ARTICLES

For Academia

Pricing and Supply Chain Transparency to Conscientious Consumers

Working paper

This paper studies how a firm should make pricing and transparency decisions when consumers care about supply chain characteristics. We first show how preferences that account for price and unit cost constrain the firm’s pricing power and profit. Surprisingly, we find that the firm may be forced to sell at unit cost under markup aversion. Next, we assume that consumers are uncertain about unit cost and show that, in a pooling equilibrium, it is optimal for both the low-cost and high-cost firm to conceal its unit cost if the cost of disclosure exceeds the corresponding gain from demand expansion. Third, we show that in a separating equilibrium it is optimal for the high-cost firm alone to engage in cost transparency when the increase in product market profit exceeds the cost of disclosure. Finally, we establish the conditions under which it is optimal for the firm to disclose other details of the supply chain including provenance, labor policies, and environmental footprint.

Price Disclosure: Should Firms Delay the Inevitable?

Working paper

This paper reports the first empirical test of a question long debated by managers across industries: Is it better to show my prices upfront or later in a purchase process? Specifically, we report three field experiments, conducted offline and online with a leading retailer of household appliances and consumer electronics, in which prices were communicated to thousands of shoppers alongside the corresponding product or with a minimal delay. These experiments consistently show that timing the disclosure of prices matters, in so far that it has statistically and economically significant impact on sales revenue. However, surprisingly, while delaying prices had a positive effect when consumers approached the retailer, the effect was negative when the retailer took the initiative. We use this evidence to describe a conceptual model and propose ways in which marketing research can contribute further to the ongoing debate.

Does Cash Really Mean Trash? An Empirical Investigation into the Effect of Retailer Price Promotions on Household Food Waste

Working paper

Retailer price promotions, and in particular multibuys such as the popular “buy-one-get-one-free,” are often criticized as a leading cause of household food waste, presumably because they lure shoppers into buying more than they can realistically consume. In this research, the authors combine household scanner panel data and survey data from a natural experiment to conduct the first systematic, large-scale test of this claim. Households reported consumption, storage, and disposal of perishable foods purchased at regular prices, at a straight discount, or on a multibuy. Contrary to public opinion, households in either price promotion condition clearly did not report wasting more food than did households that purchased at regular prices. In fact, our analysis shows that food purchased on a multibuy was wasted less, and that households in this condition reported consuming more and taking more preventive action than did households in the regular price condition. These findings are relevant to marketing scholars interested in food waste or price promotions, and to marketing professionals and regulators interested in the broader societal impact of promotional tactics.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.