised on the considered search engine, this implies a conversion rate (sales per click) of about 1.1%, well within common estimates of 1-2% ( Hence our approach appears to yield valid estimates of advertiser click valuations. Another finding is that customers appear to be segmented by their clicking frequency, with frequent clickers placing a greater emphasis on the position of the sponsored advertising link. Estimation of the policy simulations is in progress.
    Keywords: Sponsored Search Advertising, Two-sided Market, Dynamic Game, Structural Models, Empirical IO, Customization, Auctions
    JEL: C11 C73 D44 D82 L86 M31 M37
    Date: 2008–09
  7. By: Carlos Brito (Faculdade de Economia da Universidade do Porto)
    Abstract: Brands are not just a sign. Brands are not just elements that position products and companies. For many years, brands have been regarded as the link between products/companies and their customers. However, this view has dramatically changed inasmuch as brands are now considered partners of the relationships they establish with consumers. In this line, this working paper develops a holistic model on the basis of a relational perspective of brand equity.
    Keywords: brand, relationship marketing, interaction, brand equity, awareness, image, loyalty, attachment, emotion
    JEL: M31
    Date: 2008–10
  8. By: Frank van Rijnsoever
    Abstract: This study proposes and tests a number of hypotheses about opinion leaders in the domain of consumer electronics and their use of external search channels. Based on the results of a survey among 1872 consumers, opinion leaders in the domain of consumer electronics are found to most likely be young working males without children. The use of different search channels by opinion leaders is related to the degree of opinion leadership through an inverted U-shape. This study shows that these relationships are in fact explained by the respondents’ knowledge about the product category. Finally, the theoretical and managerial implications are discussed.
    Keywords: opinion leaders, information search, knowledge base
    Date: 2008–10
  9. By: Amit Mehra (Indian School of Business, Hyderabad, India); Gireesh Shrimali (Indian School of Business, Hyderabad, India);
    Abstract: Public “Beta” launches have become a preferred route of entry into the markets for new software products and web site based services. While beta testing of novel products is nothing new, typically such tests were done by experts within firm boundaries. What makes public beta testing so attractive to firms? By introducing semi-completed products in the market, the firm can target the early adopter population, who can then build the potential market through the word of mouth effect by the time the actual version of the product is launched. In addition, the information gathered through the usage of the public beta gives significant insights into customer preferences and consequently helps in building a better product. We build these marketing and product development implications in an analytical model to compare the different product introduction strategies like “skimming” or “penetration pricing” with beta launches. This analysis is done for products of branded and unbranded Web 2.0 companies like Google and Flickr etc. We also examine the impact of different monetization models like direct pricing and advertising on the beta launch strategy.
    Keywords: beta, word of mouth effects, new product launch, exclusivity, externalities, Web 2.0, pricing, new product development, revenue models
    JEL: D42 L10 L11 L20 M13 M21 M31 M37
    Date: 2008–09
  10. By: Babur De los Santos (Kelley School of Business, Indiana University); ;
    Abstract: This paper uses consumer search data to explain search frictions in online markets, within the context of an equilibrium search model. I use a novel dataset of consumer online browsing and purchasing behavior, which tracks all consumer search prior to each transaction. Using observed search intensities from the online book industry, I estimate search cost distributions that allow for asymmetric consumer sampling. Research on consumer search often assumes a symmetric sampling rule for analytical convenience despite its lack of realism. Search behavior in the online book industry is quite limited: in only 25 percent of the transactions did consumers visit more than one bookstore's website. The industry is characterized by a strong consumer preference for certain retailers. Accounting for unequal consumer sampling halves the search cost estimates from $1.8 to $0.9 per search in the online book industry. Analysis of time spent online suggests substitution between the time consumers spend searching and the relative opportunity cost of their time. Retired people, those with lower education levels, and minorities (with the exception of Hispanics) spent significantly more time searching for a book online. There is a negative relationship between income levels and time spent searching.
    Keywords: search model, non-sequential search, fixed sample search, online markets, book industry
    JEL: L80 L81 D80 D83 L10 L11
    Date: 2008–09
  11. By: Bitran, Gabriel R. (MIT); Rocha e Oliveira, Paulo (IESE Business School); Schilkrut, Ariel (Scopix)
    Abstract: This paper examines the ways in which a service provider's policies on pricing and service level affect the size of its customer base and profitability. The analysis begins with the development of a customer behavior model that uses customer satisfaction and depth of relationship as mediators of the impact of price and service level on profitability. Based on this model of customer behavior, the system is analyzed as a queuing network from which the properties of the aggregate population's behavior are derived. The analysis reveals the counterintuitive result that a policy that involves a decrease in prices or an increase in service level may lead to a smaller customer base. However, this policy may also lead to higher profits. The novelty of this result lies in the explanation of the phenomenon: that when the customer base decreases due to a change in prices or service quality, companies may experience gains in profit that result not from a decrease in costs associated with serving fewer customers but from an increase in revenues resulting from the indirect effects of the lower prices or higher level of service on customer behavior. The application of optimization techniques to the model developed in this paper yields optimality conditions through which managers can assess the long-term profitability of their pricing and service-level policies.
    Keywords: Customer relationship management; operations/marketing interface; two-part tariffs; service operations management; service quality;
    Date: 2008–04–29
  12. By: Sergei Koulayev (Department of Economics, Columbia University)
    Abstract: In this paper we estimate a structural model of search for differentiated products, using a unique dataset of individual search histories for hotels online. We propose and implement an identification strategy that allows to separately estimate consumer's beliefs, search costs and preferences. Learning plays an essential role in this strategy: it creates variation of posterior beliefs across consumers that's orthogonal to variation in search costs. We obtain two kinds of results. First, we estimate consumer's demand from the search model and compare it to results from the static model. We find that ignoring the endogeneity of choice sets leads to biased estimates: in particular, the aggregate price elasticity is over-estimated by about 80%. Second, we attempt to evaluate an empirical performance of a model of rational search. The mean search cost is estimated to be around 40 dollars, and median is 30 dollars; however, there is also a significant variation of search costs among population. A test between models of search from known (Stigler 1967) and from unknown (Rothschild 1974) distribution favors the second one: we find a statistically significant amount of Bayesian learning, even though it doesn't seem to affect demand estimates in an economically meaningful way.
    Keywords: consumer search, online markets, structural estimation, maximum likelihood
    JEL: C14 D43 D83 L13
    Date: 2008–10
  13. By: Catherine Tucker (MIT Marketing); Juanjuan Zhang (;
    Abstract: This paper highlights how the provision of information about user participation can serve as a strategic marketing tool for firms seeking to grow two-sided exchange networks. A two-sided exchange network is a business model (such as Ebay or Craiglist) where revenue is generated from persuading people to buy and sell items through that particular exchange. It is not immediately clear whether broadcasting information about the number of sellers will grow further seller participation. On the one hand, a strong rival presence may dissipate payoff (a ``congestion effect''). On the other hand, a large number of rivals may signal high buyer demand (a ``cross-platform effect''). We use field experiment data from a B2B web site that brings together buyers and sellers of used equipment and real estate. Before each seller made a posting request, the web site randomized whether to disclose the number of buyers and/or sellers, and the exact number to disclose. We find that when presented together with the number of buyers, a larger number of sellers makes sellers less likely to list their products, indicating a negative congestion effect. However, when the number of sellers is presented in isolation, its negative impact on entry is significantly reduced, indicating a positive cross-platform effect. Higher buyer search intensity amplifies the moderating role of demand uncertainty. The results suggest that information on the number of users can be an effective tool to grow two-sided networks but should be used strategically. A network can attract more users by advertising dense competition when demand is not transparent, especially in search-intensive markets.
    Keywords: Network Effects, Local Networks, Stability, Option-Value
    Date: 2008–10
  14. By: Pires Gonçalves, Ricardo
    Abstract: Consumers rely on signals, both extrinsic and intrinsic attributes, to solve their asymmetric information problem regarding product quality. In this study an experiment is designed to evaluate how consumers assess quality perception in terms of specific product characteristics, namely colors and shapes in product labels. According to the cue consistency theory, the prediction is that multiple sources of information are more useful when they provide corroborating information than when they offer disparate conclusions. In this sense, particular colors and shapes combinations which are consistent are expected to enhance consumers´ product quality perception, while other combinations that are inconsistent will decrease it.
    Keywords: Consumer; Behavior; Quality Perception; Label; Color; Shape
    JEL: M31 C91
    Date: 2008–09
  15. By: Miklos-Thal, Jeanine
    Abstract: This paper develops a theory of umbrella branding as a way to link the reputations of otherwise unrelated products. I show that while umbrella branding can credibly signal positive quality correlation, there are no equilibria in which umbrella branding either fully reveals high quality, or signals negative quality correlation. Finally, whenever umbrella branding signals perfect positive quality correlation, firms that already produce high quality products have stronger incentives to invest in developing further high quality products than firms that are currently inactive or produce low quality products.
    Keywords: reputation; umbrella branding; brand extensions; quality signaling
    JEL: M31 L15
    Date: 2008
  16. By: Prior, Francesc (IESE Business School); Santoma, Javier (IESE Business School)
    Abstract: Prepaid products can become an effective instrument for banking the poor, as they can be used for collecting microdeposits and so operate as a low-cost account. Prepaid platforms have characteristics that make them especially useful for developing low-cost microfinance business models. Indeed, customers using prepaid systems do not need bank accounts or debit or credit cards. Prepaid issuers do not need to develop or invest in new technologies, as this mechanism can be used on a range of platforms, including PCs, mobile phones, hand-held and set-top boxes. Furthermore, prepaid products are specially designed for offering services demanded by the poor, such as micropayments, microdeposits and even microcredits. Lastly, they allow users to monitor their cash flow by receiving statements (some providers offer this feature online, others provide physical statements) or accessing balances through PCs, mobile phones, hand-held and set-top boxes. Besides collecting microdeposits, prepaid products (or SVCs as they are called in the United States) offer other services that can be very valuable for serving the unbanked population. As explained in this paper, prepaid products generally lack the identification and credit requirements that effectively bar millions of individuals from opening traditional bank accounts, especially in the United States. Moreover, prepaid products can be purchased and reloaded at a growing number of locations other than bank branches, such as check cashers, convenience stores and other retailers. Prepaid instruments can also provide immediate availability of funds at a cost that, in some cases, is lower than other alternatives for unbanked consumers. Also, prepaid products are difficult to overdraw, thus reducing the likelihood of unexpected fees. Lastly, many prepaid issuers offer some sort of bill pay option, especially branded cards that enable signature-based transactions, and a significant number of them offer remittances.
    Keywords: Prepaid card; microdeposits; mobile phone; store value card; e-money; banking the poor;
    Date: 2008–05–05
  17. By: Nicholas Economides (Stern School of Business, NYU); V. Brian Viard (Graduate School of Business, Stanford University); Katja Seim (University of Pennsylvania)
    Abstract: Local telecommunications competition was an important goal of the 1996 Telecommunications Act. We evaluate the consumer welfare effects of entry into residential local telephone service in New York State using household-level data from September 1999 to March 2003. We address the prevalence of nonlinear tariffs by developing a discrete/continuous demand model that allows for service bundling and unobservable provider quality. We find that the average subscriber to the entrants' services gains a monthly equivalent of $2.33, or 6.2% of her bill, in welfare from competition. These gains accrue primarily from firm differentiation and new plan introductions rather than from price effects.
    Keywords: Entry, Nonlinear Pricing, Telecommunications, Discrete/Continuous Demand
    JEL: D43 K23 L11 L13 L96
    Date: 2007–12
  18. By: Gomez, Sandalio (IESE Business School); Marti, Carlos (IESE Business School); Opazo, Magdalena (IESE Business School)
    Abstract: La principal tarea de un club de fútbol profesional es formar un equipo competitivo orientado a participar en las competiciones oficiales y conseguir éxitos deportivos de cara a satisfacer las expectativas de sus socios y aficionados. Esta tarea fundamental es la que constituye el sistema, el que en su relación con el entorno va definiendo subsistemas de cara a responder eficazmente a las demandas que desde el exterior le desafían, en especial los procesos de profesionalización y comercialización que han afectado al deporte en general. En el fútbol profesional Español, los principales subsistemas que distingue un club son: deportiva, comunicación, relaciones externas, comercial, financiera, gestión de patrimonio, marketing, instalaciones, jurídica y asuntos sociales, es decir, áreas orientadas al desarrollo de la tarea fundamental, algunas de las cuales pueden asociarse a la respuesta estructural que estas organizaciones deportivas han dado a los desafíos que le plantea el proceso de profesionalización y comercialización.
    Keywords: clubs de fútbol; características estructurales; diferenciación:
    Date: 2008–05–03
  19. By: Rajagopal (Tecnológico de Monterrey, Campus Ciudad de México)
    Abstract: High technology product sales are positively associated with performance of retailers and distributors in terms of customer service quality, growth in sales and increase in market share. This paper aims at analyzing the impact of retail sales strategies and performance of customer services on customer acquisition, retention and sales growth of high technology consumer products of the high technology consumer products retailers and distributors in Mexico. This paper discusses the triadic relationship of customer- retailer-distributor in the high technology consumer products market segment in reference to the SERVQUAL factors which establish services quality encompassing tangibility, responsiveness, trust, accuracy and empathy. Results of the study reveal that the customers perceive better quality of the relationship in a given frame of functions that are performed effectively by the distributor lowering the extent of conflicts thereof. The discussions in the paper argue that high conformance of quality services delivered by the distributors and value added customer relationship is instrumental for retailers in acquiring new customers and retaining existing customer by augmenting the customer life time value.
    Keywords: High technology products sales, customer services, SERVQUAL, customer-distributor relationship, customer value, distributor performance
    JEL: L14 L68 L81 M31
    Date: 2008–09
  20. By: Robert Seamans (Haas School of Business, UC Berkeley); ;
    Abstract: This paper links empirical literature on the use of price as an entry deterring mechanism with literature on the effect of multi-market contact on competition. The analysis uses a dataset of cable TV system prices to provide evidence that incumbent cable TV firms use price to deter entry by telecom overbuilders as well as cities with municipal utilities. There is also some evidence that multi-market contact with telecom overbuilders results in lower prices. However, there is no evidence that incumbents use price to deter cable overbuilders. In addition to linking entry deterrence with multi-market contact, this study has two other unique features. First, it establishes entry deterrence using two techniques, one of which relies on theory by Ellison and Ellison (2008) on non-monotonic price decreases in response to entry probability. Second, it uses detailed price and channel data at the service tier level.
    Keywords: price, entry, public enterprises, multi-market contact
    JEL: L11 L13 L32 L82
    Date: 2008–10

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