For Academia

Carbon Footprinting and Pricing Under Climate Concerns

Journal of Marketing

This paper studies how organizations should design a product by choosing the carbon footprint and price in a market with climate concerns. The authors first show how the cost and demand effects of reducing the product carbon footprint determine the profit-maximizing design. Paradoxically, they find that stronger climate concerns may increase the overall, corporate carbon footprint, even if the product itself is greener. Next, the authors establish that offsetting carbon emissions can create a win-win outcome for the firm and climate if the cost of compensation is sufficiently low. Third, the authors show how regulation in the form of a cap-and-trade scheme or a carbon tax affects product design, firm profitability, and green technology adoption. Finally, the authors extend the analysis to a competitive scenario. Overall, these results help marketing professionals understand the subtle consequences of voicing climate concerns within an organization.

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Consumer Reactance to Promotional Favors

Journal of Retailing

Promotional favors are an increasingly popular but seldom researched form of price promotion where the receipt of the saving by consumers depends on an action on their part that is non-monetary in nature, such as completing a questionnaire, posting a review, or making a referral. This paper shows that the tactic can backfire, in the sense that consumers spend less than they would in response to a standard (unconditional) discount. We document this effect across five experiments. Experiment 1 is a field test. Experiments 2 to 5 replicate the result in more controlled settings, trace it to a process of psychological reactance, and address plausible alternative explanations. Finally, we review the contributions of our work and propose avenues for future research.

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Price and Quality Decisions by Self-Serving Managers

International Journal of Research in Marketing

We present a theory of price and quality decisions by managers who are self-serving. In the theory, firms stress the price or quality of their products, but not both. Accounting for this, managers exploit any uncertainty about the cause of market outcomes to credit surprisingly positive results to the dominant, “strategic” factor and blame surprisingly negative results on the other—as doing so is psychologically rewarding. The problem with biased attributions, however, is that they prompt biased decisions. We motivate this argument with evidence from one experiment and then develop a model to understand the cost of the bias under different market conditions. Counter to intuition, we find that firms in a competitive setting can profit from the self-serving nature of their managers.

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Cashback is Cash Forward: Delaying a Discount to Entice Future Spending

Journal of Marketing Research

The authors examine purchase behavior in the context of cashback shopping—a novel form of price promotion online in which consumers initiate transactions at the website of a cashback company and, after a significant delay, receive the savings promised to them. Specifically, they analyze panel data from a large cashback company and show that, independent of the predictable effect of cashback offers on initial demand, cashback payments (1) increase the probability that consumers will make an additional purchase via the website of the cashback company and (2) increase the size of that purchase. These effects pass several robustness checks and are also meaningful: At average values in the data, an additional $1.00 in cashback payment increases the likelihood of a future transaction by .02% and spending by $.32—figures that represent 10.03% of the overall impact of a given promotion. Moreover, the authors find that consumers are more likely to spend the money returned to them at generalist retailers, such as department stores, than at other retailers. They consider three explanations for these findings; the leading hypothesis is that consumers fail to treat money as a fungible resource. They also discuss implications for cashback companies and retailers.

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Beyond Posted Prices: The Past, Present, and Future of Participative Pricing Mechanisms

Customer Needs and Solutions

Driven by the low transaction costs and interactive nature of the internet, customer participation in the price-setting process has increased. Today, platforms such as eBay have popularized online auctions on a global scale, Priceline has made headlines with its name-your-own-price (NYOP) business model, and Humble Bundle has enabled independent musicians and game developers to market their works through pay-what-you-want (PWYW) pricing. Advertising exchanges conduct several hundred million individual auctions per day to sell online advertising slots. The present paper contributes to the literature on participative pricing in three ways. First, we propose a definition of participative pricing mechanisms, as well as a useful taxonomy. Second, we discuss the current understanding by synthesizing conceptual and empirical academic literature. Third, we outline promising research questions with a key focus on the related behavioral aspects of buyers and sellers.

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Money, Time, and the Stability of Consumer Preferences

Journal of Marketing Research

Consumers often make product choices that involve the consideration of money and time. Building on dual-process models, we propose that these two basic resources activate qualitatively different modes of processing: while money is processed analytically, time is processed more affectively. Importantly, this distinction then influences the stability of consumer preferences. An initial set of three experiments demonstrate that, compared to a control condition free of the consideration of either resource, money consideration generates significantly more violations of transitivity in product choice, while time consideration has no such impact. The next three experiments use multiple approaches to demonstrate the role of different processing modes associated with money versus time consideration in this result. Finally, two additional experiments test ways in which the cognitive noise associated with the analytical processing that money consideration triggers could be reduced, resulting in more consistent preferences.

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Price Promotion for Emotional Impact

Journal of Marketing

Managers and academics often think of price promotions merely as incentives that entice consumers to accept offers that they might not have considered otherwise. Yet the prospect of paying a lower price for a product of given quality can also discourage deliberation, in a sense “dumbing down” the purchase encounter by making it less consequential. The authors examine this possibility in a dual-system theory of consumer behavior. Specifically, they argue that price promotion lowers a consumer’s motivation to exert mental effort, in which case purchase decisions are guided less by extensive information processing and more by a quicker, easier, strong conditioner of preference: affect. Field data from a large daily deal company and four controlled experiments support this idea and document its implications primarily for product choice, in turn providing insight into the form and cause of brand switching that manufacturers and retailers can leverage to improve the allocation of promotional budgets and category management.

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The Discriminating Consumer: Product Proliferation and Willingness to Pay for Quality

Journal of Marketing Research

The authors propose that a crowded product space motivates consumers to better discriminate between options of different quality. Specifically, this article reports evidence from three controlled experiments and one natural experiment that people are prepared to pay more for high-quality products and less for low-quality products when they are considered in the context of a dense, as opposed to a sparse, set of alternatives. To explain this effect, the authors argue that consumers uncertain about the importance of quality learn from observing market outcomes. Product proliferation reveals that other consumers care to discriminate among similar alternatives, and in turn, this inference raises the importance of quality in decision making.

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The Impact of Add-On Features on Consumer Product Evaluations

Journal of Consumer Research

The research presented in this article provides evidence that add-on features sold to enhance a product can be more than just discretionary benefits. We argue that consumers draw inferences from the mere availability of add-ons, which in turn lead to significant changes in the perceived utility of the base good itself. Specifically, we propose that the improvements supplied by add-ons can be classified as either alignable or nonalignable and that they have opposing effects on evaluation. A set of four experiments with different product categories confirms this prediction. In addition, we show that the amount of product information available to consumers and expectations about product composition play important moderating roles. From a practical standpoint, these results highlight the need for firms to be mindful of the behavioral implications of making add-ons readily available in the marketplace.

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Attention Arousal through Price Partitioning

Marketing Science

Existing evidence suggests that preferences are affected by whether a price is presented as one all-inclusive expense or partitioned into a set of mandatory charges. To explain this phenomenon, we introduce a new mechanism whereby price partitioning affects a consumer’s perception of the secondary (i.e., nonfocal) benefits derived from a transaction. Four experiments support the hypothesis that a partitioned price increases the amount of attention paid to secondary attributes tagged with distinct price components. Characteristics of the offered secondary attributes such as their perceived value, relative importance, and evaluability can therefore determine whether price partitioning stimulates or hinders demand. Beyond its descriptive and prescriptive implications, this theory contributes to the emerging notion that pricing can transform, as well as capture, the utility of an offer.

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Price as a Stimulus to Think: The Case for Willful Overpricing

Marketing Science

Consumers aware of a new benefit will often experience uncertainty about its personal relevance or usage value. This paper shows that the decision to deliberate further to resolve this uncertainty and reach a polarized judgment of personal relevance critically depends on the posted price. In particular, a price above the consumer’s initial willingness to pay might be thought provoking and enhance the perception of relevance with a certain probability. This behavioral mechanism is introduced formally and by way of an experiment with reference to the purchase of organic lettuce and fair-trade coffee. Accounting for the effect of price as a stimulus to think, a monopolistic firm should either over price (“transgressive pricing”) or under price (“regressive pricing”) in comparison to the consumer’s willingness to pay. Under certain circumstances, the firm should also empower consumers with means that reduce the effort of deliberation.

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For Business

A Novel Architecture to Monetize Digital Offerings

Journal of Revenue and Pricing Management

As commerce continues to shift to the digital domain, organizations respond by improving and evolving their approach to creating value for customers. When the time comes to convert digital anything into cash they can bank, the same organizations, however, seem stuck in time. The purpose of the article is to highlight this inconsistency and, importantly, propose a solution. First, we leverage the literature on freemium and participative pricing mechanisms to lay the foundations for a revenue architecture fit for the digital economy. We argue in favour of three building blocks: empowerment, dialog, and reputation. Second, we describe FairPay as a promising configuration of these factors.

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When It’s Time to Expand Beyond the Base

Harvard Business Review

The new CMO of an extreme-race company is on the hook to come up with a way to further monetize the underexploited brand while also fixing customer pain points related to the registration process. She and the COO propose a premium membership that allows die-hard fans to buy early access to race registration, but tests on social media reveal strong animosity toward the program among some racers. Should the company pull the plug or move forward, potentially upsetting the company’s most loyal customers? This fictional case study features expert commentary by Michael Bolingbroke and Huib van Bockel.

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Put the Customers’ Money Where Your Mouth Is

Dear CEO: 50 Personal Letters from the World’s Leading Business Thinkers

Most enterprises strive to understand their customers and organise to deliver meaningful solutions. Market orientation as a management philosophy is excellent, yet even the most customer-loving ventures fail to take the logic full circle. When it comes to making money from the value they work hard to create, businesses often revert to old habits and, rather than taking a hard look at customers, they take a hard look at what they sell. This is clearly inefficient and, given today’s technology, likely a dangerous omission.

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Can one business unit have two revenue models?

Harvard Business Review

Peter Noll, a pharmaceutical company division chief, ponders the varying business models of two units that have just merged. Both have for years employed flexible, inventive strategies to good effect, but Noll is inclined to impose a single model on the combined entity. The two unit heads, however, make compelling arguments for being left to do their business as usual. What choice should Noll make? Expert commentary comes from Bodo Eickhoff, of Roche Diagnostics Deutschland, and Eric Achtmann, a tech investor and corporate adviser to Costa Coffee.

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Price Wars and the Managers Who Start Them

Business Strategy Review

Price wars are a fact of business life. While customers relish the opportunity to save some money for most companies they are an unwelcome, often unwarranted hazard that is best avoided. Yet, despite the apparent downside for business, intensive price competition is surprisingly common. So what is going on? Who exactly is to blame? Research by Marco Bertini sheds new light on their instigators.

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When Customers Help Set Prices

MIT Sloan Management Review

To many managers, the idea of involving customers in pricing decisions seems counterproductive. For most companies, pricing is a sensitive, private affair. But it may be time to re-examine those ideas. Letting customers have input on prices provides opportunities for customization and can promote greater customer engagement. Opening up customer participation also offers a way for companies to create a new sense of excitement.

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The Price of Olympic Success

Business Strategy Review

Pricing almost eight million tickets for the 2012 London Olympic Games was a hugely complex challenge. How could those in charge of the Olympics, billed as ‘Everybody’s Games’, juggle the clashing objectives of the event’s many stakeholders? Marco Bertini spoke with Stuart Crainer about the challenge of Olympic ticketing and what it reveals about setting the price of all goods in the future, especially given today’s savvy consumers and the new technologies that are changing the way business is done.

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Pricing to Create Shared Value

Harvard Business Review

Many companies are in competition with their customers to extract as much value as possible from every transaction. Pricing is their weapon of choice, and consumers fight back by rooting out and disseminating pricing policies that seem unfair. The problem is that companies generally think of value as a pie that is rightfully theirs. But value is not fixed, and it neither originates with nor belongs solely to the firm. Without a willing customer, there is no value. Instead of using pricing in a way that turns customers into adversaries, companies can use it to enlarge the pie. That means viewing customers as partners in value creation–a collaboration that increases customers’ engagement and taps their insights about the value they seek and how firms could deliver it. The result can be new revenue, increased customer satisfaction and loyalty, positive word of mouth, and cost savings. The multiyear process to price the 8 million tickets to the upcoming London 2012 Olympic Games suggests five principles for using pricing to create shared value: Focus on relationships, not on transactions, by using pricing to communicate that you value customers as people; set prices proactively to discourage detrimental behavior and to encourage behavior that is beneficial to both your firm and your customers; allow prices to change in response to shifting customer needs; promote transparency by providing the rationale for your pricing; and make sure that prices and the processes by which they are set meet consumers’ expectations about what is fair.

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The Perils of Popularity

Business Strategy Review

The iPhone’s worldwide success would seem to be an unqualified win-win for Apple and the mobile operators that sell it. Not so, as Marco Bertini and Ricardo Cabornero explain, mobile operators must maintain a delicate balance between winning new customers and retaining existing ones. This task is made more difficult when their own brands can actually be diminished by selling the iPhone.

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Do Social Deal Sites Really Work?

Harvard Business Review

The stream of customers who visit Flanagan Theme Parks has started to dwindle. The fictional Australian company must decide, with the help of consultant Allie James, whether to try to attract a whole new crop of customers using DailyDilly, a fast-growing social-coupon venture. Allie and Ruth Davison, Flanagan’s marking director, take a lunchtime tour of the marketing landscape to answer a key question for any company that is considering such an initiative: “Are daily deal seekers the right kind of customers for our business?” Expert commentary comes from Gideon Lask, the founder of BuyaPowa, a UK-based social media business; and Al Bhakta, CEO of Genghis Grill, a Dallas-based restaurant chain. HBR’s online readers also weigh in.

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The Upstart’s Assault

Harvard Business Review

TelZip, a small mobile-network operator, has decided to shake up the European telecommunications market by offering “free forever” broadband service to customers who sign a long-term contract with the company. Meridicom, the dominant industry player, must decide how to respond. Joe Ulan, the incumbent’s new chief marketing officer, gets conflicting advice: The product division heads don’t like the idea of discounting their products or even of working together; the sales director wants to kill the competition with a price war. How can Joe turn this attack into an opportunity? With commentary by Georg Tacke, co-CEO of Simon-Kucher & Partners, and Anne Gro Gulla, Group Branding Director for Telenor Group.

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How to Stop Customers from Fixating on Price

Harvard Business Review

Surprisingly, your best tool for getting customers to see beyond price may be the price itself. New research finds that four pricing moves in particular can cause buyers to stop treating your offering as a commodity and instead consider its quality and relevance to their individual needs. You can change the basis of your pricing structure, as Goodyear did when it priced tires according to how many miles they would last. You can stimulate curiosity with willful overpricing, as Burt’s Bees does with its natural beauty products. You can partition a price into component charges to make customers notice a key benefit-as IKEA does by charging separately for a table’s top and legs, reminding people of its useful modularity. Or you can price the options you provide uniformly-as Apple does when it charges 99 cents for any track on iTunes-so that customers simply focus on their preferences. The power of each of these strategies is illuminated by controlled studies the authors conducted to understand the link between price and customer attention.

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Time for a Unified Campaign?

Harvard Business Review

Alegre, a leading hotel group in Central and South America, is suffering under the troubled economy, and its newest property, the flagship Palma Cay in Cozumel, is hurting most. Beatriz Soto, Palma Cay’s manager, has a plan to boost bookings, but she doesn’t have the money to carry it out. Should corporate headquarters grant her additional funds, despite the company’s traditionally decentralized operations? Or should Alegre think about launching its very first portfolio-wide campaign? With commentary by Raul Gonzalez, the CEO of Barcelo Hotels & Resorts for Europe, the Middle East, and Africa; and Kevin Lane Keller, the E.B. Osborn Professor of Marketing at Dartmouth’s Tuck School of Business.

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