Nanda Kumar

Effective category management depends on the role of the category

Abstract Assessing a retailer’s performance in a category is important to both manufacturers and retailers. Based on data from 19 food categories sold in 106 major supermarket chains operating in the largest 50 retail markets in the U.S., the work reported in this article uses an analysis of variations in category performance across retailers to infer the key drivers of effective category management and how those drivers depend on the role the category plays in the overall retail portfolio. Not surprisingly, the best performing retailers: (a) offer broader assortments, (b) have strong private label programs, (c) charge significantly lower everyday prices, and (d) use feature advertising to drive store traffic and display to increase in-store purchases. More interestingly, we find systematic differences in the impact of the price, promotion and assortment variables that depend importantly on the role (staple, variety enhancers, niche, or fill-in) that the particular category plays in the store’s overall portfolio.

Content Provision Strategies in the Presence of Content Piracy

We consider a publisher that earns advertising revenue while providing content to serve a heterogeneous population of consumers. The consumers derive benefit from consuming content but suffer from delivery delays. A publishers content provision strategy comprises two decisions: (a) the content quality (affecting consumption benefit) and (b) the content distribution delay (affecting consumption cost). The focus here is on how a publisher should choose the content provision strategy in the presence of a content pirate such as a peer-to-peer (P2P) network. Our study sheds light on how a publisher could leverage a pirates presence to increase profits, even though the pirate essentially encroaches on the demand for the publishers content. We find that a publisher should sometimes decrease the delivery speed but increase quality in the presence of a pirate (a quality focused strategy). At other times, a distribution focused strategy is better; namely, increase delivery speed, but lower quality. In most cases, however, we show that the publisher should improve at least one dimension of content provision (quality or delay) in the presence of a pirate.

A comment on: "Revisiting dynamic duopoly with consumer switching costs"

A comment on: ‘‘Revisiting dynamic duopoly with consumer switching costs’’ Eric T. Anderson, Nanda Kumar, and Surendra Rajiv Kellogg School of Management, Northwestern University, 2001 Sheridan Road, Evanston, IL 60208, USA School of Management, University of Texas at Dallas, P.O. Box 830688, Richardson, TX 75083-0688, USA NUS Business School, National University of Singapore, BIZ 1, #04-20, 1 Business Link, Singapore 117592

Pricing models for online advertising: CPM vs. CPC

Online advertising has transformed the advertising industry with its measurability and accountability. Online software and services supported by online advertising is becoming a reality as evidenced by the success of Google and its initiatives. Therefore, the choice of a pricing model for advertising becomes a critical issue for these firms. We present a formal model of pricing models in online advertising using the principal–agent framework to study the two most popular pricing models: input-based cost per thousand impressions (CPM) and performance-based cost per click-through (CPC). We identify four important factors that affect the preference of CPM to the CPC model, and vice versa. In particular, we highlight the interplay between uncertainty in the decision environment, value of advertising, cost of mistargeting advertisements, and alignment of incentives. These factors shed light on the preferred online-advertising pricing model for publishers and advertisers under different market conditions.

Product Line Bundling: Why Airlines Bundle High-End While Hotels Bundle Low-End

Product lines are ubiquitous. For example, Marriott International manages high-end ultra-luxury hotels e.g., Ritz-Carlton and low-end economy hotels e.g., Fairfield Inn. Firms often bundle core products with ancillary services or add-ons. Interestingly, empirical observations reveal that industries with ostensibly similar characteristics e.g., customer types, costs, competition, distribution channels, etc. employ different bundling strategies. For example, airlines bundle high-end first class with ancillary services e.g., breakfast, entertainment while hotel chains bundle ancillary services e.g., breakfast, entertainment at the low-end. We observe, unlike hotel lines that are highly differentiated at different geographic locations, airlines suffer low core differentiation because all passengers first-class and economy are at the same location i.e., same plane, weather, delays, cancellations, etc.. In general, we find product lines with low core differentiation e.g., airlines, amusement parks routinely bundle high-end while product lines with highly differentiated cores e.g., hotels, restaurants routinely bundle low-end. High-end bundling makes the high-end more attractive, increasing line differentiation less intraline competition while low-end bundling decreases line differentiation. Therefore, bundling allows optimal differentiation given a differentiation constraint complex costs. Last, firms may use strategic bundling for targeting in their core products; e.g., low-end hotels bundle targeted add-ons unattractive to high-end consumers such as lower-quality breakfasts and slower Internet. Data, as supplemental material, are available at https://doi.org/10.1287/mksc.2016.1004 .

Price-Matching Guarantees with Endogenous Consumer Search

Price-matching guarantees (PMGs) are offered in a wide array of product categories in retail markets. PMGs offer consumers the assurance that, should they find a lower price elsewhere within a specified period after purchase, the retailer will match that price and refund the price difference. The goal of this study is to explain the following stylized facts: (1) many retailers that operate both online and offline implement PMG offline but not online; (2) the practices of PMG vary considerably across retail categories; and (3) some retailers launch specialized websites that automatically check competitors’ prices for consumers after purchase. To this end, we build a sequential search model that endogenizes consumers’ pre- and post-purchase search decisions. We find that PMG expands retail demand but intensifies price competition on two dimensions. PMG drives retailers to offer deeper promotions because it increases the overall extent of consumer search, which we call the primary competition-intensifying effect. We also find a new secondary competition-intensifying effect, which results from endogenous consumer search. As deeper promotions incentivize consumers to continue price search, retailers are forced to lower the “regular” price to deter consumers from searching. The strength of the secondary competition-intensifying effect increases with the ratio of product valuation to search cost, which explains the variation in PMG practices online vs. offline and across retail categories. We show that an asymmetric equilibrium exists such that one retailer offers PMG while the other does not. In this equilibrium the PMG retailer may benefit from launching a price check website to facilitate consumers’ post-purchase search.

A Three Dimensional Vertical Differentiation Model: Implications for Segmentation, Targeting and Positioning

Many products have different attributes which appeal to the different segments of the market. We investigate how firms should position their products in a multi-attribute product market where consumers are heterogeneous in (1) the product attributes that they care about, and (2) their willingness to pay for product quality. We develop a duopoly model where each firm offers a product which has three attributes. There are two customer segments in the market; each segment values only two attributes of the product but not the third one. We assume that customers are heterogeneous in their willingness to pay for the quality of product attributes. In a two-stage model, where firms first simultaneously set the level of product attributes and then price the product, we find four types of positioning equilibrium, all of which are of Min-Max kind. If the range of common attribute (the attribute that both customer segments appreciate) is high enough, firm only differentiate in this attribute and agglomerate on unique attributes (the attributes that only one segment appreciate). If the range of common attribute is low enough, firms differentiate only on unique attributes. The differentiation is never enough on only one of the unique attributes, and is never necessary on all three attributes. Our results have managerial implication for segmentation, targeting and positioning in a competitive market.

Unintended Consequences of Promotions: Should Managers Worry About Consumer Stockpiling?

Increase in sales due to promotions could come at the expense of competitors; such sales come from consumers who have relatively weak brand preferences. Increased sales from consumers with strong brand preferences are likely to be at the expense of the promoted brand. In other words, brand loyal consumers can take advantage of promotions to stockpile for future consumption. Thus, loyal consumers who would be otherwise willing to buy at high prices can strategically stockpile at low prices. What is its impact on firms’ profits? How should firms adapt to consumer stockpiling? To answer these questions we model a duopoly competing for loyal and switching consumers. In contrast to extant finding that stockpiling by switching consumers does not affect firms’ profitability, we find that stockpiling by loyal consumers (empirically who are found more likely to stockpile) indeed reduces firms’ long-run profits. We also find that even when stockpiling may induce higher consumption, it reduces but does not eliminate losses. Furthermore, we establish an upper bound on the loss due to loyal consumers’ stockpiling. Surprisingly, we find that it amounts to a relatively small percentage of profits. We also obtain a novel finding on mixed strategies that firms’ equilibrium pricing distributions can have mass points in the interior of the support. Our results also offer several counter-intuitive insights of relevance to managers.