Upender Subramanian

Competitive Consequences of Using a Category Captain

Many retailers designate one national brand manufacturer in each product category as a “category captain” to help manage the entire category. A category captain may perform demand-enhancing services such as better shelf arrangements, shelf-space management, and design and management of in-store displays. In this paper, we examine when and why a retailer may engage one manufacturer exclusively as a category captain to provide such service and the implications. We find that demand substitutability of competing brands gives rise to a service efficiency effect---service that expands the category is more effective in increasing a manufacturers sales and margin than service that shifts demand from a rivals brand. We show that the service efficiency effect may motivate a category captain to provide a service that benefits all brands in the category even though doing so is more costly. We further show that, in categories that are less price competitive, there is higher competition between manufacturers to become the category captain. Consequently, a retailer may obtain better service by using a category captain than by engaging both manufacturers simultaneously. Our findings may help explain why a retailer may rely on a category captain despite concerns regarding opportunism and why there is limited empirical evidence of harm to rival manufacturers.

The Strategic Value of High-Cost Customers

Many firms today manage their existing customers differentially based on profit potential, providing fewer incentives to less profitable customers and firing unprofitable customers. Although researchers and industry experts advocate this practice, results have been mixed. We examine this practice explicitly accounting for competition and find that some conventional prescriptions may not always hold. We analyze a setting where customers differ in their cost to serve. We find that when a firm can discriminate among its customers but the rival cannot, customer base composition influences the rivals poaching behavior. Consequently, even though a low-cost customer is more profitable when viewed in isolation, a high-cost customer may be strategically more valuable by discouraging poaching. Therefore, contrary to conventional advice, it can be profitable for a firm to retain unprofitable customers. Moreover, some customers may become more valuable to retain and receive better incentives when they are less profitable. We further show that, in competitive settings, traditional customer lifetime value metrics may lead to poor retention decisions because they do not account for the competitive externality that actions toward some customers impose on the cash flows from other customers. Our results suggest that firms may need to evolve from a segmentation mindset, which views each customer in isolation, to a customer portfolio mindset, which recognizes that the value of different customers is interlinked. This paper was accepted by J. Miguel Villas-Boas, marketing.

Exclusive Handset Arrangements in the Wireless Industry: A Competitive Analysis

In many markets, a handset vendor and a service provider may enter into a tie-in for a handset to be available exclusively through the service provider. We examine when and why a service provider and a handset vendor may find this arrangement mutually profitable. We find that an exclusive handset arrangement EHA may serve a dual strategic purpose. By restricting its handsets to one service provider, a handset vendor may be able to induce a rival handset vendor to compete less aggressively. At the same time, the service provider may be able to essentially raise a rival service providers handset costs by limiting the handsets available to the rival. Interestingly, the handset vendors market share may be higher when its handset is sold exclusively than when it is not. Our results might explain why EHAs seem more attractive in some markets than in others, why some service providers have exclusive arrangements even for handset models that do not seem popular, and how some handset vendors enjoy high market shares despite having many exclusive models. Furthermore, an EHA may lower the handset vendors incentives to improve handset quality, supporting concerns raised by proponents of wireless network neutrality.

Information Sharing, Advice Provision or Delegation: What Leads to Higher Trust and Trustworthiness?

In many market settings, a customer often obtains assistance from a supplier (or service provider) in order to make better-informed decisions regarding the suppliers product (or service). Because the two parties often have conflicting pecuniary incentives, customer trust and supplier trustworthiness play important roles in the success of these interactions. We investigate whether and how the process through which assistance is provided can foster trust and trustworthiness and facilitate better cooperation. We compare three prevalent assistance processes: information sharing, advice provision, and delegation. We propose that, even if the pecuniary incentives of both parties do not vary from one assistance process to another, the assistance process itself impacts the customers and suppliers non-pecuniary motives that give rise to trust and trustworthiness. Consequently, the assistance process affects the level of cooperation and payoffs. We test our behavioral predictions through laboratory experiments based on a retail distribution setting. We quantify the impact of different assistance processes on trust, trustworthiness and channel performance, and identify the underlying drivers of those impacts. Our results offer insight into the role of the assistance process in managing supplier assistance effectively, and why certain assistance processes may lead to more successful outcomes than others even if the pecuniary incentives remain unaltered.

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. (

Strategic Surge Pricing and Forecast Communication on On-Demand Service Platforms

On-demand platforms (e.g., Uber, Lyft) often rely on independent workers, who are not directly under the platform’s control, to be available at the “right�? time and locations to serve consumers at short notice. To manage fluctuating demand across market locations (zones), on-demand platforms share market forecasts with workers to inform them where they should be available, and use surge pricing—wherein the price at a particular zone is temporarily raised above the regular price. We analyze these platform strategies in an on-demand marketplace where independent workers can move between adjacent zones, explicitly accounting for the strategic interaction in their moving decisions. We show that, contrary to conventional wisdom, surge pricing can be useful even in zones where supply exceeds demand. Specifically, because workers are strategic agents facing costs to move and competition from other workers who move, simply informing workers where they should be available may not ensure that enough workers move to that zone. Interestingly, more workers can be made to move from a zone with excess supply of workers by strategically using a surge price to throttle demand in that zone. Such strategic surge pricing can increase total platform profit across zones, and even be more profitable than offering workers bonuses to move. Surge pricing in a zone with excess supply can also be useful to credibly communicate the need for more workers to move. In other instances, such surge pricing may be useful to avoid too many workers from moving. Our analysis offers insights for effectively managing on-demand service with independent workers.