Pandemics, natural disasters (e.g., hurricanes, droughts, fires), strikes, piracy, and other events can unexpectedly disrupt supply or spike demand, creating shortages. Unlike ordinary stockouts ...caused by store-specific inventory policies, shortages involve the entire supply chain. One tool for managing shortages is imposing purchase limits. Purchase limits restrict the quantity each shopper can purchase of the scarce product (e.g., gasoline, toilet paper, sanitizers, meat, batteries), possibly increasing availability to other shoppers. Although altruistic stores might use purchase limits for egalitarian goals (e.g., reducing hoarding, waste, panic buying, arbitrage, unfair distribution), the authors find that profit-maximizing stores can use purchase limits to increase profits during shortages. These findings suggest that stores’ price-and-limit strategies depend on shortage severity, store size, competition, and seasonality. For moderate shortages, large multiproduct stores, where average shopping basket sizes are large, should maintain low prices and impose limits, whereas small stores should increase prices and not impose limits. For severe shortages, by contrast, large stores should keep low prices but not impose limits, whereas small stores should increase prices and impose limits. Generally, large stores benefit from increased future store traffic when they impose limits. Interestingly, purchase limits can improve both store profits and, with lower prices, consumer surplus.
This article studies the intersection between the largest U.S. industry—health care—and the $1 trillion nonprofit sector. Using analytical and empirical analyses, the authors reveal the marketing ...strategies helping private nonprofit hospitals achieve higher output, prices, and profits than for-profit hospitals. Nonprofit hospitals, focusing on both profits and output, obtain these outcomes by expanding their service mix with high-priced premium specialty medical services (PSMS), whereas for-profit hospitals can be more profitable with higher prices for basic services. Competition increases the differences between nonprofit and for-profit hospitals in PSMS breadth, output, and prices. Nonprofit hospitals lose their competitive advantage when competing with other nonprofits; that is, presence of a for-profit competitor broadens available nonprofit PSMS. With broader service mixes, nonprofits focus more on national advertising than for-profits because PSMS (e.g., pediatric trauma, neurosurgery, heart transplants, oncology) require larger geographic markets than local basic services (e.g., laboratory, diagnostics, nursing, pharmaceutics). Exogenous, heterogeneous state regulations restricting for-profit hospital entry help econometric identification (i.e., markets prohibiting for-profits act as controls). Service mix may be a key difference between nonprofit and for-profit hospitals.
Managing Channel Profits Jeuland, Abel P; Shugan, Steven M
Marketing science (Providence, R.I.),
01/2008, Letnik:
27, Številka:
1
Journal Article
Recenzirano
A channel of distribution consists of different channel members each having his own decision variables. However, each channel member's decisions do affect the other channel members' profits and, as a ...consequence, actions. A lack of coordination of these decisions can lead to undesirable consequences. For example, in the simple manufacturer-retailer-consumer channel, uncoordinated and independent channel members' decisions over margins result in a higher price paid by the consumer than if those decisions were coordinated. In addition, the ensuing suboptimal volume leads to lower profits for both the manufacturer and the retailer.
This paper explores the problems inherent in channel coordination. We address the following questions.
—What is the effect of channel coordination?
—What causes a lack of coordination in the channel?
—How difficult is it to achieve channel coordination?
—What mechanisms exist which can achieve channel coordination?
—What are the strengths and weaknesses of these mechanism?
—What is the role of nonprice variables (e.g., manufacturer advertising, retailer shelf-space) in coordination?
—Does the lack of coordination affect normative implications from in-store experimentation?
—Can quantity discounts be a coordination mechanism?
—Are some marketing practices actually disguised quantity discounts?
We review the literature and present a simple formulation illustrating the roots of the coordination problem. We then derive the form of the quantity discount schedule that results in optimum channel profits.
This article was originally published in Marketing Science , Volume 2, Issue 3, pages 239–272, in 1983.
Many sellers bundle add-ons (e.g., in-flight entertainment, hotel amenities) with core services (e.g., transportation, lodging). One surprising empirical finding is that consumers often believe ...bundle frames provide greater value than equivalent unbundle frames ($10 > $9 + $1) despite equal all-inclusive prices. Although these context or framing effects appear irrational in isolation, the bundle-framing effect might reflect market relationships caused by underlying seller motives. We show that bundling can signal information about product appeal, that is, popularity. Specifically, only sellers of wide-appeal (popular) add-ons (e.g., well-liked entertainment, sought-after hotel amenities, standard side salads, popular excursions) have an incentive to bundle their add-ons with their core products (e.g., flights, hotel rooms, restaurant entrées, cruise trips). By contrast, sellers of narrow-appeal (niche) add-ons (e.g., unorthodox entertainment, unpopular amenities, exotic side salads, unusual excursions) find that bundling is undesirable because they lose core revenue. Consequently, bundling can convey information about horizontally differentiated markets even when the total all-inclusive price equals that of unbundling. Perhaps some presumed consumer biases can reveal market relationships. Frames provide information about the framer.
The online appendix is available at
https://doi.org/10.1287/mksc.2018.1097
.
Brand loyalty and the more modern topics of computing customer lifetime value and structuring loyalty programs remain the focal point for a remarkable number of research articles. At first, this ...research appears consistent with firm practices. However, close scrutiny reveals disaffirming evidence. Many current so-called loyalty programs appear unrelated to the cultivation of customer brand loyalty and the creation of customer assets. True investments are up-front expenditures that produce much greater future returns. In contrast, many so-called loyalty programs are shams because they produce liabilities (e.g., promises of future rewards or deferred rebates) rather than assets. These programs produce short-term revenue from customers while producing substantial future obligations to those customers. Rather than showing trust by committing to the customer, the firm asks the customer to trust the firmthat is, trust that future rewards are indeed forthcoming. The entire idea is antithetical to the concept of a customer asset. Many modern loyalty programs resemble old-fashioned trading stamps or deferred rebates that promise future benefits for current patronage. A true loyalty program invests in the customer (e.g., provides free up-front training, allows familiarization or customization) with the expectation of greater future revenue. Alternative motives for extant programs are discussed.
Product lines are ubiquitous. For example, Marriott International manages high-end ultra-luxury hotels (e.g., Ritz-Carlton) and low-end economy hotels (e.g., Fairfield Inn). Firms often bundle core ...products with ancillary services (or add-ons). Interestingly, empirical observations reveal that industries with ostensibly similar characteristics (e.g., customer types, costs, competition, distribution channels, etc.) employ different bundling strategies. For example, airlines bundle high-end first class with ancillary services (e.g., breakfast, entertainment) while hotel chains bundle ancillary services (e.g., breakfast, entertainment) at the low-end. We observe, unlike hotel lines that are highly differentiated at different geographic locations, airlines suffer low core differentiation because all passengers (first-class and economy) are at the same location (i.e., same plane, weather, delays, cancellations, etc.). In general, we find product lines with low core differentiation (e.g., airlines, amusement parks) routinely bundle high-end while product lines with highly differentiated cores (e.g., hotels, restaurants) routinely bundle low-end. High-end bundling makes the high-end more attractive, increasing line differentiation (less intraline competition) while low-end bundling decreases line differentiation. Therefore, bundling allows optimal differentiation given a differentiation constraint (complex costs). Last, firms may use strategic bundling for targeting in their core products; e.g., low-end hotels bundle targeted add-ons unattractive to high-end consumers such as lower-quality breakfasts and slower Internet.
Data, as supplemental material, are available at
https://doi.org/10.1287/mksc.2016.1004
.
Advance selling occurs when sellers allow buyers to purchase at a time preceding consumption (Shugan and Xie 2000). Electronic tickets, smart cards, online prepayments, and other technological ...advances make advance selling possible for many, if not all, service providers. These technologies lower the cost of making complex transactions at a greater distance from the seller's site. They also give sellers more control over advance selling by decreasing arbitrage. As technology enhances the capability to advance sell, more academic attention is vital. This paper strives to exploit these technologies by developing advance-selling strategies.
Until recently, advance-selling research focused on the airline industry and specific characteristics of that industry. These characteristics included the price insensitivity of late arrivals (e.g., business travelers) compared with early arrivals (e.g., leisure travelers), demand uncertainty across flights on the same day, and capacity constraints. Recent findings by Shugan and Xie (2000) show that advance selling is a far more general marketing tool than previously thought. It does not require these industry-specific characteristics. It only requires the existence of buyer uncertainty about future valuations. Moreover, sellers without the ability to price discriminate can use advance selling to improve profits to the level of first-degree price discrimination. This finding is important because buyers are nearly always uncertain about their future valuations for most services (e.g., the utility of next year's vacation or a future college education).
In this paper, we take the next step from Shugan and Xie (2000). We show that advance-selling profits do not come from buyer surplus, but from more buyers being able to purchase. We determine when and how to advance sell in a variety of situations, including situations with limited capacity, second-period arrivals, refunds, buyer risk aversion, exogenous credibility, continuous preference distributions, and premium pricing. We determine when advance selling improves profits and, when it does, how to set advance prices. We ask and answer seven questions. First, when should sellers advance sell? Second, how much can advance selling improve profits compared with only spot selling? Third, what factors impact the profitability of advance selling and how? Fourth, should advance prices be higher or lower or the same as spot prices? Fifth, how do capacity constraints impact advance-selling strategies? Sixth, should sellers limit the number of advance sales? Finally, what is the possible impact of buyer risk aversion?
First, we provide precise conditions when sellers should advance sell. For example, without capacity constraints, we show that sellers should advance sell when marginal costs are sufficiently low to make it profitable to sell to buyers with low valuations and sufficiently high to convince buyers that the spot price will be higher than the advance price.
Second, we find that advance selling can almost double the profits from optimal spot selling to early arrivals. We also show that advance selling has no impact on consumer surplus in markets with homogenous consumers and no capacity constraints. Therefore, advance selling can increase social welfare because seller profits increase.
Third, we find that two very important factors impacting the profitability of advance selling are seller credibility and marginal costs. Buyers only advance buy when they expect an advantage from advance buying over spot buying. Without capacity constraints, sellers must credibly convince buyers that the advance price is at a discount to the spot price. We show that this condition is met under different circumstances. For example, large marginal costs can create credibility because buyers believe that these costs will lead to high spot prices.
Fourth, we find (although optimal advance prices can be at a discount to the spot price) that sometimes a premium is optimal. Premiums are optimal when capacity is large (but limited) and marginal costs are not too large. Buyers advance purchase at a premium to spot prices when capacity is limited and spot prices are low. (Note that this is not a risk premium, and risk aversion is not required.) No prior research has suggested this strategy because that research relies on the assumption that early arrivals are more price sensitive than later ones. Without that assumption, premium advance pricing is sometimes optimal.
Fifth, we find that binding capacity constraints can impact the profitability of advance selling in opposite ways. On one hand, capacity constraints create seller credibility. Buyers believe that spot prices will be high when they know spot capacity is limited (and, perhaps, more limited by advance sales). On the other hand, when capacity is limited, the need to increase sales from discounted advance prices diminishes.
Sixth, consistent with Desiraju and Shugan (1999) we find that limiting advance sales can be profitable, but only under restrictive conditions. These conditions are: (1) selling to all early arrivals would leave insufficient capacity in the spot period to sell to all second-period arrivals with high valuations, (2) the optimal spot price is high, and (3) marginal costs are sufficiently small to make advance selling profitable.
Finally, we find that buyer risk aversion can sometimes increase the profitability of advance selling.
Our findings provide precise guidelines for a large number of service providers that will have the technical capability to advance sell. For those service providers, advance selling provides a creative pricing strategy that can potentially provide substantial improvements in profits.
A Theory for Market Growth or Decline Shugan, Steven M.; Mitra, Debanjan
Marketing science (Providence, R.I.),
01/2014, Letnik:
33, Številka:
1
Journal Article
Recenzirano
Market growth is fundamental to marketing. Frank Bass's seminal diffusion theory explains growth in new product markets. We develop an analogous theory for established markets exhibiting sporadic ...growth or intermittent declines.
Our theory suggests that market participants repeatedly take successful and unsuccessful actions that cause them to change or to mutate in myriad and often unpredictable ways. The environment sorts these mutations, determining winners and losers. Abundant mutations often cause different market participants to become winners, displacing past winners. Abundant mutations also often cause market growth because the natural selection mechanism leaves more surviving favorable mutations. So one nonobvious falsifiable implication of our theory is that displacement precedes growth and stability precedes decline. Another is that risk taking, diversity of opinions, and experimentation should precede growth.
We develop a metric for measuring displacement. Using multiple publicly available data sets (one including sales for top firms for 55 years and another including sales for all automobile models for 25 years), we find that our metric provides a practical way to measure the rate of mutation and confirm our theory's predictions. Our easily replicated tests show that our displacement metric can predict intermittent market growth or decline in very different contexts without the need for exogenous idiosyncratic explanations. Moreover, other alternative covariates (trends, lagged growth, new product entry, macroeconomic indicators, etc.) are unable to predict growth or decline.
Advance selling before the time of consumption is now possible for even very small service providers, given new technologies (specifically, web-based transactions, biometrics and smart card ...technology). Moreover, recent research has revealed that advance selling can substantially improve profits without traditional price discrimination. However, that research was limited to monopoly settings.
This paper explores the impact of competition on advance selling driven by consumer uncertainty about future consumption states (rather than price discrimination). We employ several different demand specifications to provide three major findings. First, unlike yield management (driven by price discrimination), the relative profit advantage from advance selling (driven by consumer uncertainty about future consumption states) in a competitive market can be higher or the same as that in a monopoly market. For every demand specification that we investigate, competition
does not diminish the advantage of advance selling. The reason is that price discrimination leaves some groups (i.e., those being discriminated against) vulnerable to competitors (e.g., price discounts) and competition weakens discrimination. In contrast, consumer uncertainty applies to all consumers in the advance period so a competitor is unable to focus attention on only one group of consumers. However, in some demand specifications, the existence of competitors can limit the situations when an advance selling equilibrium exists because of the ability to unilaterally spot sell and damage profits of the seller who advance sells. Second, in some demand specifications, advance selling can create a win–win–win situation where the profits of two competitors increase while consumer surplus increases because advance selling allows greater market participation. Third, competition can strengthen the conditions under which advance selling is advantageous compared with spot selling.
Hence, advance selling can be a very effective marketing tool in a competitive setting (albeit under more restrictive conditions than in a monopoly setting). It is a tool that can diminish competition and, unlike price discrimination, increase buyer surplus.
Academic research in marketing often and rightfully tends to either build on well-established past research topics or follow well-established practices in industry. However, as technology advances, ...it might be possible to foresee some more enduring trends and focus research on future issues rather than on past issues.
One approach would be to study emerging technologies with rapidly declining costs. Each of these emerging technologies spawns myriad applications that have the potential to dramatically impact existing markets. Interesting research topics include the study of the impact of these applications on different market participants (e.g., final consumers, the seller, the seller of complementary services, intermediaries, information providers, competitors, other industries). Research topics also include the optimal structure for products and services, given these new applications, as well as which intermediary should offer particular services. Research topics also include the interactive ability to rapidly customize marketing strategy by identifying individuals at particular points in time and under particular demand conditions. Five of these technologies include enhanced search services, biometrics and smart cards, enhanced computational speed, M-commerce, and GPS tracking.
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