Paul Farris

Market Power and Performance: A Cross-Industry Analysis of Manufacturers and Retailers

Abstract Two recent studies of manufacturer and retailer profitability in the food industry have raised questions about whether the widely cited, but empirically untested, shift of power from manufacturers to retailers has really occurred. Has the marketing community been operating under a misconception or are these studies flawed? This paper uses more complete measures of exercised and potential market power and a broader sample of industries and retail classes to address this critical question. Not only do our measures have strong theoretical grounding in the industrial organization, finance and accounting literature, they incorporate in them the impact of actions that have been commonly cited as illustrations of a power shift. Our analysis of 14 consumer good industries shows that only a few of them exhibit a shift in market power towards retailers. Further this apparent shift is highly influenced by a small number of retailers within a single retail class.

Dynamic Strategic Thinking

Market analysts and marketing strategists stress understanding the fundamental dynamics of a market, but how deeply do they think about the interplay of such fundamentals and what frameworks do they use in such thinking? How do business schools teach managers to think this way? The premise of this article is that in their strategizing, senior marketing executives, boards of directors, consultants, and financial analysts should see the market and the firm’s embeddedness in a market as a moving video rather than a static snapshot. The authors propose that what makes the video move are fundamental feedback effects that create the evolutionary paths that a market and a firm may travel. A taxonomy of systemic feedback regularities is presented with applications that demonstrate how the taxonomy and proposed soft mapping techniques can be use to construct dynamic mental models that help managers and consultants improve their dynamic strategic thinking and the strategic foresight of firms.

Consumer response to the preferred brand out‐of‐stock situation

The goal of this study was to gauge brand loyalty. To do this, a brand loyalty acid test was used, which involved an out‐of‐stock (OOS) experiment where the complete product line of a brand was removed from several stores in order to estimate the OOS responses of consumers. Three types of OOS responses were identified: switching brands; switching stores to get one’s favorite brand; and postponing purchase of a specific brand. The present study revealed that the brand loyalty of the consumers participating in the OOS experiment was substantial, as a large percentage of them switched stores or postponed purchase. The study also showed that neither competitive conditions of the retailer nor assortment change had any effect on consumers’ OOS responses. The most potent variables that affected OOS responses were the way consumers organized their shopping trips: store loyals more than others switched stores by OOS; and consumers with a small purchase amount per shopping trip were less likely to switch stores and more likely to postpone purchase. There also was a slight tendency for the consumer to spend less in the store during the OOS period. This paper suggests the implications of these findings for retailers and manufacturers.

A sensitivity analysis of retailer shelf management models

Abstract A shelf management model was developed to assist retailers with the decision of which products to stock and how much space to allocate to those products. Due to the non-linearities in the formulation a closed form solution is not possible. Borin, et al. develop a search heuristic based on simulated annealing and compare the solution against a known optimum. A barrier to the use of such models is the fact that managers typically do not have access to error-free estimates of the parameters required for the model construction (shelf elasticities, search loyalty, and consumer preferences). In this article we analyze the degree of error that may be introduced into estimates of the parameters before the model yields assortments and shelf allocations that are inferior to those produced by the merchandising rule of thumb, share-of-shelf = share-of-sales. The results indicate that judgmental estimates of parameters can vary by as much as 50 percent and still make application of the model useful.

Measuring and Managing Returns from Retailer-Customized Coupon Campaigns

The authors assess how and why retailer-customized coupon campaigns affect customer purchases. The conceptual model proposes effects on trip incidence and revenues through the mere exposure to campaigns (exposure effect) and the redemption of coupons (redemption effect). The authors propose monetary savings of the coupons, regularity of the campaigns, and coupon fit with customer preferences as moderators. Analysis of data from a group of regional grocery chains that were part of a quasi experiment demonstrates that retailer-customized coupon campaigns have a positive exposure and redemption effect on customer purchases. Mere exposure to customized coupon campaigns contributes more than coupon redemption to campaign returns. Consistent with theoretical expectations, customized coupon campaigns are more effective if they provide more discounts, are unexpected, and are positioned as specially selected for and customized to consumer preferences. The substantial exposure effects suggest that managers should look beyond redemption rates and also consider sales lift from nonredeemers when measuring the effectiveness of customized coupon campaigns.

The Product Management Audit

Reports on a survey of how product managers, experiencing increased time pressure, would like to spend their time compared with how they actually spend it. Reviews the changes in the marketing environment currently exerting pressure on the product management system. Explains the implementation of a product management audit. Presents findings from actual audit surveys and shows how one company used an audit to identify and solve problems within its product management organization. Concludes that the product management audit is an excellent tool for producing hard data which may be missed by management by walking around.

The role of key account programs, trust, and brand strength on resource allocation in the channel of distribution

Purpose – Seeks to better understand whether a retailers trust in a manufacturer is a key concept in their motivation to allocate resources to those manufacturers with whom they have a long‐term relationship compared with economical motivations.Design/methodology/approach – A survey research method is used to study all customers from three large manufacturers in The Netherlands. These retailers had to answer questions about their trust in a manufacturer, the manufacturers investments in the relationship, and their marketing efforts. Questions were also asked about the allocation of their own scarce resources for the manufacturer, specifically their adoption of in‐store marketing campaigns initiated by the manufacturer. Structural equation models and regression analyses were employed.Findings – Trust is not that important, but the manufacturers investments in the brand are the most important predictors. However, interaction effects were also found: trust interacts with investments in the brand to influe...

The profit impact of marketing strategy project : retrospect and prospects

Foreword Paul Farris and Michael Moore 1. The PIMS: project vision, achievements and scope of the data Paul Farris with John U. Farley 2. Putting PIMS into perspective: enduring contributions to strategic questions George Day 3. PIMS and COMPUSTAT data: different horses for the same courses? D. Eric Boyd, Paul Farris, and Lutz Hildebrandt 4. Order of market entry: empirical results from the PIMS data and future research topics William Robinson and Mark Parry 5. Marketing costs and prices David Reibstein, D. Eric Boyd, and Paul Farris 6. Does innovativeness enhance new product success?: insights from a meta-analysis of the evidence David M. Szymanski, Michael Kroff, and Lisa C. Troy 7. The model by Phillips, Chang, and Buzzell revisited: the effects of unobservable variables Lutz Hildebrandt and Dirk Temme 8. Causation and components in market share-performance models: the role of identities Kusum Ailawadi and Paul Farris 9. Cargo cult econometrics: specification testing in simultaneous equations marketing models Michael Moore, Ruskin Morgan, and Judith Roberts 10. PIMS and the market share effect: biased evidence versus fuzzy evidence Marcus Christen and Hubert Gatignon 11. PIMS in the new millennium: How PIMS might be different tomorrow Paul Farris and Michael Moore.

Executive education programs go back to school

Executive education (EE) programs are an important part of many business schools’ mission. For many such providers, the 1990s was a robust time of growth and increased reliance on the fruits of those programs. In less time than takes to build a new EE facility, the EE environment changed. What factors influence the desirability of an EE program experience for the executives who attend them? Do executives want more EE opportunities or less? Are online program offerings an attractive alternative to traditional classroom venues? These and other related questions were answered, via a survey, by over 80 executives who frequently attend EE programs. Among other findings, the results indicate a desire for: more EE program experiences; the criticality of a host institutions and instructors reputation in attracting executives; and a willingness to tradeoff some learning potential for convenience with online alternatives.

Path Dependencies and the Long-term Effects of Routinized Marketing Decisions

The purpose of this paper is to discuss a simulation of marketing budgeting rules that is based on a simplified version of the market share attraction model. The budgeting rules are roughly equivalent to those that may be used in practice. The simulation illustrates the concept of path dependence in dynamic marketing systems and shows how it might result from decision rules potentially applied by marketers and retailers. Path dependence results from positive feedback in dynamic systems that imparts momentum to market choices. Where the potential for path dependence exists, there are implications for defining and measuring long-term effects of marketing decisions in a way that is meaningful to managers and researchers. In the simulations presented we show that limited retail assortments may contribute to path dependence when firms use either percentage-of-revenue rules or “market learning” experiments to set budgets. While other budgeting procedures (e.g., matching competition) may stabilize market share, this stability in the share dimension comes at the cost of instability for budgets and profits.