Public Service
Complaint Publicization in Social Media
Alireza Golmohammadi et al.
Journal of Marketing, forthcoming
Abstract:
Firms are increasingly turning to social media platforms for complaint handling. Past research and practitioners’ reports highlight the benefits of complaint handling on social media, urging firms to provide prompt and detailed responses to complaints. However, little research has explored the possible drawbacks of such practices, especially when responses inadvertently further publicize complaints. Utilizing two unique data sets in a series of observational and quasi-experimental analyses, this research provides the first evidence of complaint publicization in social media, a phenomenon in which firm responses to complaints on popular social media platforms increase the potential public exposure of complaints. This negative effect can outweigh any positive customer care-signaling impact from firm responses. The authors show that a response strategy that engenders a high level of complaint publicization – e.g., providing detailed responses through multiple communication exchanges with a complainant – could negatively impact perceived quality and firm value, diminish the positive impact of a firm’s own posts, and increase the volume of future complaints. Additional analyses reveal that these adverse impacts are stronger for firms that are targeted by retail investors. The authors also uncover specific response strategies and styles that could mitigate these effects.
The Effect of Stock Ownership on Individual Spending and Loyalty
Paolina Medina, Vrinda Mittal & Michaela Pagel
NBER Working Paper, February 2021
Abstract:
In this study, we quantify the effects of receiving stocks from certain brands on spending in the brand's stores. We use data from a new FinTech company called Bumped that opens brokerage accounts for its users and rewards them with stocks when they shop at previously elected stores. For identification, we use 1) the staggered distribution of brokerage accounts over time after individuals sign up for a waitlist and 2) randomly distributed stock grants. We find that individuals spend 40% more per week at elected brands and stores after being allocated an account. In response to receiving a stock grant, individuals increase their weekly spending by 100% on the granted brands. Beyond documenting a causal link between stock ownership and individual spending, we show that weekly spending in certain brands of our users is strongly correlated with stock holdings of that brand by Robinhood brokerage clients. Finally, we present survey evidence to argue that loyalty is the dominant psychological mechanism explaining our findings. We thus provide micro evidence for the idea that stock ownership drives brand loyalty, which is an intangible asset that leads to lower firm cash flow volatility.
Amazon Is Coming to Town: Private Information and Housing Market Efficiency
Yifan Chen, Sean Wilkoff & Jiro Yoshida
Pennsylvania State University Working Paper, February 2021
Abstract:
This study provides evidence of strong-form efficiency in the housing market, where prices fully incorporate private information. We use Amazon's progressive disclosure of its new headquarters locations in Virginia and New York to distinguish changes in the public's knowledge. Using a spatial difference-in-differences approach, we test whether housing prices increase before Amazon's public announcements. Housing prices near the Virginia headquarters exhibit 4.3% premia before Amazon's decision but no additional increase upon decision. Price premia for New York reach 17.5% before decision but disappear once Amazon cancels the headquarters. Other finalist cities exhibit no price premia, precluding the possibility of speculation.
Peak-Bust Rental Spreads
Marco Giacoletti & Christopher Parsons
University of Southern California Working Paper, February 2021
Abstract:
Landlords appear to use stale information when setting rents. Among over 43,000 California rental houses in 2018-2019, those last purchased during 2005-2007 (the peak) rent for 2-3% more than those purchased during 2008-2010 (bust). Neither house nor landlord characteristics explain this “peak-bust rental spread.” To clarify the mechanism, we test cross-sectional predictions from a simple theory of rent-setting. We find empirical support for both reference-dependence and distorted beliefs. In the first, monthly payments establish (recurring) reference points, against which gains or losses are measured. In the second, past sales prices distort landlords’ current estimates of house values/rents.
Marketers Project Their Personal Preferences onto Consumers: Overcoming the Threat of Egocentric Decision Making
Walter Herzog, Johannes Hattula & Darren Dahl
Journal of Marketing Research, forthcoming
Abstract:
This research explores how marketing managers can avoid the so-called false consensus effect — the egocentric tendency to project personal preferences onto consumers. Two pilot studies were conducted to provide evidence for the managerial importance of this research question and to explore how marketing managers attempt to avoid false consensus effects in practice. The results suggest that the debiasing tactic most frequently used by marketers is to suppress their personal preferences when predicting consumer preferences. Four subsequent studies show that, ironically, this debiasing tactic can backfire and increase managers’ susceptibility to the false consensus effect. Specifically, the results suggest that these backfire effects are most likely to occur for managers with a low level of preference certainty. In contrast, the results imply that preference suppression does not backfire but instead decreases false consensus effects for managers with a high level of preference certainty. Finally, the studies explore the mechanism behind these results and show how managers can ultimately avoid false consensus effects — regardless of their level of preference certainty and without risking backfire effects.
When Algorithms Fail: Consumers’ Responses to Brand Harm Crises Caused by Algorithm Errors
Raji Srinivasan & Gülen Sarial-Abi
Journal of Marketing, forthcoming
Abstract:
Algorithms increasingly used by brands sometimes fail to perform as expected or even worse, cause harm, causing brand harm crises. Unfortunately, algorithm failures are increasing in frequency. Yet, we know little about consumers’ responses to brands following such brand harm crises. Extending developments in the theory of mind perception, we hypothesize that following a brand harm crisis caused by an algorithm error (vs. human error), consumers will respond less negatively to the brand. We further hypothesize that consumers’ lower mind perception of agency of the algorithm (vs. human) for the error that lowers their perceptions of the algorithm’s responsibility for the harm caused by the error will mediate this relationship. We also hypothesize four moderators of this relationship: two algorithm characteristics, anthropomorphized algorithm and machine learning algorithm and two task characteristics where the algorithm is deployed, subjective (vs. objective) task and interactive (vs. non-interactive) task. We find support for the hypotheses in eight experimental studies including two incentive-compatible studies. We examine the effects of two managerial interventions to manage the aftermath of brand harm crises caused by algorithm errors. The research’s findings advance the literature on brand harm crises, algorithm usage, and algorithmic marketing and generate managerial guidelines to address the aftermath of such brand harm crises.
When Reinforcing Processes Generate an Outcome-Quality Dip
Jerker Denrell & Chengwei Liu
Organization Science, forthcoming
Abstract:
When does market success indicate superior merit? We show that when consumer choices between products with equal prices depend on quality but also on past popularity, more popular products are not necessarily of higher quality. Rather, a medium level of popularity may be associated with lower quality than lower levels of popularity. Using a formal model, we show that this kind of nonmonotonic association occurs when reinforcing processes are strong. More generally, a dip can occur when outcomes depend on both quality and resources and the latter are allocated bimodally, with some being given a lot of resources and most receiving little. Empirically, we illustrate that such a dip occurs in the association between movie theater sales and ratings. The presence of a dip in the outcome-quality association complicates learning from market outcomes and evaluation of individuals and new ventures, challenges the legitimacy of stratification systems, and creates opportunities for sophisticated evaluators who understand the dip.
The round number heuristic and entrepreneur crowdfunding performance
Tse-Chun Lin & Vesa Pursiainen
Journal of Corporate Finance, forthcoming
Abstract:
We document a novel pattern that campaign goal amounts set by entrepreneurs on Kickstarter exhibit clear clustering at round numbers. We propose that the round number heuristic, a tendency to adopt round numbers as cognitive shortcuts when facing complicated and uncertain situations, may explain the clustering pattern and predict campaign outcomes. Based on 162,863 campaigns between 2009 and 2017, we find a negative relation between the use of round goal amounts and the likelihood of campaign success. Our findings suggest that setting a round number goal conveys useful information about entrepreneur quality that could be used by campaign backers or platforms.