nep-mkt New Economics Papers
on Marketing
Issue of 2011‒10‒22
six papers chosen by
Joao Carlos Correia Leitao
University of Beira Interior and Technical University of Lisbon

  1. Towards an integrative framework of brand country of origin recognition determinants : a cross-classified hierarchical model. By Cerviño, Julio
  2. Do consumers prefer offers that are easy to compare? An experimental investigation By Paolo Crosetto; Alexia Gaudeul
  3. Consumer Perceptions of Sustainable Farming Practices: A Best-Worst Scenario By Sackett, Hillary
  4. Optimal Product Variety in a Hotelling Model By Kieron Meagher
  5. The Effect of FDA Advisories on Branded Pharmaceutical Firms' Valuations and Promotion Efforts By Rena M. Conti; Haiden A. Huskamp; Ernst R. Berndt
  6. A logistic regression approach to estimating customer profit loss due to lapses in insurance By Montserrat Guillén; Ana María Pérez-Marín; Montserrat Guillén

  1. By: Cerviño, Julio
    Abstract: To propose a framework integrating the types and levels of the determinants of brand CO recognition and to provide evidence on Internet users’ brand CO recognition rates using a sample of multi-regional and global brands from a variety of product categories and countries. We integrate 'level-1' consumer and brand characteristics and 'level-2' product category and country effects in a single framework. Data obtained through an original on-line survey hosted by Yahoo provide the basis for the empirical analysis. Seven hypotheses are tested using a two-level cross-classified random-effect model (‘HCM2’) : (a) Education is positively related with brand CO recognition; (b) experience with brands is positively related with brand CO recognition; (c) integration between the consumer and the country of a foreign brand is positively related with brand CO recognition; (d) Internet users’ classification performance is significantly better for domestic than for foreign brands; (e) brand-name congruence with true brand origin is positively related with brand CO recognition; (f) brand equity explains brand CO recognition, and (g) product categories with higher consumer involvement enhance brand CO recognition. Brand CO recognition performance by Internet users is in line with classification performance rates reported in other studies dealing with well-know and global brands. The main limitation is the cross-sectional study design. The research implications suggest that scholars should consider level-2 product category and country characteristics in their models, and that the level of brand CO recognition must be understood as inherently associated to the kind of brands under study. Managers would benefit from considering product category and country aspects of their most valuable brands. Policy makers should encourage firms to promote a clear association between brands and countries (when these countries have a positive image) and discriminate between high and low involvement product categories. We contribute to the brand CO awareness literature by integrating consumer and brand characteristics in a theoretical model, and identifying level-2 product category features and CO effects previously disregarded in brand CO recognition frameworks. In addition, our study positively contrasts with previous research by providing empirical evidence on brand CO recognition from the largest set of global brands (109), countries of origin (19) and product categories (15) ever investigated.
    Keywords: Brand awareness; Country of origin; Brand CO recognition; Cross-classified hierarchical model; International marketing;
    Date: 2011
  2. By: Paolo Crosetto (Max Planck Institute for Economics, Jena); Alexia Gaudeul (Graduate School "Human Behavior in Social and Economic Change" (GSBC), Friedrich Schiller University, Jena)
    Abstract: Consumers make mistakes when facing complex purchasing decision problems but if at least some consumers choose only among offers that are easy to compare with others then firms will adopt common ways to present their offers and thus make choice easier (Gaudeul and Sugden, 2011). We design an original experiment to identify consumers' choice heuristics in the lab. Subjects are presented with menus of offers and do appear to favour offers that are easy to compare with others in the menu. While not all subjects do so, this is enough to deter firms from introducing spurious complexity in the way they present products.
    Keywords: Bounded Rationality, Cognitive Limitations, Common Standards, Consumer Choice, Experimental Economics, Heuristics, Libertarian Paternalism, Pricing Formats, Spurious Complexity
    JEL: D83 L13 D18
    Date: 2011–10–12
  3. By: Sackett, Hillary
    Abstract: The ability of a firm to differentiate their product hinges critically on an accurate understanding of the perceptions consumers hold regarding the implications of a credence labeling claim. Building upon existing work evaluating other food attribute labels (e.g., genetically-modified products, region of origin, use of growth hormones) and the impact of consumer inferences (e.g., implicit associations made from explicitly provided information), this work begins to address gaps in the literature regarding food products with sustainably produced claims. This paper uses data collected in the summer and fall of 2010 from a national, web-based survey of 1002 households, to initiate the process of examining consumer inferences and valuations of food products making sustainably produced claims. A Best-Worst scaling framework was implemented to identify what consumers believe sustainably produced labels mean and their preferences for each of the sustainable farming practices considered. The best-worst survey method forces respondents to make trade-offs by simultaneously choosing the most and least preferred attributes. The measured level of concern can then be applied to a standardized ratio scale. The results of this study suggest that consumers perceive farm size and local production as highly important elements of sustainable agriculture. Additionally, consumer preferences over economic attributes such as consumer food prices and financial stability of farmers exhibit high heterogeneity, indicating segmentation in the sample and potential for targeted marketing management.
    Keywords: Sustainably Produced Food, Best-Worst, Consumer Perceptions, Agricultural and Food Policy, Consumer/Household Economics, Food Consumption/Nutrition/Food Safety, Institutional and Behavioral Economics, Q01, Q13, Q11,
    Date: 2011
  4. By: Kieron Meagher
    Abstract: In Hotelling style duopoly location games the product variety (or firm locations) is typically not socially optimal. This occurs because the competitive outcome is driven by the density of consumers at the margin while the socially optimal outcome depends on the whole distribution of consumer locations/tastes. We consider a natural extension of the standard model in which firms are imperfectly informed about the distribution of consumers, in particular firms are uncertain about the consumer mean. In the uniform case, as the aggregate uncertainty about the mean becomes large relative to the dispersion of consumers about the mean, competitive locations become socially optimal. A limit result on prices for discontinuous, log-concave densities shows the result will hold in a range of cases.
    JEL: C72 D43 D81 L10 L13 R30 R39
    Date: 2011–10
  5. By: Rena M. Conti; Haiden A. Huskamp; Ernst R. Berndt
    Abstract: The US Food and Drug Administration (FDA) expends considerable efforts in regulating medications approved for use. Yet the impact of medication labeling changes on brand pharmaceutical products, and whether and what firms do to respond to increased information regarding the safety and efficacy of a drug, have not be characterized. We propose a behavioral framework for examining the effects of FDA advisories on branded pharmaceutical firms and their products. We empirically assess the impact of recent FDA advisories on the stock market valuations of a sample of branded pharmaceutical manufacturing firms using event study methods. We examine whether and how branded pharmaceutical manufacturers respond to an advisory by assessing changes in promotion compared to non-affected firms. We find firms targeted by an advisory have average stock price declines of 3% in three days and 11% in five days following the advisory release, and in turn appear to decrease total physician-directed promotion spending, journals ads and detailing visits significantly six months following the advisory release; the provision of free samples is unaffected. We find no changes among therapeutic substitutes unaffected by the advisory. Results of sensitivity analyses suggest firms with market dominant positions experience similar decreases in stock market valuations and physician-directed promotion compared to pooled results. The results are also robust to alternative definitions of the timing of advisory release dates and the severity of advisories’ wording. Theory and empirical results suggest the public release of FDA advisories negatively impacts firm’s short-term market valuations. The results suggest an additional rationale for previously documented declines in prescribing after FDA advisory releases – significant declines in physician-directed promotion following FDA advisory releases; the combined (and likely correlated) effects of the release of the advisory and declines in physician-directed promotion on prescribing behavior are likely larger than the sum of the independent effects.
    JEL: D43 I11 I18 K23 L1 L11
    Date: 2011–10
  6. By: Montserrat Guillén (Departament d'Econometria, Estadística i Economia Espanyola. RFA-IREA. University of Barcelona. Spain); Ana María Pérez-Marín (Departament d'Econometria, Estadística i Economia Espanyola. RFA-IREA. University of Barcelona. Spain); Montserrat Guillén (Departament d'Econometria, Estadística i Economia Espanyola. RFA-IREA. University of Barcelona. Spain)
    Abstract: This article focuses on business risk management in the insurance industry. A methodology for estimating the profit loss caused by each customer in the portfolio due to policy cancellation is proposed. Using data from a European insurance company, customer behaviour over time is analyzed in order to estimate the probability of policy cancelation and the resulting potential profit loss due to cancellation. Customers may have up to two different lines of business contracts: motor insurance and other diverse insurance (such as, home contents, life or accident insurance). Implications for understanding customer cancellation behaviour as the core of business risk management are outlined.
    Keywords: Policy cancellation, customer loyalty, profit loss, customer behavior.
    Date: 2011–10

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