Anja Lambrecht

When does Retargeting Work? Information Specificity in Online Advertising

Firms can now serve personalized recommendations to consumers who return to their website, based on their earlier browsing history. At the same time, online advertising has greatly advanced in its use of external browsing data across the web to target internet ads appropriately. ‘Dynamic Retargeting’ integrates these two advances by using information from internal browsing data to improve internet advertising on external websites. Consumers who previously visited the rms’ website are shown ads that reect the specic products they have looked at before on the rm’s own website

Price Promotion for Emotional Impact.

Managers and academics often think of price promotions merely as incentives that entice consumers to accept offers that they might not have considered otherwise. Yet the prospect of paying a lower price for a product of given quality can also discourage deliberation, in a sense “dumbing down” the purchase encounter by making it less consequential. The authors examine this possibility in a dual-system theory of consumer behavior. Specifically, they argue that price promotion lowers a consumers motivation to exert mental effort, in which case purchase decisions are guided less by extensive information processing and more by a quicker, easier, strong conditioner of preference: affect. Field data from a large daily deal company and four controlled experiments support this idea and document its implications primarily for product choice, in turn providing insight into the form and cause of brand switching that manufacturers and retailers can leverage to improve the allocation of promotional budgets and category management.

When Talk is 'Free': The Effect of Tariff Structure on Usage under Two- and Three-Part Tariffs

In many service industries, firms introduce three-part tariffs to replace or complement existing two-part tariffs. In contrast with two-part tariffs, three-part tariffs offer allowances, or “free” units of the service. Behavioral research suggests that the attributes of a pricing plan may affect behavior beyond their direct cost implications. Evidence suggests that customers value free units above and beyond what might be expected from the change in their budget constraint. Nonlinear pricing research, however, has not considered such an effect. The authors examine a market in which three-part tariffs were introduced for the first time. They analyze tariff choice and usage behavior for customers who switch from two-part to three-part tariffs. The findings show that switchers significantly “overuse” in comparison with their prior two-part tariff usage. That is, they attain a level of consumption that cannot be explained by a shift in the budget constraint. The authors estimate a discrete/continuous model of tariff choice and usage that accounts for the valuation of free units. The results show that the majority of three-part-tariff users value minutes under a three-part tariff more than they do under a two-part tariff. The authors derive recommendations for how the provider can exploit these insights to further increase revenues.

How do firms make money selling digital goods online

We review research on revenue models used by online firms who offer digital goods. Such goods are non-rival, have near zero marginal cost of production and distribution, low marginal cost of consumer search, and low transaction costs. Additionally, firms can easily observe and measure consumer behavior. We start by asking what consumers can offer in exchange for digital goods. We suggest that consumers can offer their money, personal information, or time. Firms, in turn, can generate revenue by selling digital content, brokering consumer information, or showing advertising. We discuss the firm’s trade-off in choosing between the different revenue streams, such as offering paid content or free content while relying on advertising revenues. We then turn to specific challenges firms face when choosing a revenue model based on either content, information, or advertising. Additionally, we discuss nascent revenue models that combine different revenue streams such as crowdfunding (content and information) or blogs (information and advertising). We conclude with a discussion of opportunities for future research including implications for firms’ revenue models from the increasing importance of the mobile Internet.

Paying with Money or Effort: Pricing When Customers Anticipate Hassle

For many services, customers subscribe to long-term contracts. Standard economic theory suggests that customers evaluate a contract on the basis of its overall net benefits. The authors suggest that rather than evaluating multiperiod service contracts at the contract level, customers use period-level bracketing. Customers evaluate the distinct per-period loss or gain they incur from choosing this contract. This has important consequences when benefits vary over the course of the contract—for example, due to “hassle costs.” If customers use period-level bracketing, they will value a lower price more in periods during which they have hassle than in other periods. The authors explore this using data from a field experiment for web hosting services. They find that a lower price in the initial period is more attractive to customers when they expect their hassle costs to be high at setup. In five lab experiments, the authors support and extend the field experiments findings. They find evidence for period-level bracketing when customers have hassle costs, independently of whether hassle costs occur in the first, an intermediate, or the last period of a contract. They also rule out alternative explanations, such as hyperbolic discounting. The findings suggest that in setting prices, firms should consider the timing of hassle costs customers face.

Fee or Free: When Should Firms Charge for Online Content?

Many online content providers aim to compensate for a loss in advertising revenues by charging consumers for access to content. However, such a choice is not straightforward because subscription fees typically deter customers, and a resulting decline in viewership further reduces advertising revenues. This research examines whether firms that offer both free and paid content can benefit from adjusting the amount of content offered for free. We find that firms should offer more free—and not paid—content in periods of high demand. We motivate theoretically that this policy, which we term “countercyclical offering,” may be optimal for firms when consumers are heterogeneous in their valuation of online content and this heterogeneity varies over time. Using unique data from an online content provider, we then provide empirical evidence that firms indeed engage in countercyclical offering and increase the share of free content in periods of high demand. This paper was accepted by Matthew Shum, marketing.Many online content providers aim to compensate for a loss in advertising revenues by charging consumers for access to online content. However, such a choice is not straightforward, because subscription fees typically deter customers, further reducing advertising revenues. In this research, we empirically examine and quantify a content provider’s trade-off between advertising and subscription revenues. We build a unique data set from the sports’ website ESPN.com, which offers the majority of content for free but charges a membership fee for a subset of articles. We collect data on the number of free and paid articles per day and sport, as well as demand for each type of article per day and sport over a 13-month period. We estimate how the number of free and paid articles affects viewership of the site, and empirically quantify a firm’s trade-off between advertising and subscription revenues, controlling for a wide range of possible demand shifters. We find that, on average, the firm should not adjust the amount of paid content. However, our results show strong differences across sports’ seasons: the marginal paid article increases revenue in the off-season but decreases revenue in the regular season. This finding implies the firm can increase revenue by flexibly adjusting the amount of paid content it offers across sports’ seasons. More generally, our results suggest that online content providers should carefully identify temporal variation in demand, and over time adjust the amount of paid content they offer rather than setting a static paywall.

Paying with Money or with Effort: Pricing When Customers Anticipate Hassle

Abstract For many services, customers subscribe to long-term contracts. Standard economic theory suggests that customers evaluate a contract on the basis of its overall net benefits. the authors suggest that rather than evaluating multiperiod service contracts at the contract level, customers use period-level bracketing. customers evaluate the distinct per-period loss or gain they incur from choosing this contract. this has important consequences when benefits vary over the course of the contract—for example, due to “hassle costs.” if customers use period-level bracketing, they will value a lower price more in periods during which they have hassle than in other periods. the authors explore this using data from a field experiment for web hosting services. they find that a lower price in the initial period is more attractive to customers when they expect their hassle costs to be high at setup. in five lab experiments, the authors support and extend the field experiments findings. they find evidence for per...

Online Reviews: Star Ratings, Position Effects and Purchase Likelihood

Online product reviews constitute a powerful source of information for consumers. Past research has studied the effect of aggregate measures of reviews (such as, average product rating and number of reviews) on consumer behaviour. In this study, we investigate how individual reviews displayed on a product webpage affect consumers’ purchase likelihood. Identifying this effect is challenging because retailers are free to select which reviews to display on the product page and in what order, making the display of reviews in particular positions potentially endogenous. We address this challenge by utilizing an empirical context where the retailer displays reviews by recency and exploit the variation in review positions generated as newer reviews are added on top of older ones. We find that individual reviews have a strong effect on consumer purchase decisions. These effects are particularly pronounced when individual reviews contrast with the aggregate information that is instantly available on the product page or help consumers resolve uncertainty about the product.

Tensile Promotions in Display Advertising

To attract the attention of potential customers, firms often advertise the maximum discount offered on any one good in the store, rather than the specific discount offered for the advertised product. However, it is unclear how such tensile claims of, for example, ‘up to 70%’ off, perform. On the one hand, promoting the maximum discount may help ads grab consumer attention in a cluttered advertising environment. On the other hand, consumers may be looking for credible and specific signals in price promotions, not non-specific tensile claims. We use data from an online retailer that experimented with a large number of display advertising campaigns which varied whether they advertised the maximum price discount they offered, or the actual discount on a specific item. Surprisingly, we find that tensile price claims that promote the maximum discount available are, on average, ineffective. A tensile price claim not only reduces a consumer’s likelihood of clicking on an ad but also, conditional on clicking, reduces their likelihood of adding a product to the shopping cart once they have arrived on the retailer’s website. We present evidence that tensile price claims perform better than specific price claims only in instances when consumers are likely to have little price knowledge. One explanation of these results is that tensile promotions are not considered as credible signals, especially by experienced consumers who have more price knowledge. We discuss implications for retailers as well as for policymakers concerned with consumer protection.

On Storks and Babies: Correlation, Causality and Field Experiments

Abstract The explosion of available data has created much excitement among marketing practitioners about their ability to better understand the impact of marketing investments. Big data allows for detecting patterns and often it seems plausible to interpret them as causal. While it is quite obvious that storks do not bring babies, marketing relationships are usually less clear. Apparent “causalities” often fail to hold up under examination. If marketers want to be sure not to walk into a causality trap, they need to conduct field experiments to detect true causal relationships. In the present digital environment, experiments are easier than ever to execute. However, they need to be prepared and interpreted with great care in order to deliver meaningful and genuinely causal results that help improve marketing decisions.