Ronald T. Wilcox

Experts and Amateurs: The Role of Experience in Internet Auctions

The use of auctions as a pricing mechanism has grown dramatically over the last few years. The introduction of electronic auctions has significantly widened the pool of consumers who participate in auctions and increased the number of companies attempting to sell their products in an auction format. Previous empirical research on auctions has focused almost exclusively on the behavior of professional bidders in high stakes common value auctions or the behavior of students in laboratory experiments. We collect data on a large number of electronic auctions, across four product categories, to explore the behavior of consumers bidding in a real marketplace. In particular, we focus on the role experience plays in their bidding behavior to uncover whether consumer learning drives the bidding process towards outcomes described in the theoretical literature on auctions. We find that experience does indeed lead to behavior which is more consistent with theory although the proportion of experienced bidders who behave in a manner inconsistent with theory remains quite large.

Cross-selling sequentially ordered products : An application to consumer banking services

Customers have predictable life cycles. As a result of these life cycles, firms that sell multiple products or services frequently observe that, in general, certain items are purchased before others. This predictable phenomenon provides opportunities for firms to cross-sell additional products and services to existing customers. This article presents a structural multivariate probit model to investigate how customer demand for multiple products evolves over time and its implications for the sequential acquisition patterns of naturally ordered products. The authors investigate customer purchase patterns for products that are marketed by a large midwestern bank. Among the substantive findings are that women and older customers are more sensitive to their overall satisfaction with the bank than are men and younger customers when determining whether to purchase additional financial services, and households whose head has a greater level of education or is male move more quickly along the financial maturity continuum than do households whose head has less education or is female.

Bargain Hunting or Star Gazing? Investors' Preferences for Stock Mutual Funds

Investors who wish to purchase shares in mutual funds balance many types of information, from a variety of sources, when making their fund selection. This research examines how investors choose a mutual fund within a given class of funds. Among the major findings are that investors pay a great deal of attention to past performance and vastly overweight loads relative to expense ratios when evaluating a funds overall fee structure. I also find that investors with a greater knowledge of basic finance are less likely, not more likely, to make reasonable fund choices.

Identifying price sensitive consumers: the relative merits of demographic vs. purchase pattern information

Abstract We have very limited knowledge of the antecedents of household-level price sensitivity. In this paper, we systematically examine the price sensitivities of a large number of households across multiple product categories to attempt to uncover the antecedents of price sensitivity. Using ERIM scanner panel data provided by A. C. Nielsen, we estimate the price sensitivity of each household in the panel for each of five product categories in two market areas. We test two competing structural models that link household price sensitivity to a series of demographic and shopping pattern variables. We find that the shopping pattern variables have substantially greater predictive validity in determining a household’s price sensitivity. Thus, our model suggests that shopping pattern variables, commonly available to retailers through means such as scannable “loyal shopper” cards, provide retailers with better information about household-level price sensitivity than, typically much more difficult to procure, household-level demographic data.

Ignoring Your Best Customer

Abstract Many organizations devote considerable amounts of money and human resources to develop systems aimed at improving customer retention and profitability. The conventional wisdom is that if retaining the most profitable customers is a good way to increase profitability, then allocating resources to increase the satisfaction of those customers has to be a great objective. However, managers do not observe clear link between satisfaction, retention and profitability. The reason is that different customers have different preferences for convenience as well as different costs associated with switching service providers. These preference and cost heterogeneities have important implications for how companies should target their customer service efforts. In this paper, we adopt a latent class model to examine the interrelationship amongsatisfaction, retention and profitability. Applying the model to a data of customer satisfaction, self-reported switching propensity, and profitability provided to us by a large Midwestern bank, we make normative statements about which customers are the most criticalones for the company to satisfy and how to satisfy them. The results of this research help to explain why managers have been frustrated by the apparent lack of actionable information present in customer satisfaction data and points to more intelligent ways to use this data.

Advertising Mutual Fund Returns: A Critical Analysis of a U.S. Securities and Exchange Commission Proposal to Change Advertising Law

The Mutual Fund Tax Awareness Act of 1999 was introduced in the U.S. House of Representatives for the expressed purpose of requiring the U.S. Securities and Exchange Commission to change mutual fund disclosure and advertising law to better inform investors of the tax implications of various mutual funds. The Commissions proposed change in advertising law has inadequately addressed this congressional mandate and may lead investors to make poorer, not better, decisions.

Route 11 Potato Chips

Route 11 Chips, a regional potato chip company, is struggling with whether to reduce the number of flavors it markets. Additional flavors add operational cost, but management believes that some of the flavors are important to Route 11s brand image and that trimming the line might damage the brand. Route 11 has also taken a price increase recently and management is interested in finding out if there is additional room to raise prices. To analyze these issues in the case, students have access to five years of data on sales by flavor and package size as well as actual price and margin information (in a supplemental Excel spreadsheet).

Addendum to A Single-Item Inventory Model for a Nonstationary Demand Process

In preparing a review I recently discovered an important reference for a key result in Graves (1999). Wecker (1979) had previously derived the variance for demand over a deterministic lead-time for an IMA (0, 1, 1) demand process. I develop effectively the same result, given as Equation (8) in Graves (1999). I state this as the variance of the inventory random variable for an inventory system that is subject to an IMA (0, 1, 1) demand process, a deterministic replenishment lead-time and an adaptive base-stock control policy given by (7). But given these assumptions, the variance of the inventory is the same as the variance of the demand over the lead-time. Although the Wecker manuscript has not been published, Eppen and Martin (1988) reference it and use the key result as part of their research.