Knowledge that Transforms

This article studies the impact of business modernization on the sales performance of traditional retailers in an emerging market. The authors define modernization as the adoption of physical structures and tangible practices of organized retail chains (e.g., exterior signage with store name and logo, a database to record product-level information). To address this research question, they implement a randomized field experiment in Mexico City with 1,148 retailers. The sample is randomized as follows: 385 firms are externally modernized in ways that are visible to customers, 383 firms are internally modernized in ways that are not visible to customers, and 380 firms form a control group. The authors find a significant and persistent main effect of modernization on sales. Firms in both treatment groups increase monthly sales by 15%–19% 24 months after study recruitment. In terms of novel mechanism evidence, externally modernized firms improve their store-level branding, while internally modernized firms strengthen their product management. This article also provides an exploratory analysis to guide policy makers, managerial stakeholders, and retailers on how to modernize for the highest returns. This analysis suggests that it is most useful to modernize a firm’s exterior appearance, customer engagement methods, demand analysis, and stock-ordering processes. Finally, the largest improvements come from the initial few modernizing changes, after which returns are diminishing.

Research has demonstrated that after making high goal progress, consumers feel liberated to engage in goal-inconsistent behaviors. But what happens after consumers make high progress in the context of joint goal pursuit? The authors examine how jointly made progress toward a joint goal pursued by couples affects subsequent individually made goal-relevant decisions. Across five experiments with both lab-created couples and married participants and financial data from a couples’ money management mobile app, the authors show that after making high progress on a joint goal (vs. low or no progress), partners with higher relationship power are more likely to disengage from the joint goal to pursue personal concerns (e.g., indulge themselves, pursue individual goals), whereas partners with lower relationship power do not disengage from the joint goal and continue engaging in goal-consistent actions that maintain its pursuit. The authors elucidate the underlying mechanism, providing evidence that the joint goal progress boosts the relational self-concept of high- (but not low-) relationship-power partners, and this drives the effects. Importantly, they demonstrate the effectiveness of two theory-grounded and easily implementable interventions that promote goal-consistent behaviors among high-relationship-power consumers in the context of joint savings goals.

In many sectors of the entertainment industry, a few employees attract the public spotlight when performing the core service. For example, in professional team sports, a team of players competes in games, and in TV shows, a cast of artists acts in different episodes. These employees, coined “spotlight personnel,” are an essential but expensive element of ongoing service delivery. Despite their importance and cost, very little is known about how changes in spotlight personnel affect service performance and demand. To address this gap, this article uses unique data on professional German soccer teams, tracking the quantity (number of players) and quality (average transfer price) of spotlight personnel hiring (incoming transfers) and turnover (outgoing transfers), objective service performance (winning percentage), and demand (ticket sales) across four decades, using both traditional and novel time series methods. The results show that service performance and demand are primarily affected by spotlight personnel hiring rather than by turnover. Hiring quantity decreases service performance yet increases demand, whereas hiring quality benefits both service performance and demand. The analysis further uncovers that these effects are subject to dynamic interactions and nonlinearities. Investment scenarios showcase how understanding these effects can substantially improve managerial decision making.

The U.S. pay television service market was dominated by cable operators until the nationwide entry of satellite operators in the early 1990s. The latter have been consistently growing their footprints since. This study documents the role of television advertising to explain satellite operators’ success. Using data on U.S. households’ subscription choices and operators’ advertising decisions, the authors document both demand- and supply-side conditions conducive to the growth of the satellite operators. First, the authors find that consumers in this market were sensitive to advertising, and especially so to that of the satellite operators (ad elasticities of about .05–.06 for satellite operators vs. .02 for cable operators). The authors employ a border strategy to demonstrate advertising-elastic demand and discuss its robustness to potential threats to identification. Second, the authors provide suggestive evidence that a form of asymmetric cost efficiencies in television advertising benefited the entrants more than the incumbents. Specifically, the unit costs of local advertising tend to be higher than those of national advertising, which likely allowed the satellite operators to better leverage their national presence with (cheaper) national advertising. Overall, this study highlights the interaction between advertising efficiencies and the scale of entry in explaining the competition between market incumbents and entrants.

When using group-based commission plans to motivate their sales force, should firms always compensate salespeople based on the average of team members’ sales outcomes? The theory suggests that when team members are heterogeneous in sales abilities, the proposed maximum contract (where the team output is set by the largest individual sales output) dominates the average contract (where the team output is determined by the average output of team members) in terms of overall team effort. This is because the stronger team member will exert higher effort under the maximum contract compared with the average contract, and this increase exceeds the decrease in the weaker team member’s effort. The authors validate the theoretical predictions by employing two laboratory experiments to provide a causal test of the theory and two randomized field experiments to deliver additional corroborating evidence. Overall, the experimental results are consistent and broadly confirm the theoretical predictions, pointing to the substantial gains from implementing the maximum contract when team members are heterogeneous in abilities. Interestingly, the weaker team members exert similar effort across the maximum and average contracts, although the theory predicts higher effort under the latter.

Firms in technology markets often outsource the manufacture of core components—components that are central to product performance and comprise a substantial portion of product costs. Despite the strategic importance of core-component outsourcing, there is little empirical evidence (and many conflicting opinions) about its impact on consumer demand. The authors address this gap with an examination of panel data from the flat panel TV industry, across key regions globally. Results from their estimation indicate that core-component outsourcing reduces the firm’s ability to be on the technological frontier; this hurts demand, because the authors’ estimates suggest that consumers care about firms being on the frontier. However, such outsourcing also reduces costs. Finally, the authors find that outsourcing increases the intensity of competition in the marketplace. They assess these (often opposing) effects and conduct thought experiments to quantify the performance impact of core-component outsourcing.

This article studies how receiving a bonus changes consumers’ demand for auto loans and their risk of future delinquency. Unlike traditional consumer products, auto loans have a long-term impact on consumers’ financial state because of the monthly payment obligation. Using a large consumer panel data set of credit and employment information, the authors find that receiving a bonus increases auto loan demand by 21%. These loans, however, are associated with higher risk, as the delinquency rate increases by 18.5%–31.4% depending on different measures. In contrast, an increase in consumers’ base salary will increase their demand for auto loans but not their delinquency. By comparing consumers with bonuses with those without bonuses, the authors find that bonus payments lead to both demand expansion and demand shifting on auto loans. The empirical findings help shed light on how consumers make financial decisions and have important implications for financial institutions on when demand for auto loans and the associated risk arise.

Student loans defer the cost of college until after graduation, allowing many students access to higher lifetime earnings and colleges and universities they otherwise could not afford. Even with student loans, however, the authors find that students psychologically realize the financial costs of a college education long before their loan repayments begin. This early cost realization frames financial decisions between most pairs of colleges as an intertemporal trade-off. Students choose between investments with (1) smaller short-term costs but smaller long-term returns (a lower-cost, lower-return [LC-LR] college) and (2) larger short-term costs but larger long-term returns (a higher-cost, higher-return [HC-HR] college). The authors find that early cost realization increases preferences for LC-LR colleges—preferences that could reduce lifetime earnings—in both simulations and experiments. Preferences for LC-LR colleges are pronounced among financially impatient students and in choice pairs of LC-LR and HC-HR colleges where the equilibrium is set at a low-discount-rate threshold. A return-on-investment strategy, future uncertainty, and debt aversion cannot explain these results. A decision aid synchronizing the psychological realization of costs and benefits reduced preferences for LC-LR colleges, illustrating that the preference is constructed and receptive to interventions.

Online retail search traffic is often concentrated at a “prominent” retailer for a product. The authors unpack the ramifications of this pattern on pricing, profit, and consumer welfare in an intrabrand setting. Prominence denotes a larger number of heterogenous-search-cost consumers starting their search at the prominent retailer than at any other retailer. These analyses show that search traffic concentration can intensify intrabrand competition, lower average prices of all retailers, and improve consumer welfare. Interestingly, the prominent retailer's incremental traffic advantage can increase or reduce its own profit; the authors denote these as the “blessing” and “curse” of prominence, respectively. The authors extend their analysis to a setting where consumers consider searching only among those retailers they are individually aware of; the prominent retailer is included in all these individual awareness sets. The effects on market average prices and welfare carry over, but only below a critical threshold level of the prominent retailer's first-search traffic advantage. Above this threshold, market average prices rise and welfare decreases, making this the region where search concentration warrants scrutiny from policy makers. The authors close with policy remedies and managerial implications of search concentration.

Many consumers engage in frequent consumption indulgences. Because such indulgences accumulate resource costs (e.g., money, calories), consumers are often prompted to cut back, posing questions for how to design cutback programs with consumer appeal. This research distinguishes between frequent indulgences that consumers think of as social (vs. solitary), demonstrating that thinking of an indulgence as social (vs. solitary) decreases preferences to cut “frequency” (how often the indulgence occasion occurs) and increases preferences to cut “intensity” (choosing a within-category substitute that involves lower resource expenditure). The author explains these effects by differentiating between enjoyment from the product itself and enjoyment from aspects outside the product. Thinking of an indulgence as social (vs. solitary) heightens people’s anticipated enjoyment, particularly for aspects outside of the product, decreasing interest in cutting the number of occasions (cutting frequency) and increasing interest in cutting back on the product itself via a within-category substitute (cutting intensity). This divergence in cutback preferences for social (vs. solitary) experiences is thus eliminated (1) when consumers think of social experiences with distant (vs. close) others, which involve lower enjoyment outside of the product, or (2) when solitary experiences primarily involve heightened enjoyment for aspects outside of the product.