Jinhong Xie

Online Social Interactions: A Natural Experiment on Word of Mouth Versus Observational Learning

Consumers’ purchase decisions can be influenced by others’ opinions, or word of mouth (WOM), and/or others’ actions, or observational learning (OL). Although information technologies are creating increasing opportunities for firms to facilitate and manage these two types of social interaction, to date, researchers have encountered difficulty in disentangling their competing effects and have provided limited insights into how these two social influences might differ from and interact with each other. Using a unique natural experimental setting resulting from information policy shifts at the online seller Amazon.com, the authors design three longitudinal, quasi-experimental field studies to examine three issues regarding the two types of social interaction: (1) their differential impact on product sales, (2) their lifetime effects, and (3) their interaction effects. An intriguing finding is that while negative WOM is more influential than positive WOM, positive OL information significantly increases sales, but negative OL information has no effect. This suggests that reporting consumer purchase statistics can help mass-market products without hurting niche products. The results also reveal that the sales impact of OL increases with WOM volume.

Antecedents and Consequences of Marketing Managers' Conflict-Handling Behaviors

In this study, the authors develop and test a cross-cultural conceptual model of the organizational-based antecedents and consequences of marketing managers’ conflict-handling behaviors during the new product development process. The hypotheses were tested using data collected from 968 companies in Japan, China (Hong Kong), the United States, and the United Kingdom. The results provide some interesting insights regarding the varying role of conflict management among diverse cultures.

Group Buying: A New Mechanism for Selling Through Social Interactions

This paper examines a unique selling strategy, Group Buying, under which consumers enjoy a discounted group price if they are willing and able to achieve a required group size and coordinate their transaction time. We argue that Group Buying allows a seller to gain from facilitating consumer social interaction, i.e., using a group discount to motivate informed customers to work as “sales agents” to acquire less-informed customers through interpersonal information/knowledge sharing. We formally model such an information-sharing effect and examine if and when Group Buying is more profitable than (1) traditional individual-selling strategies, and (2) another popular social interaction scheme, Referral Rewards programs. We show that Group Buying dominates traditional individual-selling strategies when the information/knowledge gap between expert and novice consumers is neither too high nor too low (e.g., for products in the midstage of their life cycle) and when interpersonal information sharing is very efficient (e.g., in cultures that emphasize trust and group conformity, or when implemented through existing online social networks). We also show that, unlike Referral Rewards programs, Group Buying requires information sharing before any transaction takes place, thereby increasing the scale of social interaction but also incurring a higher cost. As a result, Group Buying is optimal when interpersonal communication is very efficient or when the product valuation of the less-informed consumer segment is high. This paper was accepted by Preyas Desai, marketing.

Advance Pricing of Services and Other Implications of Separating Purchase and Consumption

It is important to differentiate between the act of purchasing and the act of consuming. Understanding this separation provides many implications and areas for future research. For example, the separation creates buyer uncertainty about the utility from consumption. Consider buying a ticket for a concert in advance. Here, buyers may be uncertain about their future state (e.g., health, expected conflicts, mood) at the time of the concert. This article explores the desirability and implications of this separation and the creation of it (which is often a consequence of the service provider’s selling strategy). The authors show that service providers can improve profits by advance ticketing, perhaps, to the level of first-degree price discrimination (although usually there is no loss in aggregate consumer surplus). These profits are possible despite a service provider’s inability to price discriminate.

Probabilistic Goods: A Creative Way of Selling Products and Services

This paper defines a unique type of product or service offering, termed probabilistic goods, and analyzes a novel selling strategy, termed probabilistic selling (PS). A probabilistic good is not a concrete product or service but an offer involving a probability of getting any one of a set of multiple distinct items. Under the probabilistic selling strategy, a multi-item seller creates probabilistic goods using the existing distinct products or services and offers such probabilistic goods as additional purchase choices. The probabilistic selling strategy allows sellers to benefit from introducing a new type of buyer uncertainty, i.e., uncertainty in product assignments. First, introducing such uncertainty enables sellers to create a “virtual” product or service (i.e., probabilistic good), which opens up a creative way to segment a market. We find that the probabilistic selling strategy is a general marketing tool that has the potential to benefit sellers in many different industries. Second, this paper shows that creating buyer uncertainty in product assignments is a new way for sellers to deal with their own market uncertainty. We illustrate two such benefits: (a) offering probabilistic goods can reduce the sellers information disadvantage and lessen the negative effect of demand uncertainty on profit, and (b) offering probabilistic goods can solve the mismatch between capacity and demand and enhance efficiency. Emerging technology is creating exciting (previously unfeasible) opportunities to implement PS and to obtain these many advantages.

Advance Selling for Services

Advance selling can be profitable when consumers are uncertain about their future consumption state. At the time of consumption, that uncertainty is resolved, but buyer states still remain unobservable to sellers. Consequently, buyer and seller information is symmetric in advance but asymmetric at consumption (i.e., sellers have an informational disadvantage in the consumption period relative to the advance period). Therefore, sellers can profit from transacting in the advance period when they are at less of a disadvantage. New technologies (e.g., biometrics, electronic tickets, smart cards, online prepayments, and new e-commerce technologies) also enhance the profitability of advance selling by lowering advance-selling costs and restraining arbitrage.

The Economics of Service Upgrades

Many service providers offer different service classes (e.g., first class, second class). Because the capacity of each class is set in advance, providers may end up with unfilled first-class capacity at the time of service delivery. When this happens, providers often upgrade some of their customers from a lower service class to a higher one. One way in which service providers manage upgrades is by selling, in advance, tickets that entitle the holder to an upgrade if space becomes available in a higher service class. This article investigates the circumstances under which upgradeable tickets are profitable, how to price them, and how many to issue. Upgradeable tickets increase the provider’s profits when the probability of obtaining full price for first-class service is sufficiently high. With upgradeable tickets, more of the available capacity can be reserved for potential customers who are willing to pay a high price for high-end service.

The Impact of Standards Competition on Consumers: Effectiveness of Product Information and Advertising Formats

Compared with other markets, those with competing technological standards exhibit certain fundamental characteristics that make a consumers decision to adopt a new product more risky and more complex. This article examines how standards competition affects consumer behavior, an issue that has been relatively neglected by previous research in this area. The results show that consumers depend on different types of information in their adoption decisions and respond differently to advertising. Specifically, the authors find that standards competition motivates consumers to pay more attention to information that is comparative in nature. Thus, information about the relative (absolute) performance of a product has a stronger (weaker) impact on a products share in markets with standards competition (Study 1). Standards competition also moderates the effectiveness of different advertising formats: It strengthens the effect of comparative advertisements but weakens the effect of noncomparative advertisements (Study 2). As a result, two commonly observed drawbacks of comparative advertisements—negative attitude toward the ad and source confusion—disappear in the presence of standards competition (Study 2), and comparative advertisements even induce greater confidence in the advertised brand (Study 3). Finally, in the presence of standards competition, the superiority of comparative advertisements is stronger when the advertised brand has a disadvantage in terms of brand familiarity than when it has an advantage (Study 3). This research takes a step toward a better understanding of these important but underexplored issues and provides managerial insights for firms that launch new products in markets with competing standards.

Will Consumers Be Willing to Pay More When Your competitors Adopt Your Technology? The Impacts of the Supporting-Firm Base in Markets with Network Effects.

Network effects and standards competition introduce significant uncertainty into consumers’ new-product adoption decisions, creating a substantial challenge to the success of innovating firms. While the literature has highlighted the importance of establishing a large installed-user base (the number of users adopting the same product) in such markets, this paper draws attention to a different but potentially important market force: the supporting-firm base, which we define as the number of firms supporting the same technological standard. We propose a set of hypotheses concerning the impact of the supporting-firm base on consumers’ product valuation in the presence of network effects and standards competition. Our empirical analyses of disk drive markets show that, (1) Consumer product valuation is positively affected not only by the installed-user base but also by the supporting-firm base; (2) The two positive effects cannot be substituted, rather, the effort in building either would be less effective unless accompanied by the other; and (3) The impact of the supporting-firm base depends on not only its size but also the characteristics of the supporting-firms: consumers are affected more (a) by firms exclusively supporting a single standard than by firms supporting multiple standards, and (b) by incumbents than by new entrants.

Timing of Product Allocation: Using Probabilistic Selling to Enhance Inventory Management

This paper examines probabilistic selling PS as an inventory-management mechanism, paying special attention to the impact of the timing of product assignment to buyers of probabilistic goods. In practice, sellers tend to offer probabilistic products only after major demand uncertainty has been resolved. By deferring product assignments, a firm is able to obtain more information about demand for each specific product before deciding which product to assign to consumers. However, our analysis demonstrates that PS can be an effective inventory-management mechanism even if the firm allocates products before knowing which product will be more popular and, thus, scarcer. Interestingly, we show that it can be more profitable for the firm to allocate products to consumers before, rather than after, learning the true demand for a product because, although early allocation imposes higher inventory costs as a result of larger required inventory levels, it also enables the firm to charge higher prices. Our results also reveal that, when introducing probabilistic goods, the firm should order less inventory relative to the case where probabilistic goods are not offered if costs are very low but more inventory otherwise. Finally, we show that PS, as an inventory-management mechanism, can create a win--win situation, both improving profit and increasing social welfare. This paper was accepted by J. Miguel Villas-Boas, marketing.