All In the Marketing
Can firms do well while doing good?
Parvez Ahmed, Sudhir Nanda & Oliver Schnusenberg
Applied Financial Economics, June 2010, Pages 845-860
Abstract:
We investigate the relationship between a firm's degree of social responsibility and its performance. To accomplish this objective, we examine the stock market reaction to the announcement of Fortune magazine's list of 100 Best Companies to Work For over the 1998-2003 period. We find significant positive excess returns, which indicate that being included on the list is viewed positively by the stock market. To explain the positive abnormal performance, we regress the excess returns against firm-specific variables. Excess return has a positive relation to the job growth rate, but not to firm rank, on a pre-listing basis. However, the additional analysis reveals that the firms with a more favourable ranking are relatively small and have a higher job growth rate, low employee turnover, high betas and extremely positive stock market performance prior to their inclusion on the list. In the year following the publication, sample firms with a favourable ranking have higher sales and gross profit margin than their lower-ranked counterparts. Overall, the results indicate that firms exhibiting a high degree of social responsibility towards their employees are positively rewarded by stock market participants, and that the rankings are somewhat related to pre- and post-survey financial performance.
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Charitable Motives and Bidding in Charity Auctions
Peter Popkowski Leszczyc & Michael H. Rothkopf
Management Science, March 2010, Pages 399-413
Abstract:
Research on bidding in auctions has generally relied on the assumption of self-interested bidders. This work relaxes that assumption in the context of charity auctions. Because understanding charitable motives has important implications for auction design and charities' fundraising strategies, this study investigates bidders' specific types of charitable motives and the strength of these motives. We carry out three controlled field experiments consisting of real-life auctions conducted on a local Internet auction site. We use a novel design in which we simultaneously run charity and noncharity auctions for identical products and vary the percentage donated to charity. Results show that auctions with proceeds donated to charity lead to significantly higher selling prices, a result due to a higher bidding by bidders with charitable motives rather than to increased bidder entry. We also find that increased prices only occur when the charitable donation is a percentage of the auction revenue, and that a fixed charitable donation associated with each auction has no effect on prices. Furthermore, we find that prices are increasing in the percentage donated to charity. We find considerable support for a model of voluntary shill-like bidding, where charitable bidders try to increase proceeds in charity auctions. We also find that auctions with 25% of revenue donated to charity had higher net revenue than noncharity auctions. Hence, companies may be able to use charity auctions as part of a corporate social responsibility strategy and at the same time increase profitability even though they donate part of the proceeds to charity.
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Bart Bronnenberg, Jean-Pierre Dubé & Carl Mela
Journal of Marketing Research, forthcoming
Abstract:
The authors analyze a multimillion dollar, three-year field study sponsored by five firms to assess whether DVRs impact consumers' shopping behavior for advertised and private label goods. A large sample of households received an offer for a free DVR and service and close to 20% accepted. Each household's shopping history is observed for 48 consumer packaged goods categories during the 13 months prior and the 26 months following the DVR offer. The authors fail to reject the null of no DVR treatment effect on household spending on advertised branded or private label goods, either 1 or 2 years after the DVRs are shipped. The predicted DVR effect is tightly centered around 0, suggesting the data may have sufficient power to identify a true null effect. Using advertising exposure information for seven of the brands in the study, the authors offer suggestive evidence that ad-skipping occurs for a relatively small fraction of the total television content viewed. Other potential explanations for the lack of a DVR effect are also discussed.
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Music File Sharing and Sales Displacement in the iTunes Era
Joel Waldfogel
Information Economics and Policy, forthcoming
Abstract:
A growing empirical literature examines the relationship between music file sharing and legal purchases of music, but existing studies examine the period before consumers had attractive legal digital a la carte options. The iTunes Music Store has grown quickly since its appearance in 2003, and digital music now accounts for a third of US recorded music sales. Using two new surveys of University of Pennsylvania undergraduates in 2009 and 2010, we ask how music file sharing and sales displacement operate in the iTunes era, when the alternative to file sharing is purchasing individual songs, rather than entire albums. We find large amounts of file sharing in this population. Respondents have more stolen than paid music, but the music obtained via file sharing is, for the most part, low-valuation music which the respondents would likely not have purchased. The rate of sales displacement implied by the relationship between stolen and purchased music across respondents in both samples is between -0.15 and -0.3. That is, an additional song stolen reduces paid consumption by between a third and a sixth of song. Perhaps surprisingly, this is about the same as the CD sales displacement rate found for the pre-iTunes era using a similar empirical approach on a similar study population.
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Investor Inattention and the Market Reaction to Merger Announcements
Henock Louis & Amy Sun
Management Science, forthcoming
Abstract:
Prior studies suggest that investors have limited attention. Tests of the inattention hypothesis have been performed in the context of relatively small corporate events, particularly earnings announcements. Presumably, large corporate events would always attract sufficient investor attention. However, we find evidence indicating that inattention affects investors' information processing even in the context of one of the largest and most important corporate events - merger announcements. More specifically, consistent with the notion that investors are less attentive to Friday announcements, we find that the market reaction to Friday stock swap announcements is muted, as evidenced by lower acquirers' merger announcement abnormal trading volumes and less pronounced acquirers' merger announcement abnormal stock returns.
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To Pay or to Apologize? On the Psychology of Dealing with Unfair Offers in a Dictator Game
David De Cremer
Journal of Economic Psychology, forthcoming
Abstract:
Prior research has largely failed to focus on how transgressors can promote trust when having made unfair offers in bargaining. I investigated in the context of receiving an unfair offer in a dictator game when financial compensations and when apologies are most effective in motivating trust behaviour by the violated party. I hypothesized that when losses were allocated, the violated party would be motivated to show more trust behaviour towards the transgressor when a financial compensation (resulting again in equal final outcomes) relative to an apology was delivered, whereas when gains were allocated, apologies would be more effective in promoting trust behaviour than a financial compensation. Results from a laboratory study indeed supported this prediction as such demonstrating the importance of how allocation decisions are framed (i.e. loss or gain) in testing the effectiveness of trust repair strategies (financial compensations versus apologies).
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Jennifer Argo, Monica Popa & Malcolm Smith
Journal of Marketing, July 2010, Pages 97-109
Abstract:
Recent research has demonstrated that linguistic characteristics of brand names can cognitively affect product evaluations. In six experiments, the authors demonstrate that affect arising from sound repetition may also be influential. The results reveal across multiple brand names and product categories that exposure to a brand name that has sound repetition in its phonetic structure and is spoken aloud produces positive affect, which favorably affects consumers' brand evaluations, reactions to cross-selling, and product choice. The effects are moderated by consumers' sensitivity to repetition, consumers' opportunity to experience emotions, and the degree to which the brand name's phonetic sound repetition deviates from linguistic expectations. The authors discuss implications for managers and avenues for further research.
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David Yi
Managerial and Decision Economics, forthcoming
Abstract:
Using a translog stochastic production frontier and maximum likelihood estimation method, we estimate fundraising efficiency and examine the determinants of fundraising efficiency in public charitable organizations in the United States. Our study shows that organizational size has a positive impact on fundraising efficiency and government grants have a negative impact on fundraising efficiency. We also show that charities that allocate more resources on fundraising related labor, as compared with fundraising-related materials and equipments, are more efficient in fundraising. These findings provide important managerial implications for public charities.
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How do people value extended warranties? Evidence from two field surveys
Marieke Huysentruyt & Daniel Read
Journal of Risk and Uncertainty, June 2010, Pages 197-218
Abstract:
Extended warranties are popular but expensive. This paper examines how consumers value these warranties, and asks whether economic considerations alone can account for their popularity. Results from two field surveys show that consumers greatly overestimate both the likelihood and the cost of product breakdown. However, these biases alone do not explain their willingness to buy warranties. In fact, we find evidence of probability neglect, in which warranty purchase decision depends on the magnitude of the possible consequences of not having insurance and not on the probability of having to suffer these consequences. The expected emotional benefits from having a warranty was the best predictor of purchase decision and willingness to pay. We also found that people with higher cognitive skills are less likely to overestimate the economic determinants of warranty value, yet are still highly influenced by emotional considerations when deciding whether to purchase a warranty.
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Boycott or buycott? Understanding political consumerism
Lisa Neilson
Journal of Consumer Behaviour, May/June 2010, Pages 214-227
Abstract:
This research addresses the question of how boycotting (punishing business for unfavorable behavior) differs from buycotting (rewarding business for favorable behavior). This analysis of 21 535 adults from the 2002/2003 European Social Survey (ESS) compares the effects of social capital, altruism, and gender on different categories of political consumers. Logistic regression analyses reveal that boycotters do indeed differ from buycotters. Specifically, women and people who are more trusting, involved in more voluntary associations, or more altruistic are more likely to buycott than boycott. These differences support the inclusion of both boycott and buycott measures in future studies of political consumerism.
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Natasha Zhang Foutz & Wolfgang Jank
Marketing Science, May-June 2010, Pages 568-579
Abstract:
Prerelease demand forecasting is one of the most crucial yet difficult tasks facing marketers in the $60 billion motion picture industry. We propose functional shape analysis (FSA) of virtual stock markets (VSMs) to address this long-standing challenge. In VSMs, prices of a movie's stock reflect the dynamic demand expectations prior to the movie's release. Using FSA, we identify a small number of distinguishing shapes, e.g., the last-moment velocity spurt, that carry information about a movie's future demand and produce early and accurate prerelease forecasts. We find that although forecasting errors from the existing methods, e.g., those that rely on movie features, can be as high as 90.87%, our approach results in an error of only 4.73%. Because demand forecasting is especially useful for managerial decision making when provided long before a movie's release, we further demonstrate how our method can be used for early forecasting and compare its power against alternative approaches. We also discuss the theoretical implications of the discovered shapes that may help managers identify indicators of a potentially successful movie early and dynamically.
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Not All Rivals Look Alike: Estimating an Equilibrium Model of the Release Date Timing Game
Liran Einav
Economic Inquiry, April 2010, Pages 369-390
Abstract:
I develop a new empirical model for discrete games and apply it to study the release date timing game played by distributors of movies. The results suggest that release dates of movies are too clustered around big holiday weekends and that box office revenues would increase if distributors shifted some holiday releases by one or two weeks. The proposed game structure could be applied more broadly to situations where competition is on dimensions other than price. It relies on sequential moves with asymmetric information, making the model particularly attractive for studying (common) situations where player asymmetries are important.
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In-store music and aroma influences on shopper behavior and satisfaction
Michael Morrison, Sarah Gan, Chris Dubelaar & Harmen Oppewal
Journal of Business Research, forthcoming
Abstract:
Retail markets are increasingly competitive and retailers continuously look to differentiate their retail offering. One way to differentiate is by providing a pleasant and exciting shopping ambience. This paper experimentally tests the effects of music (volume high or low) and aroma (vanilla scent present/absent) on young fashion shoppers in a real retail setting. Results show that volume of music and the presence of a vanilla aroma both have a significant impact on shoppers' emotions and satisfaction levels. Additional analysis reveals that the arousal induced by music and aroma results in increased pleasure levels, which in turn positively influences shopper behaviors, including time and money spend, approach behavior, and satisfaction with the shopping experience. Direct effects of arousal on behaviors as well as an interaction effect between music and aroma on pleasure and time spent in the store are also present. The paper contributes to the better understanding of shoppers' emotions and shopper behaviors in response to in-store atmospherics and offers retailers practical insights into how to create competitive advantage by customizing the atmosphere in their stores.
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Piracy or Promotion? The Impact of Broadband Internet Penetration on DVD Sales
Michael Smith & Rahul Telang
Information Economics and Policy, forthcoming
Abstract:
The Internet provides copyright holders with new sales and promotional channels for their content, while also providing consumers with new opportunities to illegally obtain free copies of this content. Unfortunately, disentangling these two effects is extremely difficult. In this paper we attempt to disentangle these two effects by applying fixed effects and first difference models to a new dataset quantifying changes in broadband Internet penetration and DVD sales at a local level from 2000 to 2003. We then compare our results to those reported in Liebowitz (2008), who uses similar models in a similar time period on a similar product category: music CDs. Unlike Liebowitz, who finds a strong negative impact of broadband penetration on music sales, our results show that increased broadband penetration leads to a significant increase in DVD sales. Using the most conservative results, 9.3% of the $14.1 billion increase in DVD sales during our study period can be attributed to increased broadband penetration. One interpretation of these results is that the difference arises from differences in the ability to pirate these two types of content: while Internet music piracy was easy and rampant from 2000-2003, Internet movie piracy was difficult and of generally low quality in this time period. If this interpretation is true it would suggest that, in the absence of piracy, the Internet has an overall strong positive impact on media sales.
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Puffery in Advertisements: The Effects of Media Context, Communication Norms, and Consumer Knowledge
Alison Jing Xu & Robert Wyer
Journal of Consumer Research, forthcoming
Abstract:
Ads often contain puffery-product descriptions that purport to be important but actually provide little if any meaningful information. Consumers' reactions to these descriptions depend on whether they perceive themselves to be more or less knowledgeable about the product than others whom the ad is specifically intended to influence. When an ad appears in a professional magazine that is read primarily by experts in the product domain, puffery generally increases the ad's effectiveness. This is also true when the ad appears in a popular magazine but readers perceive themselves to know less about the product than consumers at large. If readers believe they know as much as or more than general consumers, however, puffery decreases the ad's effectiveness. In addition, the media context in which an ad is encountered has a direct effect on judgments by consumers who perceive themselves to have little knowledge about the type of product being advertised.
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An Analysis of International Price Differentials on eBay
Philipp Maier
Contemporary Economic Policy, July 2010, Pages 307-321
Abstract:
Online auction sites like eBay provide ways to measure what consumers buy and how much they pay. Does this imply that consumers pay similar prices, irrespective of their location? Comparing prices for homogeneous, tradable goods in the euro area and the United Kingdom, we find that prices differ significantly. The differential is not related to countries' having different currencies. However, price dispersion - the variance of prices - does seem to be smaller if two countries share a common currency. Our results confirm the importance of national borders in explaining price differences and their magnitude is related to (not) sharing a common currency.