"On Intertemporal Selfishness: How the Perceived Instability of Identity Underlies Impatient Consumption"
Daniel M. Bartels and Oleg Urminsky
Journal of Consumer Research, 38(1), 182-198, (2011)
Many of life’s major decisions involve trading off consumption or happiness in the immediate future with (more) consumption or happiness delayed to the more distant future. However, your distant future self may be a very different person than you are now, and we show that this factor strongly influences intertemporal preferences. Specifically, we explore connectedness to the future self as an explanation of intertemporal preferences for consumer goods. Smaller, immediate benefits may be more attractive when you are more closely connected psychologically to your tomorrow’s self than to the future self that would receive deferred benefits. We show that when people’s own sense of continuity with the future self is reduced, they accept smaller, sooner rewards, become less willing to wait to buy a computer in order to save money, and demand a larger premium to delay receipt of a gift card. When discontinuity with the future self is anticipated, people behave relatively impatiently—choosing to speed up the consumption of utility—than when connectedness to the future self is perceived.
"Discrete Choice Models of Consumer Demand in Marketing"
Pradeep K. Chintagunta with Harikesh Nair
Marketing Science, 30(6), 977–996, (2011)
Marketing researchers have used models of consumer demand to forecast future sales, to describe and test theories of behavior, and to measure the response to marketing interventions. The basic framework typically starts from microfoundations of expected utility theory to obtain an econometric system that describes consumers’ choices over available options, and to thus characterize product demand. The basic framework has been augmented significantly to account for quantity choices, to accommodate purchases of several products on a single purchase occasion (multiple discreteness and multicategory purchases), and to allow for asymmetric switching between brands across different price tiers. These extensions have enabled researchers to bring the analysis to bear on several related marketing phenomena of interest. This paper has three main objectives. The first objective is to articulate the main goals of demand analysis—forecasting, measurement, and testing—and to highlight several considerations associated with these goals. Our second objective is to describe the main building blocks of individual-level demand models. We discuss approaches built on direct and indirect utility specifications of demand systems, and we review extensions that have appeared in the marketing literature. The third objective is to explore a few emerging directions in demand analysis, including considering demand-side dynamics, combining purchase data with primary information, and using semiparametric and nonparametric approaches. We hope researchers new to this literature will take away a broader perspective on these models and see the potential for new directions in future research.
"Effect of Marketing Contacts in Business Markets"
Pradeep K. Chintagunta, V. Kumar, S. Sriram, and Anita Luo
Marketing Science, 30(5), 924-940, (2011)
Recent research has empirically characterized the buyer-seller relationship as dynamically evolving from one discrete state to another. Conventional wisdom would suggest that a customer in a higher relationship state that has a higher transaction value would also have greater lifetime value to the firm. However, recent evidence suggests that higher relationship states can be ephemeral. Hence, the link between transaction value and lifetime value is not obvious. In this study, we seek to understand, within a specific empirical context, (i) the relationship between a customer's transaction value and that customer's lifetime value and (ii) the relationship between the lifetime value of a customer and the optimal level of marketing activity that needs to be directed at that customer. To this end, we develop a trivariate Tobit hidden Markov model that allows for (a) transitions among relationship states, (b) possible synergies between the various products that the supplier firm offers, (c) endogeneity in marketing activity, (d) heterogeneity in model parameters, and (e) the presence of the no purchase option. Our results reinforce recent findings by Schweidel et al. [Schweidel, D. A., E. T. Bradlow, P. S. Fader. 2011. Portfolio dynamics for customers of a multiservice provider. Management Sci. 57(3) 471-486] that higher relationship states can be short-lived. Importantly for the supplier firm, a customer in the highest relationship state in a given period does not yield the highest lifetime value to the firm. Hence, the relationship between transaction value (i.e., relationship state) and lifetime value can be nonmonotonic. At the same time, we also find a nonmonotonic relationship between the optimal expenditures that should be directed at a customer and that customer's lifetime value; i.e., the optimal level of marketing contacts is not the highest for customers with the highest lifetime value. Furthermore, we find that the optimal marketing expenditures for myopic agents are 14 - 33 percent lower than the corresponding values for forward-looking agents. Therefore, not accounting for the long-term effects of marketing contacts would lead to suboptimal marketing budgets. Moreover, a comparison with the current marketing expenditures suggests that the current practice is closer to the myopic policy than to the forward-looking one.
"A New Multivariate Count Data Model to Study Multi-Category Physician Prescription Behavior"
Pradeep K. Chintagunta, Xiaojing Dong and Puneet Manchanda
Quantitative Marketing & Economics, 9(3), 301-337, (2011)
Multivariate count models represent a natural way of accommodating data from multiple product categories when the dependent variable in each category is represented by a positive integer. In this paper, we propose a new simultaneous equation multicategory count data model - the Poisson-lognormal simultaneous equation model - that allows for the Poisson parameter in one equation to be a function of the Poisson parameters in other equations. While generally applicable to any situation where simultaneity is an issue and the dependent variables are measured as counts, such a specification is particularly useful for our empirical application where physicians prescribe drugs in multiple categories. Accounting for the endogeneity of detailing in such situations requires us to explicitly allow for pharmaceutical firms' detailing activities in one category to be influenced by their activities in other categories. Estimation of such a system of equations using traditional maximum likelihood method is cumbersome, so we propose a simple solution based on using Markov Chain Monte Carlo methods. Our simulation study demonstrates the validity of the solution algorithm and the biases that would result if such simultaneity is ignored in the estimation process.
"Tariff Choice with Consumer Learning and Switching Costs"
Ronald Goettler and Karen Clay
Journal of Marketing Research, 48 (4), 633-652, (2011)
Consumers choosing at-rate contracts tend to have insufficient usage to warrant the cost, particularly for new products. We propose and estimate a Bayesian learning model of tariff and usage choice that explains this “at-rate bias” without relying on behavioral misjudgments or tariff-specific preferences. For new products, consumers are uncertain about both their utility relative to the population mean and the mean itself. We show that this latter uncertainty inates prior variances, which leads consumers to weight their private signals more heavily when updating beliefs. Posteriors are unbiased across products. For a given product, however, the unknown mean yields a “winner's curse”: consumers with high posteriors tend to overestimate their utility. These consumers choose fixed-rate tariffs and lower their usage as they correct their beliefs. The at-rate bias arises when switching costs deter them from changing tariffs. Using the estimated model, we find tariff menus are ineffective screening devices for price discrimination by an online grocer. Predicted revenues increase by 20 percent when the per-use tariff is dropped, since more consumers choose and stay with the at rate.
"Does AMD Spur Intel to Innovate More?"
Ronald L. Goettler and Brett Gordon
Journal of Political Economy, 119(6), 1141-1200, (2011)
We estimate an equilibrium model of dynamic oligopoly with durable goods and endogenous innovation to examine the effect of competition on innovation in the PC microprocessor industry. Firms make dynamic pricing and investment decisions while consumers make dynamic upgrade decisions, anticipating product improvements and price declines. Consistent with Schumpeter, we find the rate of innovation in product quality would be 4.2 percent higher without AMD present, though higher prices reduce consumer surplus by $12 billion per year. Comparative statics illustrate the role of product durability and provide implications of the model for other industries.
"The Supremacy of Singular Subjectivity: Improving Decision Quality by Removing Objective Specifications and Direct Comparisons"
Christopher K. Hsee with Y. Liu, A. Yang, and L. Zhang
Journal of Consumer Psychology, 21(4), 393-404, (2011)
When making purchase decisions, consumers want objective product specifications and seek direct product comparison. The present research demonstrates that consumers can make better decisions (i.e., choose what yields a better consumption experience) if objective specifications are removed and direct comparison is inhibited than if not, and this is true even if consumers cannot experience the target products themselves at the time of choice (such as in online shopping). The reason is that consumption is largely subjective and noncomparative, and decisions based on subjective and noncomparative information are often more compatible with consumption. In general discussion, we explore the boundary conditions of our findings and the implications of this research for a new way of marketing that emphasizes subjectivity over objectivity and noncomparison over comparison.
"Gut Liking for the Ordinary: Incorporating Design Fluency Improves Automobile Sales Forecasts"
Aparna Labroo, Jan Landwehr, and Andreas Hermann
Marketing Science, 30 (3), 416-430, (2011)
Lab studies show that visual processing of prototypic but complex designs is surprisingly fluent and fluency evokes positive gut reactions that become associated with the design. But do such gut reactions impact important real-world purchases? Using car sales data, and creating objective design prototypicality and complexity measures that are independent of sales, we tested whether accounting for fluency can improve forecasting models. We professionally photographed the frontal designs of 28 popular models, morphed the images, and created objective prototypicality (car-to-morph Euclidian proximity) and complexity (size of a compressed image file) scores for each car. Incorporating the interactive influence of these two factors improved sales forecasts by up to 19 percent (controlling for brand preference, retail price, technological sophistication, and advertising), and the effects held for economy (functionality-oriented) and premium (identity-oriented) cars. Importantly, the measures were uncorrelated with each other or with the control predictors. These findings are counter to a common intuition that consumers like unusual-complex designs that reflect their individuality or prototypic-simple designs that are functional.
"Half the Thrill is in the Chase: Twisted Inferences from Embodied Cognitions"
Aparna Labroo and Jesper Nielsen
Journal of Consumer Research, 37(1), 143-158, (2011)
Do our bodies control our minds? That people approach positive outcomes is not surprising, but do people also infer an outcome is rewarding from their bodily sensation of approaching it, and does this positivity transfer indirectly to other outcomes linked in memory to the original outcome? We posit that, because people usually approach reward, they mistakenly infer that approach must equal reward. Thus, a sensation of approach, even toward a negative outcome, makes them feel more positively toward the negative outcome and associated outcomes. Experiment 1 demonstrates a positive effect of embodied movement in space toward an otherwise aversive product. Experiments 2 and 3 additionally show positive effects of psychological movement in time, using evaluative conditioning procedures, to associated stimuli in memory. Implications for downward spirals in habit formation—the idea that approaching one bad habit might increase liking of other bad habits—and affect regulation are discussed.
"Scope Insensitivity Justifications and the 'Mere Token' Effect"
Oleg Urminsky and Ran Kivetz
Journal of Marketing Research, 48(2), 282-295, (2011)
Decisions often involve trade-offs between a more normative option and a less normative but more tempting option. We propose that the intrapersonal conflict evoked by such choices involving incompatible goals can be resolved through scope insensitive justifications. We describe one such mechanism, the "mere token" effect, a new phenomenon in decision making. We demonstrate that adding a certain and immediate "mere token" amount to both options increases choices of the later-larger option in intertemporal choice and of the riskier larger option in risky choice. This effect is found to be scope insensitive, such that the size of the "mere" token amount does not moderate the effect. We show that intrapersonal choice conflict underlies the mere token effect and that reducing the degree of conflict by increasing the psychological distance to the choice outcomes debiases the effect. Further, we show that the mere token effect is enhanced (a) when opposing goals in choice are made salient and (b) when the choice options represent a starker contrast that generates greater conflict. We empirically rule out alternative explanations, including diminishing marginal utility, normative and descriptive utility-based models, liquidity constraints and naïve diversification. We discuss the direct implications of the mere token effect for the marketing of financial services, and more generally, for consumer preference toward bundles and multi-attribute products.