Knowledge that Transforms

Chronic diseases, which account for 75% of healthcare expenditure, are of particular importance in trying to understand the rapid growth of healthcare costs over the last few decades. Individuals suffering from chronic diseases can consume three types of services: secondary preventive care, which includes diagnostic tests; primary preventive care, which consists of drugs that help prevent the illness from getting worse; and curative care, which includes surgeries and expensive drugs that provide a quantum boost to the patient’s health. Although the majority of cases can be managed by preventive care, most consumers opt for more expensive curative care that leads to a substantial increase in overall costs. To examine these inefficiencies, we build a model of consumers’ annual medical insurance plan decisions and periodic consumption decisions and apply it to a panel data set. Our results indicate that there exists a sizable segment of consumers who purchase more comprehensive plans than needed because of high uncertainty vis-à-vis their health status, and that once in the plan, they opt for curative care even when their illness could be managed through preventive care. We examine how changing cost-sharing characteristics of insurance plans and providing more accurate information to consumers via secondary preventive care can reduce these inefficiencies. Data and the Web appendix are available at https://doi.org/10.1287/mksc.2016.1021 .

Evidence shows that marketers can direct consumers’ limited attention to specific product attributes by making them “prominent.” This research asks: How should firms decide which attribute to make prominent in competitive environments? A key feature of this setting is that consumers’ preferences are context-dependent and that a firm’s choice of an attribute affects the evaluation of all products in the category. We develop a model in which firms selectively promote one of two attributes (e.g., image or performance) before competing in price. We find when consumers evaluate both attributes, perceived differentiation within an attribute can become diluted; we call this the dilution effect. This implies that making the same attribute prominent can arise in equilibrium. Only if there is a sufficient quality advantage in an attribute do we find equilibria with firms making different attributes prominent. We also show how the dilution effect can be a disincentive for investments in quality improvements. Data and the online appendix are available at https://doi.org/10.1287/mksc.2017.1037 .

In the pharmaceutical industry, a product recall financially impacts not only the firm undertaking the recall but also other competitors in the category since it affects physician and consumer perception of the category as a whole. Often, such competitors have to engage in defensive marketing at the category level without complete certainty about whether a recall will occur or not. Such defensive effort could then lead to a change in postrecall sales effort directed at capturing market share in that category. This decision is affected by the probability of the recall and the size of the loyal segment in the category facing the recall, i.e., physicians who will continue to prescribe the category even without marketing effort. We focus on competitor reaction to product recalls where the competitor participates in multiple product categories that exhibit (dis)economies of scope in sales effort across them. Equilibrium analysis of our game-theoretic model uncovers several managerial insights that illustrate the importance of scale (dis)economies on the competitor’s promotional strategy in the wake of a recall. First, economies of scope across the two products leads to either an increase or decrease in postrecall sales effort for both products simultaneously depending on the loyal market size for the category. Second, diseconomies of scope can lead to a complete withdrawal of postrecall sales effort from one of the two products depending on the size of the loyal market, the cross-category price, and the recall probability. Third, as the recall probability increases, category-defense effort and postrecall sales effort are unequivocally complementary given economies of scope across the two products but may be substitutes given diseconomies of scope. The online appendix is available at https://doi.org/10.1287/mksc.2017.1054 .

Two field experiments examined generosity under consumer elective pricing. In shared social responsibility (SSR), consumers choose how much to pay, knowing that a percentage of their payment goes to support a charitable cause. Replicating past research, consumers in our experiments were sensitive to the presence of charitable giving, paying more when a portion of their payment went to charity. Notably, however, they were largely insensitive to the percentage of payment allocated to charity—customers paid little more when 99% of the payment went to charity than when only 1% went to charity. Neither self-selection nor social pressure fully explained higher payments under SSR. Data and the online appendix are available at https://doi.org/10.1287/mksc.2016.1018 .

We develop a structural model of brand management to estimate the value of a brand to a firm. In our framework, a brand’s value is the expected net present value of future cash flows accruing to a firm due to its brand. Our brand value measure recognizes that a firm can change its brand equity by investing in advertising. We estimate quarterly brand values in the stacked chips category for the period 2001–2006 and explore how those values change over time. Comparing our brand value measure to its static counterpart, we find that a static measure, which ignores advertising and its ability to affect brand equity dynamics, yields brand values that are artificially high and that fluctuate too much over time. We also explore how changing the ability to build and sustain brand equity affects brand value. At our estimated parameterization, if brand equity were to depreciate more slowly, or if advertising were more effective at building brand equity, then brand value would increase. However, counterintuitively, we find that when the effectiveness of advertising is sufficiently high, increasing the rate at which brand equity depreciates can increase the value of a firm’s brand, even as it reduces the value of the firm overall. Data and the online appendix are available at https://doi.org/10.1287/mksc.2016.1020 .

We investigate in a competitive setting the consequences of mobile geo targeting, the practice of firms targeting consumers based on their real-time locations. A distinct market feature of mobile geo targeting is that a consumer could travel across different locations for an offer that maximizes his total utility. This mobile-deal seeking opportunity motivates firms to carefully balance prices across locations to avoid intrafirm cannibalization, which in turn mitigates interfirm price competition and prevents firms from going into a prisoner’s dilemma. As a result, a firm’s profit can be higher under mobile geo targeting than under uniform or traditional targeted pricing. We extend our model in three different directions: (a) a fraction of consumers are not aware of mobile offers outside of their permanent locations, (b) mobile offers can be collected when consumers travel for other reasons, and (c) firms use both permanent and real-time locations when setting prices. Our findings have important managerial implications for marketers who are interested in optimizing their mobile geo-targeting strategies. The online appendix is available at https://doi.org/10.1287/mksc.2017.1030 .

We explore the effects of television advertising in the setting of the National Football League’s Super Bowl telecast. The Super Bowl is well suited for evaluating advertising because viewers pay attention to the ads, more than 40% of households watch the game, and variation in ad exposures is exogenous because a brand cannot choose how many impressions it receives in each market. Viewership is primarily determined based on local preferences for watching the two competing teams. We combine Super Bowl ratings data with weekly sales data in the beer and soda categories to document three primary findings about advertising. First, the relationship between Super Bowl viewership and sales in the week leading up to the game reveals the brands customers buy to consume during the game. We find some brands are consumed while watching the game while others are not, but this is unrelated to whether a brand ever advertised during the Super Bowl or advertises in a specific year. This rejects the theory that advertising works by serving as a complement to brand consumption. Second, we find that post–Super Bowl sales effects of ad viewership are concentrated in weeks with subsequent sporting events. This suggests Super Bowl advertising builds a complementarity between the brand and sports viewership more broadly. Finally, we collect data on National Collegiate Athletic Association basketball tournament viewership to test this theory and find that the complementarity between a brand’s sales and viewership of the tournament is enhanced by Super Bowl ad viewership. Together, these findings identify advertising as a determinant of why some brands outperform others for particular consumption occasions such as sports viewership. Data are available at https://doi.org/10.1287/mksc.2017.1055 .

This study analyzes the impact of offline television advertising on multiple metrics of online chatter or user-generated content. The context is a quasi experiment in which a focal brand undertakes a massive advertising campaign for a short period of time. The authors estimate multiple dimensions of chatter (popularity, negativity, visibility, and virality) from numerous raw metrics using the content and the hyperlink structure of consumer reviews and blogs. The authors use the method of synthetic control to construct a counterfactual (synthetic) brand as a convex combination of the rivals during the preadvertising period. The gap in the dimensions of chatter between the focal brand and the synthetic brand in the test versus advertising periods assesses the influence of advertising. Offline television advertising causes a short but significant positive effect on online chatter. This effect is stronger on information-spread dimensions (visibility and virality) than on content-based dimensions (popularity and negativity). Importantly, advertising has a small short-term effect in decreasing negativity in online chatter. Data and the online appendix are available at https://doi.org/10.1287/mksc.2017.1040

We study consumer search behavior in a brick-and-mortar store environment, using a unique data set obtained from radio-frequency identification tags, which are attached to supermarket shopping carts. This technology allows us to record consumers’ purchases as well as the time they spent in front of the shelf when contemplating which product to buy, giving us a direct measure of search effort. We estimate a linear regression of price paid on search duration, in which search duration is instrumented with a search-cost shifter. We show that this regression allows us to recover the marginal return from search in terms of price at the optimal stopping point for the average consumer. Our identification strategy and coefficient interpretation are valid for a broad class of search models, and we are hence able to remain agnostic about the details of the search process, such as search order and search protocol. We estimate an average return from search of $2.10 per minute and explore heterogeneity across consumer types, product categories, and category location in the store. We find little difference in the returns from search across product categories, but large differences across consumer types and locations. Our findings suggest that situational factors, such as the location of the category or the timing of the search within the shopping trip, are more important determinants of search behavior than category characteristics such as the number of available products. Data are available at https://doi.org/10.1287/mksc.2017.1026 .

Some firms use a curious pricing mechanism called “pay as you wish” pricing (PAYW). When PAYW is used, a firm lets consumers decide what a product is worth to them and how much they want to pay to get the product. This practice has been observed in a number of industries. In this paper, we theoretically investigate why and where PAYW can be a profitable pricing strategy relative to the conventional “pay as asked” pricing (PAAP) strategy. We show that PAYW has a number of advantages over PAAP such that it is well suited for some industries but not for others. These advantages are as follows: (1) PAYW helps a firm to maximally penetrate a market; (2) it allows a firm to price discriminate among heterogenous consumers; (3) it helps to moderate price competition. We derive conditions under which PAYW dominates PAAP and discuss ways to improve the profitability of PAYW.