Xavier Drèze

Effects of Seller-Supplied Prices on Buyers' Product Evaluations: Reference Prices in an Internet Auction Context

A field experiment investigated the impact of two external reference points under the sellers control on the final price of an auction. When an items seller specified a high external reference price (a reserve price), the final bid was greater than when the seller specified a low external reference price (a minimum bid). When the seller provided both high and low reference prices, the reserve influenced the final bid more. The low reference price led to a lower outcome compared to when the seller did not communicate any reference price. The number of bidders influenced outcomes in the absence of seller-supplied reference prices. Copyright 2004 by the University of Chicago.

The Endowed Progress Effect: How Artificial Advancement Increases Effort

This research documents a phenomenon we call the endowed progress effect, whereby people provided with artificial advancement toward a goal exhibit greater persistence toward reaching the goal. By converting a task requiring eight steps into a task requiring 10 steps but with two steps already complete, the task is reframed as one that has been undertaken and incomplete rather than not yet begun. This increases the likelihood of task completion and decreases completion time. The effect appears to depend on perceptions of task completion rather than a desire to avoid wasting the endowed progress. Moderators include the reason, if any, offered for the endowment and the currency in which progress is recorded.

Exploiting the installed base using cross-merchandising and category destination programs

Abstract We investigate two ways to increase sales and customer loyalty by taking advantage of a stores installed base of current customers. We propose a classification of products into two types. Products of Type 1 are products for which consumers have a loyalty to a specific retailer and, as far as possible, always shop at that retailer for these products. The other products (Type 2) are not associated with any retailer and are bought at whichever retailer consumers happen to shop when they plan or remember to buy the product. With this in mind, we test the potential of two marketing tools to help retailers increase their share of sales of the Type 2 segment. Using a category destination program we show that one can successfully transform Type 2 into Type 1 products. Using cross-merchandising promotions, we show that one can increase the sales of Type 2 products thereby gaining a larger share of discretionary purchases than what one would receive from a straight random allocation. Both series of tests yielded significant increases in sales and profits and were deemed successful by the retailers who implemented them.

Using Combined-Currency Prices to Lower Consumers' Perceived Cost

The increasing popularity of loyalty programs and related marketing promotions has resulted in the introduction of several new currencies (e.g., frequent flier miles, Diners Club “Club Rewards”) that consumers accumulate, budget, save, and spend much as they do traditional paper money. As consumers are increasingly able to pay for goods and services such as airline travel, hotel stays, and groceries in various combinations of currencies, an understanding of how shoppers respond to “combined-currency pricing” is important for marketers. This research is the first to explore how consumers evaluate transactions that involve combined-currency prices, or prices issued in multiple currencies (e.g.,

Recurring Goals and Learning: The Impact of Successful Reward Attainment on Purchase Behavior

39 and 16,000 miles). The authors present a formal mathematical proof that outlines the conditions under which a price that comprises payments delivered in different currencies can be superior to a standard, single-currency price, either by lowering the psychological or perceived cost associated with a particular revenue objective (i.e., price) or by raising the amount of revenue collected given a particular perceived cost. Three studies, in which respondents evaluate and choose among prices issued in single and combined currencies, offer both experimental and empirical support.

Consumers' Immediate Memory for Prices

The authors examine the impact of successfully attaining a goal on future effort directed at attaining the same goal. Using data from a major frequent-flier program, they demonstrate empirically how success contributes to an increase in effort exhibited in consecutive attempts to reach a goal. They replicate the effects in a laboratory study that shows that the impact of success is significant only when the goal is challenging. They also show how progress enhances perceptions of self-efficacy and how successfully completing the task provides an added boost, supporting the notion that self-learning is the principle mechanism driving their results.

A Study of Consumer Switching Behavior Across Internet Portal Web Sites

We examine the cognitive mechanics involved in keeping prices in short-term memory for subsequent recall. Consumers code and store prices verbally, visually, and in terms of their magnitude. The encoding used influences immediate recall performance. The memorability of prices depends on their verbal length, usualness, and overall magnitude. We find that the performance of consumers is affected by their pronunciation speed and price abbreviation habits. Overall, consumers recall prices better than what previous digit span studies with simple numbers have suggested.

Real-Time Evaluation of E-mail Campaign Performance

This paper describes an empirical study of the dynamics of consumer switching behavior across major Internet portal Web sites, based on an analysis of a commercial on-line panel database. The study highlights the managerial implications of the model in the context of e-commerce. The results provide managerial insights regarding the strength of a portal Web site relative to its competitors in terms of its ability to attract and retain visitors as well as the relative vulnerabilities of competing portals from which visitors are drawn. The study also examines the effect of causal factors (e.g., visitor gender, past Internet usage, log-on time, time spent on previous sites) on portal Web site switching behavior and loyalty. The study has implications for identifying consumer segments more likely to be attracted to a Web site and for increasing the number of visitors to the site.

Do Promotions Increase Store Expenditures? A Descriptive Study of Household Shopping Behavior

We develop a testing methodology that can be used to predict the performance of e-mail marketing campaigns in real time. We propose a split-hazard model that makes use of a time transformation (a concept we call virtual time) to allow for the estimation of straightforward parametric hazard functions and generate early predictions of an individual campaigns performance (as measured by open and click propensities). We apply this pretesting methodology to 25 e-mail campaigns and find that the method is able to produce in an hour and fifteen minutes estimates that are more accurate and more reliable than those that the traditional method (doubling time) produces after 14 hours. Other benefits of our method are that we make testing independent of the time of day and we produce meaningful confidence intervals. Thus, our methodology can be used not only for testing purposes, but also for live monitoring. The testing procedure is coupled with a formal decision theoretic framework to generate a sequential testing procedure useful for the real time evaluation of campaigns.

Internet advertising: The medium is the difference

An important question for retailers is whether promotions induce households to increase their in-store expenditures or merely reallocate a predetermined shopping budget. Should expenditures be fixed, retailers might decrease their profitability when running promotions by displacing expenditures from high margin to lower margin products. Using household level store receipts and an extended AIDS model, we provide evidence that while household expenditures do increase with promotions, there is also a significant reallocation of expenditures among the different categories. This implies that retailers have to choose carefully which products are promoted, if promotions are to increase profits.