Knowledge that Transforms

Previous studies have shown that a firm needs to rely on its customers and employees to achieve superior performance. In this study, the authors draw on signaling theory to develop and empirically test a cross-validation argument. They argue that how a firm treats one stakeholder group will be interpreted by investors in conjunction with how the firm treats another stakeholder group. Investors use consistency in stakeholder group treatment as a signal of complementarity in a firm's investments, which can improve the likelihood of competitive advantage. Specifically, the authors propose that a firm's achievements (lapses) directed at customers have a stronger positive (negative) impact on investors’ valuation of the firm if they are validated by the firm's achievements (lapses) directed at employees, and vice versa. Applying a multilevel model to a large sample of firms across various industries between 1994 and 2010, the authors find evidence to support these arguments. In addition, they find that cross-validation is more crucial for firms with a narrow than a broad business scope.

The author provides a guide for effectively communicating and organizing ideas in an academic marketing paper in a manner that allows reviewers to best see their merit. He argues that it is often not the central idea of a piece that falters, but rather the mechanical and stylistic expression of that idea. He posits a straightforward methodology for eschewing ambiguity and appropriately highlighting salient research against a backdrop that is clean and well constructed.

In recent years, marketing researchers have become increasingly interested in under- and overreporting. However, there are few suitable approaches to operationalize deviations from the truth, particularly in behavioral domains in which self-reports are usually the only viable method of choice to measure behavior or attitudes. An especially difficult situation arises if some people underreport while others overreport. This article proposes a Bayesian item response theory model to quantify under- and overreporting in surveys. The method utilizes within-person differences between answers obtained under direct questioning (no privacy protection) and randomized-response questioning (which ensures item-level privacy protection). This method has the important features of incorporating behavioral response-mode effects (e.g., privacy loss when switching from direct to randomized-response questioning, response-mode inertia effects) and allowing the direction of bias to differ across respondents. The authors provide an empirical application for excessive alcohol consumption involving 1,408 respondents from a commercial web panel. The results show that respondents are averse to decreases in privacy and that randomized response is less effective if respondents provide biased responses to earlier direct questions.

The authors focus on repeated distributive negotiations to investigate how expectations of role reversal in future transactions (i.e., a buyer [seller] in one transaction is the seller [buyer] in the next transaction) affect behaviors in the current negotiation. They demonstrate that when negotiators expect a role reversal, they are likely to make more concessions and reach agreement more quickly in the current negotiation. The authors find that this effect is driven by negotiators’ beliefs that they will be able to recover these concessions, because negotiators expect their counterparts to reciprocate in the later transaction when the parties reverse roles. However, when the two negotiations occur in different “accounting” periods (i.e., fiscal periods) or when the negotiating parties do not explicitly communicate their willingness to reverse roles in the future, role-reversal expectations do not affect concession making. Implications arise in both managerial and consumer contexts where the possibility of engaging in future negotiations—as well as reversing roles—exists.

When pursuing goals that involve subgoals of varying levels of difficulty, consumers prefer to follow a difficult-to-easy sequence when completing the subgoals because they believe that such a sequence renders the overall goal easier to achieve. However, consumers are actually more successful when they follow an easy-to-difficult sequence when completing subgoals. In seven studies, the authors present consistent evidence for this mismatch and explore the value of subgoals as an important boundary condition.

The authors add to the sales management literature in three ways. First, they demonstrate that a firm can benefit from higher sales uncertainty. This is contrary to the finding from the standard principal–agent models that more sales uncertainty hurts the firm when agents are risk-averse. Second, the authors find that the risk-averse agent's total pay can increase when there is high sales uncertainty, and this too is contrary to the standard principal–agent model. Third, they provide intuition for this surprising result by showing that it holds when the slope of the sales response function is random but not when the intercept is random. When the responsiveness (slope) of sales to a decision variable (of the firm or the agent) is random, information about randomness becomes decision-relevant and the firm can exploit learned information. In this study's model, the agent and firm can receive noisy signals of random demand. When the customers’ response to effort (or price) is random, the decision about effort (price) responds optimally to information in a way that benefits the firm. When uncertainty is high, there is more potential information for the firm to exploit profitably, owing to the convexity of the sales with respect to the uncertainty parameter. This is enough to dominate the negative impact of uncertainty owing to agents’ risk aversion. When randomness affects only baseline sales (intercept), received signals are not decision-relevant. In that case, higher uncertainty has only a negative impact, just as in standard principal–agent models.

Firms with different management teams evidence different strategic capabilities. Some are able to reason through the reactions of their competitors, whereas others are less sophisticated in their thinking. In such cases, conventional wisdom suggests that the strategic firms will undercut their less sophisticated competitors’ prices and earn greater profits. The authors show that, under certain conditions, the strategic firms charge higher prices and accrue smaller equilibrium profits than their nonstrategic counterparts. Strategic firms’ efforts to capitalize on their loyal customers’ higher willingness to pay increases nonstrategic firms’ share of price-sensitive consumers. Furthermore, by raising prices, strategic firms help their nonstrategic counterparts more than themselves. This outcome arises when the proportion of consumers loyal to each firm is sufficiently large. A laboratory test for the main proposition's predictive accuracy provides empirical support.

This article introduces the method of single-neuron recording in humans to marketing and consumer researchers. First, the authors provide a general description of this methodology, discuss its advantages and disadvantages, and describe findings from previous single-neuron human research. Second, they discuss the relevance of this method for marketing and consumer behavior and, more specifically, how it can be used to gain insights into the areas of categorization, sensory discrimination, reactions to novel versus familiar stimuli, and recall of experiences. Third, they present a study designed to illustrate how single-neuron studies are conducted and how data from them are processed and analyzed. This study examines people's ability to up-regulate (i.e., enhance) the emotion of fear, which has implications for designing effective fear appeals. The study shows that the firing rates of neurons previously shown to respond selectively to fearful content increased with emotion enhancement instructions, but only for a video that did not automatically evoke substantial fear. The authors discuss how the findings help illustrate which conclusions can and cannot be drawn from single-neuron research.

Many marketing communications are carefully designed to cast a brand in its most favorable light. For example, marketers may prefer to highlight a brand's membership in the top 10 tier of a third-party list instead of disclosing the brand's exact rank. The authors propose that when marketers use these types of imprecise advertising claims, subtle differences in the selection of a tier boundary (e.g., top 9 vs. top 10) can influence consumers’ evaluations and willingness to pay. Specifically, the authors find a comfort tier effect in which a weaker claim that references a less exclusive but commonly used tier boundary can actually lead to higher brand evaluations than a stronger claim that references a more exclusive but less common tier boundary. This effect is attributed to a two-stage process by which consumers evaluate imprecise rank claims. The results demonstrate that consumers have specific expectations for how messages are constructed in marketing communications and may make negative inferences about a brand when these expectations are violated, thus attenuating the positive effect such claims might otherwise have on consumer responses.