Demand and Consumers →
- 14 Sep 2007
- Research & Ideas
How to Profit from Scarcity
This past summer's launches of the iPhone and final Harry Potter book were textbook examples of companies profiting in part by creating the illusion of scarcity. Professor John Quelch explains the advantages of this strategy when executed well, and tells how to recover from a real product shortage. Key concepts include: Marketers understand that using the illusion of scarcity can accelerate demand by encouraging us to buy sooner and perhaps to buy more than normal. Using false scarcity as a strategy also carries risk: it invites heightened scrutiny and frustrates buyers. Even if you experience a real product shortfall, take steps to mitigate potential disaster. Closed for comment; 0 Comments.
- 16 Jul 2007
- Research & Ideas
Understanding the ‘Want’ vs. ’Should’ Decision
Pizza or salad? Consumers use different approaches to buying things they want (pizza) versus items they should buy (salad). In their research on online grocery-buying habits and DVD rentals, Harvard Business School's Katy Milkman and Todd Rogers, along with Professor Max Bazerman, provide insights on the want-should conflict and the implications for managers in areas such as demand forecasting, consumer spending habits, and effective store layout. Key concepts include: People often behave as if they possess multiple selves with different, competing interests—the "want-self" versus the "should-self." The want-self demands instant gratification while the should-self looks to longer-term interest. Online grocery shoppers order healthier groceries when ordering for delivery in the distant future (i.e., 5 days from now) than when ordering for delivery tomorrow. Grocery stores that locate the produce section ("should" buy) near the entrance have this figured out. Online and catalogue retailers should anticipate that the further in advance of delivery an order is placed, the less a customer is likely to spend. Closed for comment; 0 Comments.
- 31 May 2007
- Working Paper Summaries
Extremeness Seeking: When and Why Consumers Prefer the Extremes
When can variety be helpful and when can it be harmful? Conventional wisdom suggests that a product provider enhances the overall attractiveness of a set of options by adding more alternatives to the mix. By contrast, Gourville and Soman’s research indicates that in certain, predictable cases, adding more alternatives to an assortment leads consumers to choose either the most basic or the most "fully loaded" product or service, be it a camera, car, cable TV service, laptop, or vacation package in Italy. Key concepts include: As the variety of choices available to consumers grows in size and those choices vary in their distinct features, consumers often prefer the options at either extreme—either the basic model or the fully loaded model. While getting some consumers to trade up to the "fully loaded" model may seem desirable for a seller, it is not clear that the overall effect of such polarization will be positive. Rather than encourage consumers to choose a basic or fully loaded product, product providers may wish to turn an uncertain customer into a certain customer by offering an alternative that best meets the customer's needs. Understanding how additional choices have an impact on demand for specific models in a product portfolio is essential for efficient inventory and product line management. Closed for comment; 0 Comments.
- 15 May 2007
- Working Paper Summaries
I’ll Have the Ice Cream Soon and the Vegetables Later: Decreasing Impatience over Time in Online Grocery Orders
How do people’s preferences differ when they make choices for the near term versus the more distant future? Providing evidence from a field study of an online grocer, this research shows that people act as if they will be increasingly virtuous the further into the future they project. Researchers examined how the length of delay between when an online grocery order is completed and when it is delivered affects what consumers order. They find that consumers purchase more "should" (healthy) groceries such as vegetables and less "want" (unhealthy) groceries such as ice cream the greater the delay between order completion and order delivery. The results have implications for public policy, supply chain managers, and models of time discounting. Key concepts include: Consumers spend less and order a higher percentage of "should" items and a lower percentage of "want" items the further in advance of delivery they place a grocery order. Encouraging people to order their groceries up to 5 days in advance of consumption could influence the healthfulness of the foods that people consume. Similarly, asking students in schools to select their lunches up to a week in advance could considerably increase the healthfulness of the foods they elect to eat. Online and catalog retailers that offer a range of goods as well as different delivery options might be able to improve their demand forecasting by understanding these findings. Closed for comment; 0 Comments.
- 18 Apr 2007
- HBS Case
How Magazine Luiza Courts the Poor
Brazilian retailer Magazine Luiza has developed an innovative strategy for selling to the poor, combining technology with great service that please both customers and employees. The question of how the company can grow without sacrificing the special qualities that have made it successful is at the heart of a case study developed by Harvard Business School professor Frances X. Frei. Key concepts include: The case "Magazine Luiza: Building a Retail Model of 'Courting the Poor'" looks at the Brazilian retailer's innovative approach to selling to the poor. Magazine Luiza sells a mix of furniture, consumer electronics, and white goods. The retailer's flexible procedure for credit approval employs nontraditional metrics, which enables customers with lower, less easily established incomes to make purchases. Students who discuss the case in the HBS classroom must assess the viability of Magazine Luiza's acquisition of another Brazilian retailer and consider future growth initiatives. Can the company retain the qualities that have made it special to both customers and employees? Closed for comment; 0 Comments.
- 07 Mar 2007
- Research & Ideas
How Do You Value a “Free” Customer?
Sometimes a valuable customer may be the person who never buys a thing. In a new research paper, Professor Sunil Gupta discusses how to assess the profitability of a customer in a networked setting—a "free" customer who nevertheless influences your bottom line. Key concepts include: In multi-sided markets, some customers contribute to a company's bottom line directly while others contribute indirect benefits, which are more difficult to calculate. Businesses must be able to assess the value of these "free" customers in order to efficiently allocate marketing and other expenses to grow the business, and to develop a more accurate estimate of firm value. Using a model for valuing networked customers, Gupta found that in an auction scenario, buyers and sellers had almost equal value even though sellers outnumbered buyers 4.6-to-1. Closed for comment; 0 Comments.
- 12 Feb 2007
- Working Paper Summaries
Adding Bricks to Clicks: The Effects of Store Openings on Sales through Direct Channels
Consider a retailer who operates both brick-and-mortar stores and direct channels such as direct mail catalogs and an Internet Web site. What effect does the opening of a new retail store have on direct channel sales in the retail trading area surrounding the store? Does the existence of more opportunities for consumer contact with the brand increase the retailer's direct sales, or does intra-brand, inter-channel competition erode the retailer's direct sales? Does consumer response to the retailer's brand evolve over time, perhaps as consumers go through some process of trial-and-error learning about the relative merits of stores and direct channels, or is the impact of the new store relatively discrete? Does the answer depend on whether consumers in the retail trading area have had the opportunity for previous experience with the brand's stores? This research used a proprietary longitudinal dataset from a multichannel retailer to understand what happens and to probe the implications for channel management strategy. Key concepts include: Adding a physical retail store to existing direct sales channels increases firm sales in the long run, as sales from the new store are incremental to sales from direct channels, which show little long term damage from channel competition. Adding channels produces both cannibalizing and complementary effects which operate in tandem and vary over time. Cannibalization occurs in the short term following the addition of a new channel, while complementarity takes time to manifest itself. Retail store openings cannibalize direct channel sales in the short term if physical stores do not already exist in the retail trading area, but produce complementary effects which overcome the losses from cannibalization in the long run. Our results suggest the underlying consumer shopping behavior driving this result. The opening of a retail store may induce some existing direct channel customers to switch their purchases to the retail store; simultaneously, new customers are attracted to the direct channels, perhaps due to a branding effect stemming from the publicity surrounding the new store which makes customers more aware of and more comfortable with the firm's direct channel operations. Use caution extrapolating these results to other retailers. This study involved only store openings by a single retailer with a well established and respected brand into markets where the retailer did not previously have stores. Direct retailers with less established brands may benefit even more than this retailer from branding effects by opening a new store. Closed for comment; 0 Comments.
- 08 Jan 2007
- What Do You Think?
Neuro Economics: Science or Science Fiction?
The growing use of MRI (magnetic resonance imaging) devices for studying decision making means that in 2007 we may hear a number of striking conclusions based on studies involving a small number of brain scans, says Jim Heskett. What are the more general implications of this trend? Will it have strong explanatory as well as manipulative potential for us as consumers, managers, and citizens? Closed for comment; 0 Comments.
- 11 Dec 2006
- Research & Ideas
Fixing Price Tag Confusion
"Partitioned" price tags that include a main price plus additional charges (Lamp: $70, Bulb, $5, Shipping: $15) may be confusing your customers. When is an all-inclusive price the best bet? Open for comment; 0 Comments.
- 23 Oct 2006
- Research & Ideas
Will the “Long Tail” Work for Hollywood?
The "long-tail phenomenon" is well documented: Amazon.com makes significant profits selling many low-volume books. But can the long tail work for video sales as well? A new working paper by professors Anita Elberse and Felix Oberholzer-Gee suggests that it may not bring the same benefits to Hollywood. Key concepts include: For video sales, the long-tail phenomenon is not as pronounced at it is for books. There is evidence of a shift in sales to the tail for video, but an increasing number of titles do not sell at all. Hollywood strategists have no easy answers for pumping up revenue, given a decline in the number of blockbuster hits. This new research suggests that the long-tail phenomenon might not be a panacea for video sales. The music industry may be more of a long-tail beneficiary than the movie industry. Closed for comment; 0 Comments.
- 04 Aug 2006
- What Do You Think?
What Happens When the Economics of Scarcity Meets the Economics of Abundance?
The "Long Tail," a term coined by Chris Anderson—and the title of his new book—describes the item popularity curve. Does the Long Tail represent a paradigm shift for business and consumer behavior? What are its implications for management going forward? Key concepts include: Chris Anderson first coined the term "the Long Tail" in Wired magazine. In a long-tail world, everything digital is available at all times. Anderson describes three conditions critical to potential long-tail profits, all of which are provided by the Internet combined with creative new software and hardware. Closed for comment; 0 Comments.
- 05 Jul 2006
- Working Paper Summaries
The Presentation of Self in the Information Age
In the past, we knew a lot about the seller of a product (through ads, marketing, or reputation) but little about the individual buyer. Times have changed. From the Internet to store loyalty cards, technology has made the marketplace into an interactive exchange where the buyer is no longer anonymous. The future market will likely be one in which personal information is shared and leveraged. Consumers who are willing to share their information will be more attractive to sellers and more sought-after than those who have bad reputations or refuse to participate. Key concepts include: Consumers will play an increasingly leveraged role in the marketplace by "branding" themselves and sharing personal information with sellers. Technology is making the idea of consumer branding a reality, but it is unclear how personal information will be used in the marketplace, or which uses will be the most beneficial to both buyers and sellers. Look deeper into loyalty programs for the societal and commercial, and positive and negative effects of sharing personal information in the marketplace. Closed for comment; 0 Comments.
- 05 Jul 2006
- Working Paper Summaries
The Framing Effect of Price Format
How do consumers evaluate different pricing scenarios? This study looks at different pricing models to see which is more likely to result in positive customer perception. Specifically, the authors look at all-inclusive pricing (e.g., the price of a chair is $85.95 including shipping) versus partitioned pricing (e.g., the price of a chair is $81 and shipping is $4.95). When consumers are presented with a partitioned price, they place an exaggerated weight on their evaluation of each individual component. Key concepts include: Price format can be an effective way to shift attention from one type of component (e.g., the actual price of a chair) to another (e.g., a great deal on shipping). If a component might be seen as a negative (e.g., costly shipping), all-inclusive pricing could be best. Consumers may form an opinion about a firm based on the firm's price format. When there is one focal attribute, post an all-inclusive price. When products are commodities, consider partitioning prices. Closed for comment; 0 Comments.
- 05 Jul 2006
- Working Paper Summaries
The IPS Property
This paper is about discrete-choice and econometric models. The "invariant proportion of substitution," or IPS, property comes into play when, for example, a consumer faces a choice among three laptop computers with slightly different attributes. How will improvements to one laptop's attributes affect how the consumer chooses to substitute one alternative for another? Steenburgh looked at probabilities based on assumptions about consumers' utility-maximizing behavior. Key concepts include: The IPS property can be interpreted as an implicit assumption that is made to attain parsimony at the expense of flexibility. Idiosyncratic variation in the consumer's taste parameters can eliminate the IPS restriction. Closed for comment; 0 Comments.
- 05 Jul 2006
- Working Paper Summaries
A Survey-Based Procedure for Measuring Uncertainty or Heterogeneous Preferences in Markets
People who buy retail prescription drugs, invest funds, or participate in auctions rarely have complete information about the product they are buying. Often the only auction information participants have is the number of bidders, observed bids, and product characteristics. If data from an auction, for instance, is a function of bidder behavior, then external survey data may help in testing hypotheses about bidding behavior. Researchers often avoid using surveys because they consume time and effort, but Yin presents a survey design technique and econometric tool to deal with a general population of survey respondents. Her application tested eBay online auctions selling personal computers. Key concepts include: Survey data may be a good complement for market data, especially for auctions, as a measure of uncertainty or different preferences. Survey data may be more valuable than other methods of evaluation because it exploits the human ability to assess complex sets of information. A survey may be implemented more quickly with a larger number of respondents, even if they are inexperienced, than with a smaller number of experienced respondents, by correcting for survey bias. Closed for comment; 0 Comments.
- 05 Jul 2006
- Working Paper Summaries
Information Dispersion and Auction Prices
How can auctions be used most effectively? Government and industry traditionally use auctions to price and allocate assets and contracts with high but unknown value. Millions of people use Internet auctions for goods that are often of unknown value (e.g., used goods, unknown brands). This paper asks: Do bidders behave in the way auction theory predicts they should? And, what are the effects of different types of information on prices? To answer these questions, Yin combined theory, econometric modeling, and survey data. Key concepts include: Reputation lends credibility to the information about the product; both are important when analyzing auction prices. Information in auctions is dispersed among many participants. In analysis, this dispersion is a more important source of uncertainty than any information asymmetry between buyer and seller. Closed for comment; 0 Comments.
- 05 Jul 2006
- Working Paper Summaries
Empirical Tests of Information Aggregation
While neither buyers nor sellers may be certain of the worth of used goods, both may possess private information about the value. Do prices become more informative as the number of bidders grows? Using data from a sample of eBay auctions for computers, Yin looked at how and under what conditions auction prices converge to the common value of a given item. Key concepts include: Ebay prices do become more meaningful as the number of bidders increases; however, there is insufficient evidence to conclude that they aggregate information as fully as they could, given the number of bidders. Even partial information aggregation by eBay auction prices suggests a potential efficiency gain over one-to-one trade of used goods with uncertain common values Closed for comment; 0 Comments.
- 16 Jan 2006
- Research & Ideas
What Customers Want from Your Products
Marketers should think less about market segments and more about the jobs customers want to do. A Harvard Business Review excerpt by HBS professor Clayton M. Christensen, Intuit’s Scott Cook, and Advertising Research Foundation’s Taddy Hall. Closed for comment; 0 Comments.
- 07 Nov 2005
- What Do You Think?
Is Less Becoming More?
Americans these days have a lot more choices in products and services. But do consumers and suppliers suffer from choice overload? If so, what does this abundance mean for companies? Closed for comment; 0 Comments.
How to be a Customer
Sure, most marketing efforts aim to influence consumer behavior. But consumers can also market themselves to influence vendors, says Professor John Quelch. Want to get a little extra whipped cream from your neighborhood barista? Here are tips to become a valuable customer. Key concepts include: Customers should market themselves to sellers to obtain an advantage over their competition—other customers. Vendors appreciate customers who are demanding, respectful, reliable, surprising, and engaging. Closed for comment; 0 Comments.