Consumer Behavior →
- 24 Oct 2012
- Research & Ideas
Want People to Save More? Send a Text
What's the most effective way to encourage people to save their money? The answer lies in a combination of peer pressure and text messages, according to new research by Assistant Professor Dina D. Pomeranz. Open for comment; 0 Comments.
- 01 Oct 2012
- Research & Ideas
Better by the Bundle?
Video game companies do it, fast-food restaurants, too. Why don't more companies bundle products and services together in one package at a bargain price? Research by Assistant Professor Vineet Kumar. Closed for comment; 0 Comments.
- 12 Sep 2012
- Research & Ideas
The Unexpected Link Between Cadavers and Careers
Illustrating the strange socializing power of our occupational pursuits, a new study by professor Michel Anteby and colleagues finds a strong association between jobs and corpse donations. Open for comment; 0 Comments.
- 19 Jul 2012
- Working Paper Summaries
Charitable Giving When Altruism and Similarity are Linked
This paper presents a model to help explain several aspects of charitable giving. First, individuals do not appear to reduce their contributions to a charity significantly when they learn that the government or other individuals have increased the funds that they devote to the charity's beneficiaries. Indeed, sometimes people increase their contributions when they hear that others have contributed more. Second, there are often several distinct charities that contribute to the same beneficiaries, and these charities frequently differ by the donor population to whom they target their appeal. Lastly, the extent to which individuals contribute to charity differs greatly, even among countries that appear otherwise quite similar. Rotemberg's model shows that two assumptions grounded in evidence from psychology are helpful in explaining these regularities. Specifically, the combination of (1) letting altruism be larger towards like-minded people and (2) having self-esteem depend on the number of people that agree with oneself is consistent with small reductions in one's own giving in response to larger giving by others. Key concepts include: Two human tendencies can help explain patterns of charitable giving. The first tendency is that people are happier when they learn that there is more agreement with their point of view. The second tendency is that people have warmer feelings towards, and are more willing to help, individuals whom they perceive as sharing their beliefs or, more generally, individuals who are more similar to themselves. There are parallels between voting and charitable giving. Both charitable contributions and voting involve the expression of beliefs about how resources ought to be distributed to others. However, democratic voting systems give one vote to each person regardless of income. Charitable contributions, on the other hand, do vary by income. Particularly in the case of large contributions, many contributions are visible to others. This paper's emphasis, by contrast, is on contributions whose total is visible to others but whose constituent individual contributions are not. Examples of anonymous contributions include those made via SMS messages. Closed for comment; 0 Comments.
- 02 Apr 2012
- Research & Ideas
Do Online Dating Platforms Help Those Who Need Them Most?
The $2 billion online dating industry promises the possibility of a priceless product: romantic love. Associate Professor Mikolaj Piskorski investigates whether these sites are helping the lonely—or just making life easier for young singles who are popular already. Key concepts include: Researchers studied a random sample of 500,000 OKCupid members, focusing on two important stages of forming a relationship: spotting a potential mate, and initiating contact. Older, shorter, and relatively overweight men tended to view more profiles than their younger, taller, slimmer counterparts. However, those who were most likely to view lots of profiles were least likely to initiate contact with an e-mail message. Some of the features on OKCupid helped users to overcome the normative restrictions of the offline world, while others only served to help those who really needed the least help. Closed for comment; 0 Comments.
- 26 Mar 2012
- Research & Ideas
What Neuroscience Tells Us About Consumer Desire
It's easy for businesses to keep track of what we buy, but harder to figure out why. Enter a nascent field called neuromarketing, which uses the tools of neuroscience to determine why we prefer some products over others. Uma R. Karmarkar explains how raw brain data is helping researchers unlock the mysteries of consumer choice. Closed for comment; 0 Comments.
- 09 Feb 2012
- Sharpening Your Skills
Sharpening Your Skills: Online Marketing
In this collection from our archives, Harvard Business School faculty discuss the latest research on online marketing techniques, including consumer reviews, video ads, loyalty programs, and coupon offerings. Open for comment; 0 Comments.
- 17 Jan 2012
- Working Paper Summaries
Expectations, Network Effects and Platform Pricing
In markets with network effects, the value that users gain from platforms depends on the number of other users of the same type who join the same platform (direct network effects) or the number of users of a different type that join (cross-group network effects). Examples include social networks like Facebook or Google+, payment systems like PayPal or Visa, videogame systems like PlayStation 3 and Xbox 360, smartphone platforms like Apple's iPhone or Google's Android, etc. Users typically rely on the media, market reports, or word of mouth to form expectations about the total number of other users that join a given platform. However, most of the time these users are unable to calculate the effect of platforms' prices on adoption by other users. In other words, they do not take price into account when forming expectations. To analyze platform profits, Andrei Hagiu and Hanna Hałaburda model different degrees of user sophistication in forming price expectations in markets with network effects. They show that firms have different preferences regarding the average sophistication of their user base depending on market structure. Key concepts include: Firms with market power always prefer to face more sophisticated users, while firms competing for share in a market of fixed size always prefer to face more unsophisticated users. Firms' preferences create different incentives to educate users about the effects of prices under different market structures. Specifying how expectations are formed is key to accurately estimating the strength of network effects and the impact of prices on demand. Closed for comment; 0 Comments.
- 24 Oct 2011
- Research & Ideas
The Yelp Factor: Are Consumer Reviews Good for Business?
Michael Luca shows just how much restaurant reviews on Yelp affect companies' bottom lines. The more difficult question: Are these ratings reliable as a measure of product quality? Closed for comment; 0 Comments.
- 12 Oct 2011
- Research & Ideas
Creating Online Ads We Want to Watch
The mere fact that an online video advertisement reaches a viewer's computer screen does not guarantee that the ad actually reaches the viewer. New experimental research by Thales S. Teixeira looks at how advertisers can effectively capture and keep viewers' attention by evoking certain emotional responses. Closed for comment; 0 Comments.
- 04 Oct 2011
- Working Paper Summaries
Reviews, Reputation, and Revenue: The Case of Yelp.com
In just six years, Yelp.com has managed to crowdsource 20 million reviews of restaurants and other services by creating and leveraging an impressive social network of people who enjoy writing reviews. But can a bunch of amateur opinionators working for free really transform the restaurant industry, where heavily marketed chains and highly regarded professional critics have long had a stronghold? To answer this question, HBS professor Michael Luca combined Yelp reviews with revenues for every restaurant that operated in Seattle, WA at any point between 2003 and 2009. Applying a new method to tease out the causal effect of reviews (separate from the effect of underlying quality), the study shows that a one-star increase on Yelp leads to a 5 to 9 percent increase in revenue. Yet Yelp doesn't work for all restaurants. Chain restaurants —which already spend heavily on branding —are unaffected by changes in their Yelp ratings. This suggests that consumer reviews present a new way of learning in the Internet age, and are fast becoming a substitute for traditional forms of reputation. Key concepts include: Online consumer review websites provide more information to consumers than was previously thought to be cost-effective. By relying on user-generated content, Yelp is able to review more products than traditional media such as newspaper reviews. More than 70 percent of Seattle restaurants are on Yelp. The impact of consumer reviews depends on the existing reputation of a company or product. Consumer reviews are effective overall, but ineffective when a product has a firmly established reputation (such as a chain restaurant). Consumer reviews provide a substitute for more traditional forms of marketing. Other forms of reputation such as chain affiliation may become less influential as websites like Yelp continue to gain traction. Evidence suggests that this pattern is already emerging. Consumers rely on simple metrics such as the average rating and the number of reviews, and are more trusting of reviews that are written by "elite" reviewers (as identified by Yelp). Closed for comment; 0 Comments.
- 27 Sep 2011
- Working Paper Summaries
Salience in Quality Disclosure: Evidence from the U.S. News College Rankings
Why are the U.S. News and World Report College Rankings so influential? According to this paper by Michael Luca and Jonathan Smith, it's at least in part because U.S. News makes the information so simple. While earlier college guides had already provided useful information about schools, U.S. News did the work of aggregating the information into an easy-to-use ranking, making it more salient for prospective students. The authors show that these rankings matter in a big way: a one-rank improvement leads to a 0.9 percent increase in applicants. However, students tend to ignore the underlying details even though these details carry more information than the overall rank. Key concepts include: College applicants pay attention to a school's overall rank, rather than the more informative (but more complicated) underlying information. When U.S. News and World Report chooses how much weight to apply to different categories (such as faculty/student ratio and alumni giving rate), they are exerting a large amount of influence over students' application decisions. U.S. News presents many of these details, but it's the bottom line (i.e., the weights chosen by U.S. News) that matters. When deciding how to present information, managers should keep in mind that simple metrics are most effective. Providing detailed information to consumers may seem useful, but aggregate statistics (such as a ranking or grade) tend to have a larger impact on decision making. Closed for comment; 0 Comments.
- 16 Jun 2011
- Working Paper Summaries
Search Diversion, Rent Extraction and Competition
Retailers, search engines, shopping malls and other intermediaries often deliberately design their physical layouts or e-commerce sites in order to divert customers' attention away from the products they were initially looking for, with hopes that they'll buy a bunch of other products, too. This paper explores various incentives for so-called "search diversion" in a couple of scenarios—when stores internalize their affiliation decisions with intermediaries, and when competition is introduced among intermediaries. Research was conducted by Andrei Hagiu of Harvard Business School and Bruno Jullien of the Toulouse School of Economics. Key concepts include: If an intermediary cannot price-discriminate among several stores, it can use search diversion to reduce the variance of store profits—thus improving its rent extraction power. When stores affiliate with multiple intermediaries but consumers affiliate with only one, the incentives to divert search are reduced. But when consumers affiliate with multiple intermediaries and stores affiliate with only one, intermediary competition may exacerbate search diversion incentives. The broad implication of this paper is that competition may lead to intermediation design decisions that go against customer preferences in favor of decisions that favor third-party sellers or advertisers. Closed for comment; 0 Comments.
- 19 May 2011
- Research & Ideas
Empathy: The Brand Equity of Retail
Retailers can offer great product selection and value, but those who lack empathy for their customers are at risk of losing them, says professor Ananth Raman. Closed for comment; 0 Comments.
- 16 May 2011
- Research & Ideas
What Loyalty? High-End Customers are First to Flee
Companies offering top-drawer customer service might have a nasty surprise awaiting them when a new competitor comes to town. Their best customers might be the first to defect. Research by Harvard Business School's Ryan W. Buell, Dennis Campbell, and Frances X. Frei. Key concepts include: Companies that offer high levels of customer service can't expect too much loyalty if a new competitor offers even better service. High-end businesses must avoid complacency and continue to proactively increase relative service levels when they're faced with even the potential threat of increased service competition. Even though high-end customers can be fickle, a company that sustains a superior service position in its local market can attract and retain customers who are more valuable over time. Firms rated lower in service quality are more or less immune from the high-end challenger. Closed for comment; 0 Comments.
- 28 Apr 2011
- Working Paper Summaries
When Smaller Menus are Better: Variability in Menu-Setting Ability and 401(k) Plans
Economists love menus, which can be used to help understand people's choices. For example, do we prefer more choices (larger menu) or fewer (shorter menu)? But the menu itself has to be pre-selected. Research by David Goldreich (Rotman School of Management, University of Toronto) and Hanna Halaburda (Harvard Business School) focuses on the menu setter's decisions about what to include, and how large a menu to construct in the context of 401(k) plan choices. Key concepts include: When the cost of increasing the size of a menu is sufficiently small, a low-ability, or less skilled, menu setter will offer more items in the menu than a high-ability menu setter, who will be more discriminate in deciding which menu items to include. Combining the two results leads to a negative relation between menu size and menu quality: Larger menus are worse. This counterintuitive finding follows from the fact that the smaller menu set by the high-ability menu setter is not a subset of the larger menu set by the low-ability menu setter. One must be aware of the role played by menu setters in designing the menu offered to individuals. An unskilled menu setter may offer many choices, but the quality of those choices may be inferior. Closed for comment; 0 Comments.
- 13 Apr 2011
- Working Paper Summaries
The ‘IKEA Effect’: When Labor Leads to Love
Companies increasingly involve customers in the design and assembly of products, from Converse allowing customers to design their own shoes to IKEA asking customers to assemble their own furniture. In this paper researchers Michael I. Norton (Harvard Business School), Daniel Mochon (University of California at San Diego), and Dan Ariely (Duke) use the "IKEA Effect" to explain the increase in valuation we place on products we build ourselves. The researchers discuss the implications of the IKEA Effect for marketing managers and organizations more generally. Key concepts include: Successful assembly of products—no matter how amateurish—leads consumers to value them over and above the value that arises from merely purchasing a product. Labor increases valuation of completed products not just for consumers who profess an interest in "do-it-yourself" projects, but even for those who express a preference for buying preassembled products. Successful completion is an essential component for the link between labor and liking to emerge; participants who were not permitted to finish their creations did not show an increase in willingness-to-pay. The marketing challenge lies in convincing consumers to engage in the kinds of labor that will lead them to value products more highly, especially given their general aversion to such pursuits. The overvaluation that occurs as a result of the IKEA Effect has implications for organizations as a contributor to two key organizational pitfalls: sunk cost effects and the "not invented here" syndrome. Closed for comment; 0 Comments.
- 06 Apr 2011
- Working Paper Summaries
Do Not Trash the Incentive! Monetary Incentives and Waste Sorting
Many cities encourage residents to sort their domestic trash into separate bins, for the sake of recycling some of it and thus reducing the amount of garbage that ends up in landfills. The problem is that sorting waste is not a fun activity, and not everyone is willing to do it. Using data from 95 municipalities in Italy, this paper discusses whether and how monetary incentives can encourage people to sort their trash. Research was conducted by Alessandro Bucciol of the University of Verona and the University of Amsterdam, Natalia Montinari of the University of Padua and the Max Planck Institute of Economics, and Marco Piovesan of Harvard Business School. Key concepts include: The paper discusses the pay-as-you-throw (PAYT) system, in which residents pay lower fees if they sort their trash than if they don't. The researchers found that the introduction of a PAYT system had a significant and positive net effect of 12.2 percent on the amount of trash that residents sort. This compares with a positive effect of 18.1 percent for the nonmonetary incentive of letting residents leave sorted bins outside their doors, rather than requiring them to carry their trash to drop-off bins on the street. Thus, the PAYT system is more of a complement than a substitute for the door-to-door collection system. However, the PAYT system does not affect the actual amount of waste each household creates. While the system induces residents to sort their trash, it does not induce them to produce less of it. Closed for comment; 0 Comments.
- 25 Mar 2011
- Working Paper Summaries
How Do Incumbents Fare in the Face of Increased Service Competition?
Companies that compete by offering a high level of service are particularly vulnerable to lose customers—even longtime customers—when competitive entrants offer increased service levels, according to new research in the retail banking industry by Ryan W. Buell, Dennis Campbell, and Frances X. Frei, all of Harvard Business School. The good news for providers of high-touch service is that if they can sustain the service advantage over time, they could be rewarded with higher value customers. Key concepts include: Incumbents offering high quality service attract and retain customers who are disproportionately service sensitive and systematically vulnerable to competitors offering superior service. It is the high quality incumbent's most valuable customers—those with the longest tenure, most products, and highest balances—who are the most vulnerable to superior service alternatives. Conversely, when the incumbent fails to maintain a high service position within the market, its customers are vulnerable to competitors offering inferior service but lower prices. Firms that make the strategic decision not to compete on service may not need to be concerned about the entry or expansion of competitors offering superior service. A long-run implication is that incumbents that can sustain a high level of service relative to local competitors will be able to attract and retain higher value customers over time. Closed for comment; 0 Comments.
Helping Yelp Create More Accurate Reviews
Over time, Yelp's reader rating system of restaurants can make or break an operation, but professor Michael Luca shows the program has flaws. Can a more accurate, fairer system be created? Closed for comment; 0 Comments.