Marketing Science current issue

The Retail Value Chain: Linking Employee Perceptions to Employee Performance, Customer Evaluations, and Store Performance

Maxham, J. G., Netemeyer, R. G., Lichtenstein, D. R. — 2008-04-23

The authors test a value chain model entailing a progression of influence from retail employee job perceptions -> retail employee job performances -> customer evaluations -> customer spending and comparable store sales growth. The authors test the model using three matched samples of 1,615 retail employees, 57,656 customers, and 306 stores of a single retail chain.

The authors find that three retail employee job perceptions (conscientiousness, perceived organizational justice, and organizational identification) have main and interactive effects on three dimensions of employee job performance (in-role performance, extra-role performance toward customers, and extra-role performance toward the organization). In turn, these performance dimensions exert influence on customer evaluations of the retailer (a satisfaction, purchase intent, loyalty, and word-of-mouth composite). The authors also show that employee perceptions exert a direct influence on customer evaluations, and that customer evaluations affect retail store performance (customer spending and comparable store sales growth).

Finally, the authors conduct some simple simulations that show: (1) how changes in employee perceptions may raise average employee performances; (2) how changes in employee performances enhance average customer evaluations; and (3) how changes in customer evaluations raise average customer spending and comparable store sales growth. The authors then show that employee job perceptions and performances "ripple thru the system" to affect customer spending and store sales growth. The authors offer implications for theory and practice.

Signaling Quality Through Specialization

Kalra, A., Li, S. — 2008-04-23

Firms frequently position themselves as specialists. An implication of specialization is that the firm has forgone alternative opportunities. In the context of effort-intensive categories, we show that a firm can signal quality to consumers by specializing. In the model, a firm must decide to provide one service offering or to market two services. By entering a single category, the firm incurs an opportunity cost of not entering the secondary profitable category, but may attain reduced costs. The net cost is the signaling cost that a high-quality type firm incurs to signal quality over a low-quality type firm. We show that in homogenous markets, a high-quality type firm signals its high-quality type by specializing in one category. When consumers are heterogeneous, the firm can signal its high-quality type by using prices alone in both the primary and secondary categories. However, specialization can be used as a secondary signal of quality in heterogeneous markets because of lower signaling costs. We also find that signaling using specialization is more likely in the presence of competition.

A Hidden Markov Model of Customer Relationship Dynamics

Netzer, O., Lattin, J. M., Srinivasan, V. — 2008-04-23

This research models the dynamics of customer relationships using typical transaction data. Our proposed model permits not only capturing the dynamics of customer relationships, but also incorporating the effect of the sequence of customer-firm encounters on the dynamics of customer relationships and the subsequent buying behavior. Our approach to modeling relationship dynamics is structurally different from existing approaches. Specifically, we construct and estimate a nonhomogeneous hidden Markov model to model the transitions among latent relationship states and effects on buying behavior. In the proposed model, the transitions between the states are a function of time-varying covariates such as customer-firm encounters that could have an enduring impact by shifting the customer to a different (unobservable) relationship state. The proposed model enables marketers to dynamically segment their customer base and to examine methods by which the firm can alter long-term buying behavior. We use a hierarchical Bayes approach to capture the unobserved heterogeneity across customers. We calibrate the model in the context of alumni relations using a longitudinal gift-giving data set. Using the proposed model, we probabilistically classify the alumni base into three relationship states and estimate the effect of alumni-university interactions, such as reunions, on the movement of alumni between these states. Additionally, we demonstrate improved prediction ability on a hold-out sample.

Can Inaccurate Perceptions in Business-to-Business (B2B) Relationships Be Beneficial?

Vosgerau, J., Anderson, E., Ross, W. T. — 2008-04-23

The authors dedicate this paper in honor of the memory of their deceased co-author, Erin Anderson.

In dyadic business relationships, parties can be incorrect in reading their counterparts' relational closeness. For example, they can overestimate or underestimate the counterpart's commitment to their relationship. In the business-to-business (B2B) literature, the consequences of such inaccurate perceptions have not been empirically investigated. We advance and test the proposition that the impact of misreading the other party's relational closeness depends on the direction of the error. We propose that overestimating the counterpart's relational closeness (CRC) is beneficial, while underestimating the counterpart's relational closeness is detrimental for the relationship's functioning. Using original dyadic data in the service sector, we show that most companies underestimate their CRC, in which case becoming perceptually more accurate would improve their relationships. But the opposite holds for parties that overestimate their CRC, in which case becoming perceptually more accurate would actually make the relationship deteriorate. Furthermore, we show that even in long-standing relationships, companies do not know how accurate their perceptions are, even when they believe that they correctly perceive their CRC. We discuss managerial implications of our findings and encourage future research to determine why most decision makers underestimate their CRC, which can lead to impaired functioning of B2B relationships.

Research Note--A Cross-Category Model of Households' Incidence and Quantity Decisions

Niraj, R., Padmanabhan, V., Seetharaman, P. B. — 2008-04-23

This paper advances the literature on multicategory demand models by simultaneously handling more than one purchase decision of the household. We propose a two-stage bivariate logit model of incidence and quantity outcomes in multiple categories. Our results show that cross-category promotional spillovers are asymmetric between the two product categories of bacon and eggs. The total retail profit responds more to bacon price than to egg price. Promoting bacon is found to have a bigger impact on egg profit than the impact of egg promotion on bacon profit. We decompose (1) the total retail profits, as well as (2) the cross-category profit impact of a price promotion, into its two components, and find that (1) 23% (67%) of the total retail profit impact of a promotion on bacon (eggs) arises on account of quantity effects, and (2) 40% (33%) of the increase in egg (bacon) profit from promoting bacon (eggs) is on account of quantity effects.

Research Note--Attention Arousal Through Price Partitioning

Bertini, M., Wathieu, L. — 2008-04-23

Existing evidence suggests that preferences are affected by whether a price is presented as one all-inclusive expense or partitioned into a set of mandatory charges. To explain this phenomenon, we introduce a new mechanism whereby price partitioning affects a consumer's perception of the secondary (i.e., nonfocal) benefits derived from a transaction. Four experiments support the hypothesis that a partitioned price increases the amount of attention paid to secondary attributes tagged with distinct price components. Characteristics of the offered secondary attributes such as their perceived value, relative importance, and evaluability can therefore determine whether price partitioning stimulates or hinders demand. Beyond its descriptive and prescriptive implications, this theory contributes to the emerging notion that pricing can transform, as well as capture, the utility of an offer.

Research Note--Channel Structure with Knowledge Spillovers

Gupta, S. — 2008-04-23

We study two main questions in this paper: (1) How do spillovers of knowledge created by manufacturers' investments in process innovation affect channel structure and effort investment incentives? (2) What are the interactions between organizational incentives to form joint ventures and strategic alliances with competitors, and coordinate decisions vertically with downstream channel members? We focus on situations where spillovers are involuntary, firms' innovative activities are nonoverlapping, and firms benefit directly from the results of competitors' innovations. Under these conditions, we find that spillovers in process knowledge increase the likelihood of observing decentralized channel structures. Surprisingly, decentralized manufacturers invest more in process innovation than perfectly coordinated manufacturers do when spillovers are large. Moreover, in industries where large spillovers exist, horizontal cooperation among manufacturers induces higher levels of process innovation investments than channel coordination does. From a public policy perspective, however, the desirability of such cooperative arrangements among competitors depends on channel structure: joint ventures among decentralized manufacturers are more likely to meet the regulators' criteria of raising effort investments than cooperation among integrated manufacturers would be. Investment incentives are best provided when firms share their process knowledge and are buffered from subsequent price competition by independent retailers.

Research Note--Improving the Efficiency of Course Bidding at Business Schools: Field and Laboratory Studies

Krishna, A., Unver, M. U. — 2008-04-23

Registrars' offices at most universities face the daunting task of allocating course seats to students. Because demand exceeds supply for many courses, course allocation needs to be done equitably and efficiently. Many schools use bidding systems in which student bids are used both to infer preferences over courses and to determine student priorities for courses. However, this dual role of bids can result in course allocations not being market outcomes, and in unnecessary efficiency loss, which can potentially be avoided with the use of an appropriate market mechanism. We report the result of field and laboratory studies that compare a typical course-bidding mechanism with the alternate Gale-Shapley Pareto-dominant market mechanism. Results from the field study (conducted at the Ross School of Business, University of Michigan) suggest that using the latter could vastly improve efficiency of course allocation systems while facilitating market outcomes. Laboratory experiments with greater design control confirm the superior efficiency of the Gale-Shapley mechanism. The paper tests theory that has important practical implications because it has the potential to affect the learning experience of very large numbers of students enrolled in educational institutions.

Research Note--A Comparison of Within-Household Price Sensitivity Across Online and Offline Channels

Chu, J., Chintagunta, P., Cebollada, J. — 2008-04-23

We use a unique data set to estimate the price sensitivities of households in online and offline shopping channels when the same households shop across channels. We observe households that shop interchangeably at the online and the offline stores in the same grocery chain and investigate their purchase behavior in specific product categories. Although nearly 90% of households in our sample shop both at online and offline stores, we find that, across 12 vastly different product categories, these households exhibit lower price sensitivities when they shop online than when they shop offline. Our analysis accounts for observed and unobserved household heterogeneity as well as price endogeneity. The results hold for large basket-share categories and small basket-share categories, for consumer packaged goods and nonpackaged goods, for categories that are more likely to be purchased online because of their bulkiness or heaviness, and for categories that are more likely to be purchased offline because of their "sensory" nature. Households' price sensitivities are also closely related to demographics and inversely related to how far the households are located from the offline stores. Reasons for the lower price sensitivities in the online medium are discussed.

The Invariant Proportion of Substitution Property (IPS) of Discrete-Choice Models

Steenburgh, T. J. — 2008-04-23

This article introduces a newly discovered property of discrete-choice models, which I call the invariant proportion of substitution (IPS). Like the independence from irrelevant alternatives (IIA) property, IPS implies individual behavior that is counterintuitive in the context of choice among similar alternatives. But models that alleviate the concerns raised by IIA, such as generalized extreme value and covariance probit models, do not necessarily alleviate the concerns raised by IPS. I explore the implications of the IPS property on individual behavior in several choice contexts and discuss some models that alleviate the concerns raised by IPS.

Focus on Authors

2008-04-23

No abstract available.

2006-2007 Guest Area Editors and Ad Hoc Reviewers

2008-04-23

No abstract available.