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Kevin Lewis

November 05, 2019

The Surprising Breadth of Harbingers of Failure
Duncan Simester, Catherine Tucker & Clair Yang
Journal of Marketing Research, December 2019, Pages 1034-1049

Previous research has shown that there exist “harbinger customers” who systematically purchase new products that fail (and are discontinued by retailers). This article extends this result in two ways. First, the findings document the existence of “harbinger zip codes.” If households in these zip codes adopt a new product, this is a signal that the new product will fail. Second, a series of comparisons reveal that households in harbinger zip codes make other decisions that differ from other households. The first comparison identifies harbinger zip codes using purchases from one retailer and then evaluates purchases at a different retailer. Households in harbinger zip codes purchase products from the second retailer that other households are less likely to purchase. The analysis next compares donations to congressional election candidates; households in harbinger zip codes donate to different candidates than households in neighboring zip codes, and they donate to candidates who are less likely to win. House prices in harbinger zip codes also increase at slower rates than in neighboring zip codes. Investigation of households that change zip codes indicates that the harbinger zip code effect is more due to where customers choose to live, rather than households influencing their neighbors’ tendencies.

When is it Good to be Bad? Contrasting Effects of Multiple Reputations for Bad Behavior on Media Coverage of Serious Organizational Errors
David Chandler, Francisco Polidoro & Wei Yang
Academy of Management Journal, forthcoming

We have long known that organizational reputation is consequential. While highlighting the effects of a reputation for 'good' behavior, however, prior work has largely overlooked the possibility that a reputation for 'bad' behavior is qualitatively distinct. In addition, we know that organizational reputation is multidimensional. Although this is conceptually intriguing only if different types of reputation produce different effects, concurrent tests of such differences are rare. In response, we study the effects of multiple reputations for bad behavior on media coverage of a serious error by the firm. Due to the need for the news to be 'new,' we predict the media is more likely to cover errors that supplement a firm’s general 'character reputation,' but will likely ignore errors that are redundant given a firm’s specific 'capability reputation.' We test this theory in the context of 113 major oil spills in the U.S., from 1985 to 2016. Results confirm the theorized contrasting effects. Counter-intuitively, we also find the media is even less likely to cover repeat offenders that cause larger spills. We conclude that, at least for media coverage of oil spills, being 'bad' can have its benefits for firms.

The Drivers of Social Preferences: Evidence from a Nationwide Tipping Field Experiment
Bharat Chandar et al.
NBER Working Paper, October 2019

Even though social preferences affect nearly every facet of life, there exist many open questions on the economics of social preferences in markets. We leverage a unique opportunity to generate a large data set to inform the who’s, what’s, where’s, and when’s of social preferences through the lens of a nationwide tipping field experiment on the Uber platform. Our field experiment generates data from more than 40 million trips, allowing an exploration of social preferences in the ride sharing market using big data. Combining experimental and natural variation in the data, we are able to establish tipping facts as well as provide insights into the underlying motives for tipping. Interestingly, even though tips are made privately, and without external social benefits or pressure, more than 15% of trips are tipped. Yet, nearly 60% of people never tip, and only 1% of people always tip. Overall, the demand-side explains much more of the observed tipping variation than the supply-side.

Machines vs. Humans: The Impact of Artificial Intelligence Chatbot Disclosure on Customer Purchases
Xueming Luo et al.
Marketing Science, forthcoming

Empowered by artificial intelligence (AI), chatbots are surging as new technologies with both business potential and customer pushback. This study exploits field experiment data on more than 6,200 customers who are randomized to receive highly structured outbound sales calls from chatbots or human workers. Results suggest that undisclosed chatbots are as effective as proficient workers and four times more effective than inexperienced workers in engendering customer purchases. However, a disclosure of chatbot identity before the machine–customer conversation reduces purchase rates by more than 79.7%. Additional analyses find that these results are robust to nonresponse bias and hang-ups, and the chatbot disclosure substantially decreases call length. Exploration of the mechanisms reveals that when customers know the conversational partner is not a human, they are curt and purchase less because they perceive the disclosed bot as less knowledgeable and less empathetic. The negative disclosure effect seems to be driven by a subjective human perception against machines, despite the objective competence of AI chatbots. Fortunately, such negative impact can be mitigated by a late disclosure timing strategy and customer prior AI experience. These findings offer useful implications for chatbot applications, customer targeting, and advertising in conversational commerce.

Featuring Mistakes: The Persuasive Impact of Purchase Mistakes in Online Reviews
Taly Reich & Sam Maglio
Journal of Marketing, forthcoming

Companies often feature positive consumer reviews on their websites and in their promotional materials in an attempt to increase sales. However, little is known about which particular positive reviews companies should leverage to optimize sales. Across four lab studies involving both hypothetical and real choices as well as field data from a retailer’s website (Sephora), the authors find that consumers are more likely to purchase a product if it is recommended by a reviewer who has (vs. has not) made a prior purchase mistake. The authors define a purchase mistake as a self-identified suboptimal decision whereby people purchase a product that subsequently fails to meet a threshold level of expected performance. This persuasive advantage emerges because consumers perceive reviewers who admit a purchase mistake as having more expertise than even reviewers whose purchase experience has not been marred by mistakes. As a result, in marketers’ attempts to increase the persuasive influence of reviews featured in their promotional materials, they may inadvertently decrease it by omitting the very information that would lead consumers to be more likely to purchase recommended products.

The Consumer Experience of Responsibilization: The Case of Panera Cares
Giana Eckhardt & Susan Dobscha
Journal of Business Ethics, October 2019, Pages 651–663

In this paper, we explore the consumer experience of responsibilization, wherein consumers are tasked with addressing social issues via their consumption choices. We study an approach to responsibilization which we label conscious pricing. Conscious pricing asks consumers to place a price on morality: How much would they pay for their lunch to combat the social issue of food insecurity? Conscious pricing stems from the broader movement of conscious capitalism, defined by its chief architects as an approach to business wherein the goal is to create value for all stakeholders: financial, ecological, ethical, and spiritual. Strategies such as conscious capitalism rely on consumers acting responsibly, assuming that consumers, when presented with the opportunity to “do good,” will do so, and that consumers will prefer companies who provide them this opportunity. Using a case study approach and online reviews, in our analysis of Panera Cares, we find that consumers in fact experience discomfort when asked to address social issues via how much they choose to pay for their meal. Because food insecurity is embodied by homeless people eating with them in the café, eating in the café is perceived as unpleasant, and the homeless also feel demoralized. This discomposure leads consumers to resist the subject position of being responsibilized by not supporting the organization that is tasking them to do so. This study is the first empirical examination of the consumer experience of consumer responsibilization and allows us to contribute to a deepened understanding of consumer ethics.

Improving Customer Compatibility with Operational Transparency
Ryan Buell & MoonSoo Choi
Harvard Working Paper, August 2019

Through a large-scale field experiment with 389,611 customers considering opening a credit card account with a nationwide retail bank, we investigate how providing transparency into an offering’s tradeoffs affects subsequent rates of customer acquisition and long-run engagement. Although we find transparency to have an insignificant effect on acquisition rates, customers who were shown each offering’s tradeoffs selected different products than those who were not. Moreover, prospective customers who experienced transparency and subsequently chose to open an account went on to exhibit higher quality service relationships over time. Monthly spending was 9.9% higher and cancellation rates were 20.5% lower among those who experienced transparency into each offering’s tradeoffs. Increased product usage and retention accrued disproportionately to customers with prior category experience – more experienced customers who were provided transparency spent 19.2% more on a monthly basis and were 33.7% less likely to defect after nine months. Importantly, we find that these gains in engagement and retention do not come at the expense of customers’ financial wellbeing – the probability of making late payments was reduced among customers who experienced transparency. We further find that the positive effects of transparency on engagement and retention were attenuated in the presence of a promotion that provided financial incentives to choose particular offerings. Taken together, these results suggest that providing transparency into an offering’s tradeoffs may be an effective strategy for informing customer choices, leading to better outcomes for customers and firms alike.

People Rely Less on Consumer Reviews for Experiential Than Material Purchases
Hengchen Dai, Cindy Chan & Cassie Mogilner
Journal of Consumer Research, forthcoming

An increasingly prevalent form of social influence occurs online where consumers read reviews written by other consumers. Do people rely on consumer reviews differently when making experiential purchases (events to live through) than when making material purchases (objects to keep)? Though people often use consumer reviews both when making experiential and material purchases, an analysis of more than 6 million reviews on and four laboratory experiments reveal that people are less likely to rely on consumer reviews for experiential purchases than for material purchases. This effect is driven by beliefs that reviews are less reflective of the purchase’s objective quality for experiences than for material goods. These findings not only inform how different types of purchases are influenced by word-of-mouth, but they illuminate the psychological processes underlying shoppers’ reliance on consumer reviews. Furthermore, as one of the first investigations into how people choose among various experiential and material purchase options, these findings suggest that people are less receptive to being told what to do than what to have.

The Impact of Increasing Search Frictions on Online Shopping Behavior: Evidence from a Field Experiment
Donald Ngwe, Kris Johnson Ferreira & Thales Teixeira
Journal of Marketing Research, December 2019, Pages 944-959

Many online stores are designed such that shoppers can easily access any available discounted products. The authors propose that deliberately increasing search frictions by placing obstacles to locating discounted items can improve online retailers’ margins and even increase conversion. The authors demonstrate this using a simple theoretical framework that suggests inducing consumers to inspect higher-priced items first may simultaneously increase the average price of items sold and the overall expected purchase probability by inducing consumers to search more products. The authors test and confirm these predictions in a series of field experiments conducted with a dominant online fashion and apparel retailer. Furthermore, using information in historical transaction data about each consumer, the authors demonstrate that price-sensitive shoppers are more likely to willingly incur search costs when locating discounted items. Our results show that increasing search frictions can be used as a self-selecting price discrimination tool to match high discounts with price-sensitive consumers and full-priced offerings with price-insensitive consumers.

The Similarity Network of Motion Pictures
Yanhao Max Wei
Management Science, forthcoming

Ideas are connected. New ideas are often seen as creative combinations of previous ideas. I study these connections in the context of motion pictures. A network of 4,445 movies is constructed to indicate which movies are similar. I first examine the properties of the network using descriptive and regression analysis; then I develop a model of network formation for counterfactual analysis. It is found that most movies imitate and evolve around a “core” of the more successful movies. In addition, imitation is both conventional and atypical: a new movie usually follows a stream of similar movies yet simultaneously combines atypical elements from movies outside this stream. This atypicality, if well balanced, has a positive effect on the individual movie’s box office. However, I find that, in the long run, atypical combination may lead to a worse collective box-office performance because of the way it changes the market structure.

Advertising Strategy in the Presence of Reviews: An Empirical Analysis
Brett Hollenbeck, Sridhar Moorthy & Davide Proserpio
Marketing Science, September-October 2019, Pages 793–811

We study the relationship between online reviews and advertising spending in the hotel industry. Combining a data set of TripAdvisor reviews with other data sets describing these hotels’ advertising expenditures, we show, first, that online ratings have a causal demand-side effect on ad spending. Second, this effect is negative: hotels with higher ratings spend less on advertising than hotels with lower ratings. This suggests that hotels treat TripAdvisor ratings and advertising spending as substitutes, not complements. Third, the relationship is stronger for independent hotels than for chains, and stronger in less differentiated markets than in more differentiated markets. The former suggests that a strong brand name continues to provide some immunity to reviews and the latter that the advertising response is stronger when ratings are more likely to be pivotal. Finally, we show that the relationship between online ratings and advertising has strengthened over time, just as TripAdvisor has become more popular, implying that firms respond to online reviews if and only if consumers respond to them.

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