Amir Heiman

Demonstrations and money-back guarantees: market mechanisms to reduce uncertainty

Abstract This paper analyzes consumer, retailer and manufacturer preferences for use of two important risk reduction tools: money-back guarantees and demonstrations. Theoretical findings from economics, marketing, consumer behavior and psychology are integrated to analyze the performance of these mechanisms under various conditions and product characteristics. The paper investigates the relationship between these two risk reduction mechanisms and reveals in which ways the two are complements or substitutes, identifying under which conditions money-back guarantees and demonstrations will be used separately, together, or not at all.

Learning and Forgetting: Modeling Optimal Product Sampling Over Time

Firms use samples to increase the sales of almost all consumable goods, including food, health, and cleaning products. Despite its importance, sampling remains one of the most under-researched areas. There are no theoretical quantitative models of sampling behavior other than the pioneering work of Jain et al. (1995), who modeled sampling as an important factor in the diffusion of new products.In this paper we characterize sampling as having two effects. The first is the change in the probability of a consumer purchasing a product immediately after having sampled the product. The second is an increase in the consumers cumulative goodwill formation, which results from sampling the product. This distinction differentiates our model from other models of goodwill, in which firm sales are only a function of the existing goodwill level.We determine the optimal dynamic sampling effort of a firm and examine the factors that affect the sampling decision. We find that although the sampling effort will decline over a products life cycle, it may continue in mature products. Another finding is that when we have a positive change in the factors that increase sampling productivity, steady-state goodwill stock and sales will increase, but equilibrium sampling can either increase or decrease. The change in the sampling level is indeterminate because, while increased sampling productivity means that firms have incentives to increase sampling, the increase in the equilibrium goodwill level indirectly reduces the marginal productivity of sampling, thus reducing the incentives to sample. We discuss managerial implications, and how the model can be used to address various circumstances.

University Research and Offices of Technology Transfer

Acknowledges the shift in the role of the American research university from provider of educational services and public knowledge to key component in the industrial innovation infrastructure. Economic incentives and constraints shape the R & D decisions of researchers both in academia and industry. OTTs (Offices of Technology Transfer) are a recent institutional innovation created by universities to function as a marketing channel that bridges the gap between university research and industrial innovation. Reviewing previous studies and surveys of U.S. research universities, the authors suggest that the OTTs most significant function is driving entrepreneurship via startups which use university technology. University revenue from technology licensing has grown in recent years but is still a small factor in university budgets, as universities try to maintain their autonomy. The authors conclude that the OTTs, as an institutional innovation, are in the middle stages of the adoption-diffusion process in U.S. universities, and may shift or expand, depending on new technology and new industries. Smaller universities with fewer inventions may benefit more from either aligning themselves with the OTTs of larger universities or by forming OTTs among themselves in order to attract economies of scale.(CBS)

Valuation and management of money-back guarantee options

Abstract In this article, we model money-back guarantees (MBGs) as put options. This use of option theory provides retailers with a framework to optimize the price and the return option independently and under various market conditions. This separation of product price and option value enables retailers to offer an unbundled MBG policy, that is, to allow the customer to choose whether to purchase an MBG option with the product or to buy the product without the MBG but at a lower price. The option value of having an MBG is negatively correlated with the likelihood of product fit and with the opportunity to test the product before purchase, and positively correlated with price and contract duration. Simulation of our model reveals that when customers are highly heterogeneous in their product valuation and probability of need-fit, and if return costs are low, an unbundled MBG policy is optimal. When customers have high likelihood of fit or return costs are excessive, no MBG is the best policy. When customers have small variance in product valuation, but vary greatly in likelihood of product fit, the retailer may prefer to offer a bundled MBG contract, extracting consumer surplus by charging a price close to the valuation level.

The Value of Economic Research

Economic research generates a wide array of benefits. These include information, technological change, and improved policy. There are few quantitative studies of the benefits of economic research, and some benefits may be misattributed to biological and physical research. To be productive, economic research must be transmitted and the user must be able to use it. Therefore, investment in extension outreach and economic literacy are important to improve its impact. Even casual observation suggests that economic research is valuable, but noneconomists must be convinced of this. Since benefits are likely to be concentrated in a small number of successful projects, a useful approach to the assessment of the benefits of research is to identify these projects and their results. The analysis must recognize that the accuracy of any estimates of benefits is uncertain. In addition, the argument behind the estimates should be transparent, relying on documentation and testimony from users, policymakers, and noneconomists. Assessments of the benefits of economic research provide information that can be used both to justify support for economic research and to allocate monies among lines of research.

Choosing Brands: Fresh Produce versus Other Products

Assuming that brands contribute to quality risk reduction, prestige, and design, we derive and test hypothesis on the willingness to pay (WTP) for brands across different product categories (electronics, clothing, packaged food, and fresh produce). Using the random effect tobit model on the stated point value of WTP and the ordered probit model on the stated range of WTP, we find that WTP for brands of fresh produce is least among the four product categories controlling for relevant demographic variations. Simulations show that fresh produce has a higher optimal price premium for brands but with a much smaller market share. Copyright 2008, Oxford University Press.

Attitude and purchasing decisions regarding genetically modified foods based on gender and education

Previous studies have found that gender affects perceptions and resistance to genetically modified food (GMF). Stronger aversion to innovations, lower technical interest, more concern with environment, and higher perceptions of environmental risk on the part of females relative to males have previously explained why females are less supportive of GMF. This study suggests a new explanation based on differences in economic benefits. Based on an empirical study, we show that, while males are more motivated by monetary incentives, females are less likely to prefer GMF if the incentive is price. They are more sensitive to moral and risk-reduction incentives. Education levels did not affect perceptions and preferences and thus cannot serve as explanatory variables to these gender differences. The insights gained may help policy makers in designing their communication campaigns aimed at increasing the adoption of genetically modified technology, which has the potential advantage of solving food scarcity and nutritional deficits.

The Role of Agricultural Promotions in Reducing Uncertainties of Exported Fruits and Vegetables

Abstract Exporters have long used various promotional tools in the export of agricultural products, including the export of horticultural produce. These promotional activities include various types of advertising, trade and retail promotion. One reason for use of promotions is the uncertainty inherent in the production, marketing and buying of agricultural products, particularly perishables like fresh fruits and vegetables. This paper addresses the question: When is promotion effective? A model is developed to indicate how traders (exporters) will choose their optimal level and type of promotion. A taxonomy of various types of promotion is developed and then used to indicate which types of promotion will be used under various circumstances. The paper concludes that there are several factors that improve the effectiveness of promotions in horticulture. (1) Promotions that reduce the buyers pre-pur-chase uncertainty (for example, through the use of demonstrations and product sampling) are needed. (2) Larger organizations will do better. There are economies of scale with promotions (particularly advertisement). (3) Vertical co-ordination along the supply chain. To meet consumer demands, information and incentives need to be relayed to all sectors along the supply chain. The more integrated the chain, the more effective the promotion. (4) Securing supply quality and quantity will enhance promotional programs. (5) The combination of long-term goodwill and brand builders (advertisement) and short-term sales generators (promotions) is useful.

Marketing Environmental Services

Environmental services (ES) are diverse both in terms of the benefits that they provide, and in terms of potential buyers. This suggests a mixture of institutional arrangements and strategies required to create demand for ES. In some cases, there is an advantage to commoditizing ES and marketing them through large exchanges. In other cases, the ES are unique, and special efforts and patience for finding the appropriate buyers are needed. In all cases, increasing consumer awareness of availability, value, and benefit of ES is important and leads to increased demand. Furthermore, in all cases, buyers have to be assured of product reliability, which requires explicit mechanisms for monitoring, enforcement of contracts, and insurance. The demand from ES can come from governments and industry that may use it as a least-cost approach to solving environmental problems or a source of revenue and consumers who may use ES as a source of direct consumption benefits or altruism of pro-social behavior. Marketing strategies should be targeted for the specific characteristic of needs of various market segments.

Less (Model's Weight) is More (Population Overweight): Fashion Models and the Overweight Epidemic

Advertisements that present the image of the slim figures of models, movie actors and celebs are often blamed in triggering anorexia. In this paper we suggest that the slim model effect on consumers’ weight is substantially greater than previously estimated due to its role in the emergence of overweight spread. We develop an economic model of rational consumer food consumption showing that the growing gap between the ideal and average figure has made the former irrelevant for most individuals. Thus, consumers now refer to the median weight rather than to the ideal one, as the latter has lost its restraining ability. We show that the lower weight of the ideal beauty figure interplayed with other factors (such as the increasing level of food industrialization) exhibits a form of overweight epidemic dynamics that is dominated by a multiplier effect. Based on large-scale historical datasets, we support our theoretical assertions by analyzing US population BMI’s over the past five decades vis-a-vis ideal beauty body-size proxies, while controlling for large sets of demographic variables and food industry data.