Thomas J. Steenburgh

Adding Bricks to Clicks: Predicting the Patterns of Cross-Channel Elasticities over Time

The authors propose a conceptual framework to explain whether and when the introduction of a new retail store channel helps or hurts sales in existing direct channels. A conceptual framework separates short- and long-term effects by analyzing the capabilities of a channel that help consumers accomplish their shopping goals. To test the theory, the authors analyze a unique data set from a high-end retailer using matching methods. The authors study the introduction of a retail store and find evidence of cross-channel cannibalization and synergy. The presence of a retail store decreases sales in the catalog but not the Internet channel in the short run but increases sales in both direct channels over time. Following the opening of the store, more first-time customers begin purchasing in the direct channels. These results suggest that adding a retail store to direct channels yields different results from adding an Internet channel to a retail store channel, as previous research has indicated.

Do Bonuses Enhance Sales Productivity? A Dynamic Structural Analysis of Bonus-Based Compensation Plans

We estimate a dynamic structural model of sales force response to a bonus-based compensation plan. This paper provides substantive insight into how different elements of the compensation plan enhance productivity. We find evidence that 1 bonuses enhance productivity across all segments; 2 overachievement commissions help sustain the high productivity of the best performers, even after attaining quotas; and 3 quarterly bonuses help improve performance of the weak performers by serving as pacers to keep the sales force on track in achieving its annual sales quotas. The paper also introduces two main methodological innovations to the marketing literature: First, we implement empirically the method proposed by Arcidiacono and Miller [Arcidiacono P, Miller RA 2011 Conditional choice probability estimation of dynamic discrete choice models with unobserved heterogeneity. Econometrica 796:1823--1867] to accommodate unobserved latent-class heterogeneity using a computationally light two-step estimator. Second, we illustrate how discount factors can be estimated in a dynamic structural model using field data through a combination of 1 an exclusion restriction separating current and future payoff and 2 a finite-horizon model in which there is no forward-looking behavior in the last period.

The Invariant Proportion of Substitution Property (IPS) of Discrete-Choice Models

This article introduces a newly discovered property of discrete-choice models, which I call the invariant proportion of substitution (IPS). Like the independence from irrelevant alternatives (IIA) property, IPS implies individual behavior that is counterintuitive in the context of choice among similar alternatives. But models that alleviate the concerns raised by IIA, such as generalized extreme value and covariance probit models, do not necessarily alleviate the concerns raised by IPS. I explore the implications of the IPS property on individual behavior in several choice contexts and discuss some models that alleviate the concerns raised by IPS.

Measuring Consumer and Competitive Impact with Elasticity Decompositions

Marketing investments are designed to change consumer behavior in ways that help goods compete in the marketplace. Previous research has focused on using elasticity decompositions to measure how these investments affect either consumer decision making or competing goods. On the one hand, decision-based decompositions attribute the growth in own-good demand to changes in the consumers’ decision-making processes. On the other hand, unit-based and share-based decompositions attribute the same growth to either rivalrous or nonrivalrous sources. The objective of this article is to provide a clear and accurate method that simultaneously attributes the growth in own-good demand to changes in (1) consumers’ decisions, (2) competitive demand, and (3) competitive market share. The author accomplishes this by settling some confusion about what the decision- and share-based decompositions mean, by discussing how each of the decompositions are related to the others, and by discussing the research questions that each of the decompositions can answer. From a managerial perspective, the author discusses how this method can be used to simplify and clarify the data needed for decision making.

The Cross Attributes Flexible Substitution Logit: Uncovering Category Expansion and Share Impacts of Marketing Instruments

Different objectives such as category demand expansion or market share stealing warrant the use of different marketing instruments. To help brand managers make informed decisions, it is essential that marketing mix models appropriately measure their effects. Random Utility Models that have been applied to this problem might not be adequate because they do not allow the effects of marketing instruments of one brand to spillover to preference for competing alternatives. Additionally, they have the Invariant Proportion of Substitution IPS property, which in some situations imposes counter-intuitive restrictions on individual choice behavior. Recognizing that effects of marketing instruments can spill across brands in a category, we propose an alternative choice model that relaxes the IPS property: the cross attributes flexible substitution logit model. We apply the model in two very different empirical settings, i.e., consumer choices of brands of refrigerated yogurt, and prescription-writing choices of physicians in the hyperlipidemia category. In both settings the proposed model provides consistent evidence that certain marketing instruments produce sales gains primarily from growing the category pie, while others produce gains from stealing share. By contrast, the random coefficient logit and generalized nested logit models both predict that gains from all marketing instruments would have similar sources.

Adding Bricks to Clicks: On the Role of Physical Stores in a World of Online Shopping

Abstract E-commerce is gaining ground and leaving the role of traditional brick-and-mortar stores open to question. With this in mind, a team of researchers performed a case study to determine what effects the store openings of one multichannel retailer of fashion, home furnishings and high-end accessories would have on its catalog and online sales. The opening of brick-and-mortar stores had positive and negative effects for the retailer, but complementary consequences clearly outweighed sales drops in individual channels: In the short term, only catalog sales declined slightly. But over time, both the catalog and online channels increasingly benefited from the presence of the new brick-and-mortar stores. Within 79 months, catalog sales recovered to a level that would have been expected had the store never opened and subsequently continued growing more than in a sample without new stores. An enhanced understanding of both positive and negative cross-channel effects helps retailers better anticipate and respond to changes in sales in existing channels when a new one is added. It is the basis for strategically managing a company’s channels as a portfolio rather than as separate entities.

Personal and Social Usage: The Origins of Active Customers and Ways to Keep Them Engaged

We study how digital service firms can develop an active customer base, focusing on two questions. First, how does the way that customers use the service postadoption to meet their own needs (personal usage) and to interact with one another (social usage) vary across customer acquisition methods? Second, how do firm-to-customer and customer-to-customer communications promote different types of usage? We study these questions using two data sets and by developing a multivariate hierarchical Poisson hidden Markov model (HMM), which fits the data significantly better than univariate and latent class approaches. We indeed find that postadoption behavior varies depending on customer acquisition method and dynamic states. At the total usage level, in one context (an annotation and note-taking service), customers who heard about the service through search and mass-invite exhibited significantly higher usage compared to those who joined through word of mouth (WOM), whereas in another context (a cloud-based file s...

Real Earnings Management in Sales

We surveyed 1,638 sales executives, across 40 countries, regarding their companies’ likelihoods to ask sales to perform real-earnings-management (REM) actions when earnings pressure exists. Using this information, which we refer to as companies’ REM propensities, we study how company characteristics and environmental conditions relate to the responses received. The use of cash-flow incentives for sales personnel and the distribution of interfunctional power in favor of finance rather than sales are both associated with companies’ REM propensities. In addition, we show that sales executives preemptively change their behaviors in anticipation of top management’s REM requests. Sales executives working for public companies and companies in the United States reported higher levels of REM propensity. The data also support an association between REM propensity and finance-sales conflict. These findings and others are compared and contrasted with existing empirical and survey-based research on REM throughout the paper.

Where Do the Most Active Customers Originate from and How Can Firms Keep Them Engaged

We study how digital service firms can develop an active customer base, focusing on two questions. First, how does the way customers use the service post-adoption to meet their own needs (personal usage) and to interact with one another (social usage) vary across customer acquisition methods? Second, how do firm-to-customer and customer-to-customer communications promote different types of usage? We study these questions using two data sets and by developing a multivariate hierarchical Poisson hidden Markov model, which fits the data significantly better than univariate and latent class approaches. We indeed find that post-adoption behavior varies depending on customer acquisition method and dynamic states. At the total usage level, in one context, an annotation and note-taking service, customers who heard about the service through Search and Mass-Invite exhibited significantly higher usage compared to those who joined through Word-of-Mouth (WOM), whereas in a cloud-based file storage service, customers who joined through WOM referrals tended to exhibit higher usage. Yet examining how routes of adoption relate to specific types of behavior, personal vs. social usages, reveals a more nuanced picture. Furthermore, in both contexts communications post-adoption influenced engagement, but in different ways. Firm-to-customer communications, through company posts to Twitter and blog entries, had varying effects on customer behavior and in some cases led to lower personal and/or social usage; whereas customer-to-customer communications tended to increase personal-use engagement across latent states and in both data sets. The findings suggest that firms offering digital services should pay attention to how the mode of customer acquisition is related to subsequent usage intensity, accounting for both personal and social activity, and encourage customers to interact with each other post-adoption.

The Similarity Effect: A Consequence of Rational Choice

This paper highlights a logical contradiction in the currently accepted theory of choice. This contradiction occurs when a decision is reframed by adding a clone to the choice set. The current theory concludes that individuals have context-dependent preferences if they make consistent choices; it concludes that individuals have rational preferences if they systematically switch from one alternative to another.I argue that these are not the logical conclusions to draw from the data and that the currently accepted theory should be revised. Rational decision making assumes that individuals make consistent decisions and leads to the similarity effect. Luce’s IIA implies that adding a clone to the choice set makes an alternative more preferable, which is a framing effect.