Knowledge that Transforms

Many markets are liberalizing by opening up their economies to foreign competition, with the expectation that this will increase economic growth. While foreign competitors with superior technology and management practices pose serious threats to incumbent firms, they also provide them an opportunity to gain new marketing knowledge. How do incumbent firms respond to liberalization? Can incumbent firms’ marketing-mix responses affect their performance following liberalization? Addressing these questions, the authors examine incumbent firms’ marketing-mix responses to liberalization and the impact of these responses on performance, using the quasi-experiment of liberalization reforms in India. Estimation results from a panel of 3,927 firms in the period 1989–2000 suggest that while all incumbent firms intensified their product and promotions in response to liberalization, only incumbent firms with greater domestic market knowledge intensified their advertising and distribution responses. Furthermore, incumbent firms’ marketing-mix responses significantly affect their performance outcomes. The research’s findings extend theory and provide practical guidelines on how incumbent firms can design marketing-mix responses to liberalization to improve performance.

Several manufacturers make substantial investments to compete in sports contests, using the gear they develop and market. However, no systematic analysis of the breeding (i.e., innovation) and branding (i.e., marketing) returns from such investments exists. In this study, the authors conceptualize and empirically estimate the breeding and branding returns that such manufacturers obtain. The authors gather data for 30 car brands of 16 manufacturers over the period 2000–2015 regarding their participation, spending, and performance in Formula One championships, annual patent citations, and research-and-development (R&D) budgets as well as monthly vehicle registrations, advertising expenditures, and Formula One TV viewership. The authors find that only gear manufacturers with relatively high levels of R&D spending obtain a positive and significant breeding return from competing in sports contests. While most brands obtain positive branding returns, the lower the level of advertising spending for the brand, the greater the branding returns they obtain from competing in these contests. Thus, research-intense (compared with advertising-intense) gear manufacturers have more to gain from competing in sports contests. These findings can help guide manufacturers in budget allocation decisions on sports competitions, R&D, and advertising.

In response to pressure to defend their stand sales against discounters, grocery retailers started engaging in retailer-themed super saver events: promotional events (1) specific to the retailer, in which they (2) mass advertise (3) unusually deep, immediate deals (4) across a broad range of categories (5) under a common savings theme and deal format. Given these characteristics, such events are expected to generate higher awareness and interest than typical day-to-day promotions, thereby enhancing visits and purchases during the event but also reducing them before and after. The authors evaluate these effects by analyzing 44 retailer-themed super saver events operated by the largest Dutch grocery retailers over four years. They find a substantial increase in visits and total purchases during the event, especially among nonprimary customers and hard-discount shoppers. The larger part of this lift stems from the use of an overarching event theme. Consumers buy less in anticipation of the event and visit the store more often afterward, but for smaller baskets—typically leading to a null effect in terms of profit. Finally, our results suggest that rather than the deal depth or advertising budget, the number of items and media resonance of the theme are key drivers of event success.

Users of deal collectives coproduce “deals” that yield value beyond what a marketer intends when offering promotions. The authors develop an understanding of how this unintended value is coproduced through the combined actions of users in deal collectives. Users are drawn to deal collectives by a web of motivations that include subversive shopper feelings, which reflect a desire to outsmart firms and temporarily upend the market power structure. Uncovered transvaluation processes show that deal forums—due to their collective knowledge, creativity, and trust—are more effective than individual consumers at identifying, developing, and vetting opportunities to capture unintended value. The authors further reveal that unintended value can stem from untargeted promotions, pricing and promotion errors, and combinations or stacking of promotions. Strategies for monitoring deal collectives and either discouraging or supporting their activities are offered.

While temperature’s effects on human physiology have been well studied, its effects in decision-making contexts are still relatively unknown. The authors investigate the role of ambient temperature in one important decision-making context: consumer purchase. More specifically, they examine how ambient temperature influences consumers’ willingness to pay in different kinds of purchase contexts, such as in auctions and in negotiations. The authors show that whereas higher (vs. moderate) temperatures elicit higher willingness to pay in auctions, they lead to a lower willingness to pay in negotiations, and temperature-induced discomfort and aggression underlie these effects. The authors also study the effects of lower temperatures and extend these findings to more general competitive settings. They report findings from six studies and discuss theoretical, managerial, and policy implications.

Social comparisons among suppliers connected through a common retailer pose significant management challenges for the retailer. For instance, a focal supplier’s social comparison can result in upward or downward referent discrepancy, decreasing or increasing perceptions of distributive fairness, respectively, subject to the tie strength of the relationship. Because decreasing perceptions of distributive fairness can be harmful to the retailer–supplier relationship, the authors examine the use of tie strength and timing of explanations as actions a retailer can take to mitigate such perceptions. They test their hypotheses with a two-study, multimethod design conducted in Japan. Study 1 employs a survey of suppliers in a store-within-a-store context as well as objective performance data. The results indicate that upward (downward) referent discrepancy decreases (increases) a focal supplier’s perceptions of distributive fairness. Study 2 employs an experiment using brand/store managers. The results show that when upward referent discrepancies are present, retailers can mitigate the invidious effects of decreased perceptions of distributive fairness by developing strong ties and enacting procedurally fair policies such as proactively providing explanations.

Subscription-based service providers (e.g., newspapers, internet services) often issue price-based incentives to recover from service failures. However, because considerable time may pass between when providers issue a recovery incentive and when service contracts are due for renewal, it is unclear whether recovery incentives can improve customer retention in the long run. The authors investigate this question by examining 6,919 contract renewal decisions of newspaper subscribers who received varying levels of recovery incentives after newspaper delivery failures. In contrast to conventional wisdom, they find that recovery incentives are associated with lower contract renewal likelihoods. They rationalize this finding using the economic theory of reference prices and further demonstrate that firms could mitigate the unintended consequence of recovery incentives by reminding subscribers of the original price at touch points following the recovery, discounting the renewal price, and prolonging the duration between the recovery and renewal. The authors also show that the intensity of promotions in the external environment at the time of administering recovery incentives, and that acquiring subscribers by communicating the value of the subscription service, can influence the long-term effectiveness of recovery incentives. For subscription-based service providers, the authors propose a decision support model to optimize recovery and renewal incentives and demonstrate its utility within this empirical context.

Gift giving is an effective means to strengthen interpersonal relationships; it also may initiate and enhance customer–brand relationships. Through a field study conducted with an international monobrand retailer of beauty products, a combination of propensity score matching with difference-in-differences estimations, and two experimental scenario studies, this research demonstrates that gift buyers spend 63% more in the year following a gift purchase than a matched sample of customers who purchase for their personal use. Specifically, gift buyers increase their purchase frequency (25%), spend more per shopping trip (41%), and engage in more cross-buying (49%). The sales lift is particularly pronounced among new customers. Identity theory suggests customer gratitude and public commitment as mediating mechanisms. Gift purchase design characteristics (i.e., assistance during gift purchase and branded gift wrapping) influence the strength of the mediating mechanisms.

Power theories (e.g., social exchange theory, resource dependence theory) and efficiency theories (e.g., transaction cost analysis) offer very different perspectives on the design of contractual governance in marketing channels. Whereas power theory suggests that governance will reflect the preferences of powerful firms, efficiency theories argue that governance will maximize joint value. In this research, the authors provide an integrative framework that reconciles power and efficiency perspectives in the context of contractual marketing channel relationships. This framework discriminates between two methods of exercising power: ex ante (through a tightly specified, efficient contract that rewards the powerful firm through the price mechanism while providing strong safeguards for the weak firm) or ex post (through a loosely specified, inefficient contract that allows the powerful firm to exploit its power during renegotiations). The authors argue that power will cause channel governance to deviate from the efficient choice, but only to the extent that the powerful firm cannot price out (i.e., extract) the value it offers to the weaker firm ex ante. As exchange conditions become more uncertain, power will demonstrate stronger effects on governance. This theory is supported with data from studies on contractual research-and-development relationships and procurement contracts for customized industrial products.