Knowledge that Transforms

Marketing Science greatly benefited from the admirable and fastidious efforts of more than 200 different individuals who provided manuscript reviews last year. Beyond those individuals already recognized on the editorial board, the editor-in-chief and guest editors of Marketing Science are indebted to the many guest editors, guest associate editors, and ad hoc reviewers who provided expert counsel and guidance on a voluntary basis. The following list acknowledges the contribution of guest editors, guest associate editors, and ad hoc reviewers who served from January 1, 2016 to December 31, 2016. Finally, our sincere appreciation to the authors, whose outstanding submissions and careful revisions make the journal the go-to resource for leading edge knowledge in quantitative marketing. Marketing Science mourns the loss of Professor Frankel ter Hofstede, University of Texas at Austin, who passed away in an untimely accident in December 2016. The marketing science community has lost a wonderful scholar, colleague, and friend. K. Sudhir Yale University

This paper examines firms’ product policies when they sell an add-on (e.g., Internet service) in addition to a base product (e.g., hotel rooms) under vertical differentiation (e.g., four- versus three-star hotels). I show that the role of an add-on differs; higher-quality firms prefer to sell it as optional to discriminate consumers, and lower-quality firms trade off discrimination and differentiation, trying to lure consumers from higher-quality rivals with a lower-price add-on. Equilibrium policies of lower-quality firms are more sensitive to the cost-to-value ratio of an add-on. If the ratio is sufficiently small, then they sell it to all consumers, potentially explaining why lower-end hotels are more likely than higher-end ones to offer free Internet service. Contrary to consensus in the literature, optional add-ons can intensify price competition over consumers who trade off a higher-quality base product versus a lower-quality base including an add-on. Hence, higher-quality firms are incentivized to commit to bundling, while lower-quality firms prefer to commit to not selling it. Add-ons can further reduce lower-quality firms’ profits if consumers cannot observe the prices, because holding up consumers ex post encourages them to switch to higher-quality rivals, which then become better off. Therefore, lower-quality firms are incentivized to advertise add-on prices, and higher-quality firms are not. The online appendix is available at https://doi.org/10.1287/mksc.2017.1028 .

We leverage a temporary block of the Chinese microblogging platform Sina Weibo due to political events to estimate the causal effect of online word-of-mouth content on product demand in the context of TV show viewership. Based on this source of exogenous variation, we estimate an elasticity of TV show ratings (market share in terms of viewership) with respect to the number of relevant comments (comments were disabled during the block) of 0.016. We find that more postshow microblogging activity increases demand, whereas comments posted prior to the show airing do not affect viewership. These patterns are inconsistent with informative or persuasive effects and suggest complementarity between TV consumption and anticipated postshow microblogging activity. Data and the online appendix are available at https://doi.org/10.1287/mksc.2017.1045 .

Managing marketing resources over time requires dynamic model estimation, which necessitates specifying some parametric or nonparametric probability distribution. When the data generating process differs from the assumed distribution, the resulting model is misspecified. To hedge against such a misspecification risk, the extant theory recommends using the sandwich estimator. This approach, however, only corrects the variance of estimated parameters, but not their values. Consequently, the sandwich estimator does not affect any managerial outcomes such as marketing budgeting and allocation decisions. To overcome this drawback, we present the minimax framework that does not necessitate distributional assumptions to estimate dynamic models. Applying minimax control theory, we derive an optimal robust filter, illustrate its application to a unique advertising data set from the Canadian Blood Services, and contribute several novel findings. We discover the compensatory effect: Advertising effectiveness increases and the carryover effect decreases as robustness increases. We also find that the robust filter uniformly outperforms the Kalman filter on the out-of-sample predictions. Furthermore, we uncover the existence of a profit-volatility trade-off, similar to the returns-risk trade-off in finance, whereby the volatility of profit stream decreases at the expense of reduced total profit as robustness increases. Finally, we prove that, unlike for-profit companies, managers of nonprofit organizations should optimally allocate budgets opposite the advertising-to-sales ratio heuristic; that is, advertise more (less) when sales are low (high). Data and the web appendix are available at https://doi.org/10.1287/mksc.2016.1010 .

We use monthly sales of all wines, beer, and spirits sold between 2006 and 2011 by Sweden’s retail monopoly on alcohol to estimate the causal effect of retail distribution on market share by volume at the product level. Products are defined at the level of the stock-keeping unit. Two institutional features are key to identifying the causal effect: First, the monopolist uses four levels of retail distribution; a change in retail distribution is therefore associated with a discrete shift in the number of stores that carry a product in a given month. Second, the retailer is legally bound and monitored by the European Union to ensure that it acts in a non-discriminatory manner with all its suppliers. These features allow us to rule out many possible confounding factors in estimating the effect of distribution on sales volume. We find large and statistically significant effects from changes in retail distribution on market share by volume across all levels of retail distribution. The associated volume elasticity of retail distribution is convex; the wider the retail distribution the greater the marginal volume increase from further widening. In this market, wider distribution means reaching stores with successively smaller assortment. Our results indicate that the smaller assortment in smaller stores, coupled with a low resistance to compromise, is the main reason for the convex pattern. In other words, convexity appears to be generated by products achieving “a larger share of a smaller pie” as retail distribution expands. Data are available at https://doi.org/10.1287/mksc.2017.1038 .

A key conundrum facing organizations is how to adjust marketing budgets in response to the business cycle. While most firms use procyclical spending (spending less during economic contractions), academic studies often recommend countercyclical spending (spending more during contractions), which begs the following question: What is the right thing to do? The spending problem is compounded further when demand is not just driven by one country’s business cycle, but by the (nonsynchronized) business cycles of multiple countries, as is the case for tourism marketing aiming to attract tourists originating from different countries. We derive insights into the best way to allocate marketing budgets across countries under varying economic conditions. We show that the allocation decisions are driven by the procyclical versus countercyclical nature of three factors: unit sales, marketing effectiveness, and per-unit profit contribution. To study how unit sales and marketing effectiveness respond to the business cycle, we develop a transfer function dynamic hierarchical linear model. We also model the responsiveness of the profit contribution to the business cycle. In an application to New Zealand tourism marketing, we find that a reallocation of the government’s marketing budget could yield an increase in tourist revenues of NZD $121 million. Data and the online appendix are available at https://doi.org/10.1287/mksc.2017.1046 .