Ram C. Rao

An Empirical Analysis of Follower Entry Timing Decisions

Followers frequently incur market share penalties due to delayed entry. How might they then respond to a pioneer? This paper attempts to answer this question. Followers are assumed to be able to respond by choosing a time interval of entry relative to the pioneer, and by focusing on consumer relative preferences for their brand. These choices potentially involve different trade-offs. For example, achieving higher relative preferences may result in an entry delay that would increase the leadtime. We argue that the followers response will depend on the magnitude of the pioneering effect. Our analysis of the ASSESSOR database indicates that followers respond primarily by reducing leadtimes. We further find that later followers achieve higher consumer relative preferences than earlier followers do. While these findings merit generalizability as they concern multiple brands and categories, many of which still exist, their implications should be qualified with caution since the data do not go beyond 1984.

Latent class models to infer market structure: a comparative analysis

Abstract Grover and Srinivasan (1987) proposed a latent class model to infer market structure from brand switching data. Jain, Bass and Chen (1990) show that, despite different assumptions, it is difficult to empirically distinguish the two models for the switching data on the instant coffee market. Both the models seem to fit the data equally well. In this paper, simulation procedures are used to compare the two models to see how well they recover the true underlying market structure and the parameter values and also to identify situations, if any, under which one model fits the data better than the other. Further, the robustness of the factor analytic approach for determining the number of segments in a latent class model is also examined. The results indicate that both the models fit the simulated data adequately well and yield the true overall market structure. However, the recovery of the parameter values is different under the two models, making one procedure more preferable than the other under certain conditions. The results also confirm the appropriateness of the factor analytic approach for determining the number of segments in a latent glass model.

Segmentation and endogenous entry under consumer uncertainty of novel technologies

The paper presents a model of new product marketing when consumers are unable to provide perfect information on their preferences. Given the information available, firms have to decide their new product introduction strategy. Two situations are examined: a monopolist deciding on how many segments to enter, and a duopoly facing a single market segment in which each firm must decide to enter first or second. The monopolist strategy turns out to be either entering many segments when the uncertainty is low or a market niche when it is high. For the duopoly situation, a firm with limited resources wants to enter first whereas a firm with large resources wants to go second. This outcome is an endogenous equilibrium of the model.AnalyseL’article présente un modèle d’introduction sur le marché de nouveaux produits lorsque les consommateurs ne peuvent fournir qu’une information imparfaite sur leurs préférences. Etant donné l’information disponible, les entreprises doivent décider de leur stratégie de lancement. Deux cas sont étudiés: un monopole devant décider du nombre de catégories de consommateurs à toucher et un duopole face à une seule catégorie, chaque entreprise devant choisir d’entrer en premier ou en second. La stratégie optimale du monopole consiste à s’introduire auprès de nombreuses catégories si l’incertitude est faible ou à choisir une niche si celle-ci est forte. Dans le cas du duopole, l’entreprise ayant des ressources limitées choisit d’entrer en premier alors que celle disposant de fortes ressources choisit d’entrer en second. Ces stratégies constituent un équilibre endogène du modèle.

A Dynamic Model for Digital Advertising: The Effects of Creative Format, Message Content, and Targeting on Engagement

The authors study the joint effects of creative format, message content, and targeting on the performance of digital ads over time. Specifically, they present a dynamic model to measure the effects of various sizes of static (GIF) and animated (Flash) display ad formats and consider whether different ad contents, related to the brand or a price offer, are more or less effective for different ad formats and targeted or retargeted customer segments. To this end, the authors obtain six months of data on daily impressions, clicks, targeting, and ad creative content from a major U.S. retailer, and they develop a dynamic zero-inflated count model. Given the sparse, nonlinear, and non-Gaussian nature of the data, the study designs a particle filter/Markov chain Monte Carlo scheme for estimation. Results show that carry-over rates for dynamic formats are greater than those for static formats; however, static formats can still be effective for price ads and retargeting. Most notably, results also show that retargeted ads are effective only if they offer price incentives. The study then considers the import of these results for the retailers media schedules.

Leveraging Experienced Consumers to Attract New Consumers: An Equilibrium Analysis of Displaying Deal Sales by Daily Deal Websites

Daily deal websites help small local merchants attract new consumers. One strategy adopted by some deal websites is displaying real-time deal sales information. We investigate a deal websites strategic motive to display deal sales in a model where the merchant is privately informed of its type (probability of meeting consumer needs). We obtain three main results. First, displaying sales can help the website attain its maximum pro ts by enabling the hightype merchant to credibly signal through its deal price. Second, in some situations however, the website prefers to suppress signaling by not displaying sales even if the high-type merchant prefers to signal. Crucial to both results is the role of observational learning from deal sales by new consumers. Third, it can be optimal for the website to provide the merchant an upfront subsidy if deal sales are displayed. Our analysis leads to managerial insights for deal websites. (

An Analysis of Advertising Payments in Franchise Contracts

ABSTRACT National advertising is an important ongoing marketing activity in a franchise arrangement. A majority of franchisors require franchisees to pay an advertising royalty as a percentage of gross revenues while some require franchisees to pay a fixed advertising fee. These payments are earmarked for national advertising. We investigate the relationship between the franchisors profits and the different types of advertising payments in franchise contracts. Our model incorporates the idea that the franchisor and franchisee are in an ongoing relationship where there is demand uncertainty. We show that specification of an advertising payment in the form of a fixed fee or a royalty is better than no specification since it commits the franchisor to invest the payments in advertising. We demonstrate that the advertising royalty specification is more flexible since it permits the advertising expenditure to be adjusted based on information that is not available at the time the contract is written.

Invited Editorial—A Descriptive Analysis of Publications in Marketing Science Over Its History

Using the University of Texas at Dallas database on publications in the top 24 business journals, we examine the evolution of Marketing Science as reflected by participation of faculty from top ranked business schools on one hand, and diversity on the other hand, as evidenced by contributions from different countries and from faculty of a wider set of schools. We show that faculty from top-ranked business schools have always published in Marketing Science , and continue to do so. We also show that the variety of schools with authors who publish in Marketing Science has increased, and that much of this expansion has occurred outside of North America. This international expansion appears to be driven by collaborations between authors in North America and those in other areas. One of the factors that may be fueling the increase in the variety of schools with authors publishing in Marketing Science is an increased tendency for collaboration by three or more authors. In general, Marketing Science has remained an outlet for authors from top schools, and has also become a place where authors from a much broader array of schools, especially those outside the United States, can publish.Data, as supplemental material, are available at http://dx.doi.org/10.1287/mksc.2015.0957 .

Search Advertising: Budget Allocation Across Search Engines

We investigate advertisers’ budgeting and bidding strategies across multiple search platforms. We examine allocation of limited budgets across platforms and draw managerial insights for search engines and advertisers. In a model with two search engines we find that equilibrium budget allocations by advertisers depends on how asymmetric their total budgets are. Interestingly, advertisers with symmetric budgets differentiate by pursuing asymmetric allocation strategies in equilibrium: one advertiser allocates a higher share of budget to one search engine, and the other allocates a higher share of budget to the other search engine. This partial differentiation in budget allocation balances two forces: a demand force favoring presence on both platforms to obtain more clicks, and a strategic force that renders each advertiser dominant on at least one platform resulting in lower average cost per click. Our key insight is that budget allocation must balance getting more clicks and keeping costs low. Significantly, in a two platform world advertisers earn higher profits than in a one-platform world of equal traffic. Finally, unique equilibrium strategy for advertisers with highly asymmetric budgets is to allocate their budgets proportional to each platform’s traffic since the strategic force is absent as the low-budget advertiser cannot dominate either platform.

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.

Managing Competition: Promotions that Reduce Pricing Pressure

Firms that must choose capacity in advance of observing uncertain or time varying demand sometimes have more inventory than their full price customers will consume. By pricing a limited quantity at below market clearing rates, “rationed promotions” allow sellers to recruit enough excess demand to clear excess inventory while effectively excluding high value customers from purchasing at the discount price. Examples include airlines’ release of limited blocks of seats for discount fare classes, and “Black Friday” offerings of limited quantities of toys, and electronics.We show that competition weakly increases prices above the monopoly level, but lowers revenues because the higher prices fail to achieve optimal segmentation of heterogeneous consumers. Nonetheless, by clearing excess inventory, yield managing firms avoid direct competition for their most profitable customers and retain most of the revenues available to the monopolist. This has important consequences for capacity choice in these markets. Since rationed promotions dramatically improve profitability in low demand states, firms using them elect significantly higher capacities when facing variable or uncertain demand. This leads to substantial social welfare gains in these markets. While in the monopoly case most of this gain goes to consumers, under duopoly competition firms gain all the benefits.