Understanding the Simultaneous Effects of Category Fit and Order of Entry on Consumer Perceptions of Brand Extensions

EXTENDED ABSTRACT -In brand extension research, category fit of the brand extension with the parent brand has received significant attention, both independently and interdependently with other conditions of interest. What has yet to be studied in conjunction with category fit, however, is order of entry. Drawing on the depth of research concerning order of entry effects and pioneering advantage, the present study is designed to analyze the combined effects of brand extension order of entry and category fit with the parent brand on consumer response. In doing so, we attempt to explicate the conditions under which a pioneer is likely to maintain their pioneering advantage, and those conditions under which subsequent entrants are better positioned to gain favorable consumer evaluations and overcome the pioneer's first to market advantage. These findings will contribute not only to our understanding of consumer evaluations of brand extensions and the conditions surrounding the successful introduction of such extensions, but also to our understanding of the pioneering advantage and consumer preference formation

The Impact of Brand Quality on Shareholder Wealth

This study examines the impact of brand quality on three components of shareholder wealth: stock returns, systematic risk, and idiosyncratic risk. The study finds that brand quality enhances shareholder wealth insofar as unanticipated changes in brand quality are positively associated with stock returns and negatively related to changes in idiosyncratic risk. However, unanticipated changes in brand quality can also erode shareholder wealth because they have a positive association with changes in systematic risk. The study introduces a contingency theory view to the marketing-finance interface by analyzing the moderating role of two factors that are widely followed by investors. The results show an unanticipated increase (decrease) in current-period earnings enhances (depletes) the positive impact of unanticipated changes in brand quality on stock returns and mitigates (enhances) their deleterious effects on changes in systematic risk. Similarly, brand quality is more valuable for firms facing increasing competition (i.e., unanticipated decreases in industry concentration). The results are robust to endogeneity concerns and across alternative models. The authors conclude by discussing the nuanced implications of their findings for shareholder wealth, reporting brand quality to investors, and its use in employee evaluation

Pricing of Advertisements on the Internet

Online advertisements are increasingly becoming an attractive channel for advertising. Pricing for online ads has evolved over time, and different auction-based policies are employed by website publishers to sell online ads. In this paper, we analyze, under different scenarios, the following three auction-based policies commonly used by the publishers: (i) invite bids for an impression of an ad, display the highest bidder’s ad, and charge the winning advertiser the submitted bid (ii) invite bids for a click of an ad, display the ad of the bidder submitting the highest bid for a click, and charge the winner the bid submitted, and (iii) invite bids for a click of an ad, use the bid and the click-through-rate of the ad to compute the expected publisher profit from the ad, display the ad generating the highest profit, and charge the winner the submitted bid. A distinguishing feature of our analysis is that it considers the effect of product-market positioning of sellers on their bids for online ads and the consequent implications for pricing policies. Our analysis provides a number of insights useful to the website publisher and the advertisers. First, interestingly, we find that the bid per impression policy and the bid per click policy that uses the expected profit to determine the winner generate identical outcomes. Second, the advertiser profits are found to be higher when the publisher is capable of targeting the consumers. From the first two results, it appears that advertisers’ angst at pricing based on impressions may be misplaced, and that a more critical determinant of the advertiser’s profitability is the publisher’s ability to target. Third, we find the surprising result that among the two bid per click policies, the one that uses the expected publisher profit can generate lower publisher profits. Fourth, we show that, similar to that in the literature on maximizing channel profits in the traditional markets, non-linear pricing of ads leads the publisher to gain the maximum profits even in this vastly different advertising distribution channel. Fifth, we demonstrate that offline ads and online ads are synergistic

A Model of Promotion-Free Retail Pricing of Durable Products

An important decision facing retailers is the level of price promotions or "sales" to have in their retail prices. In this paper, we consider the use of promotion-free (PF) retail pricing by stores selling durable products, where PF pricing means that the retailer does not use or advertise price promotions. Interestingly, we find, contrary to the previous literature, that a store using a PF strategy does not advertise prices, and yet may charge below shoppers' reservation prices. Further, we show that a store can follow a PF pricing strategy in equilibrium, when competing with another store following a PF pricing or a promotional pricing strategy, and we characterize the conditions that support each type of equilibrium. The combination of PF pricing, the lack of advertisement of prices, and pricing below the reservation price may be similar to the pricing strategy followed by EDLP stores selling durable products. Our analysis yields insights on how a store may choose between a PF pricing strategy and a promotional pricing strategy in a competitive setting.pricing, promotions, retailing, marketing, competitive strategy, game theory

Limited Edition Products: When And When Not To Offer Them

Many brands today introduce limited edition (LE) products as part of their product line. However, little is known about the conditions under which a brand should introduce an LE product or the competitive implications of doing so. We investigate this issue using a game theoretic model of a market where two brands compete for consumers who desire exclusivity. Our analysis shows that adding an LE product has a positive direct effect on brand profits through the increased willingness of consumers to pay for such a product, but also has a negative strategic effect by increasing price competition between brands. These effects result in different conclusions depending on the nature of brand differentiation. When brands differ in quality, we show that only the high-quality brand may gain in comparison to a scenario where there are no LE products. Although a low-quality brand may offer an LE product as a defensive strategy, its profits are lower than would be in a world without LE products because of the negative strategic effect. When we consider brands that are differentiated on a horizontal attribute such as taste, we find that the negative strategic effects cause lower equilibrium profits if both brands introduce LE products. Yet brands cannot avoid introducing LE products because they face a prisoners\u27 dilemma © 2009 INFORMS

The Making Of A Hot Product : A Signaling Explanation Of Marketers\u27 Scarcity Strategy

Every marketer\u27s dream is to create a hot product that customers would absolutely want to have, thus generating considerable profit to the marketer. According to one school of thought, marketers should make products hard to get in order to create really hot products. In this paper, using a game-theoretic model, we investigate if such scarcity strategies can indeed be optimal. While a scarcity strategy may appear to be a viable approach for making a firm\u27s product successful, further analysis raises some puzzling issues. In particular, it is not clear why a firm would not increase its price to get demand and supply in sync and increase its profit in the process. We therefore offer a signaling explanation for the optimality of such strategies and show that a high-quality seller may optimally choose to make the product scarce in order to credibly signal the quality of its product to uninformed customers. Our analysis indicates that a high-quality seller optimally employs scarcity as a signaling device in product markets that are characterized, ceteris paribus, by a small difference in marginal cost between high- and low-quality products, a low reservation price for a low-quality product, a greater heterogeneity in reservation prices for a high-quality product, and a moderate number of informed consumers. Our results provide a rationale for the fact that scarcity strategies are usually observed for discretionary or specialty products, but not for commodity products, staple products, or new-to-the-world products. © 2005 INFORMS

Selection of Product Line Qualities and Prices to Signal Competitive Advantage

We investigate a firm's choice of prices and qualities of a product line to signal competitive advantage to potential entrants and to discourage entry. The market consists of customer segments with different valuations for product quality. We demonstrate that a higher quality and a higher price of each product in the line convey the firm's advantage to potential competition and prevents entry. We discuss implications for optimal product line selection when customers 'self-select' a product from the line. When product quality change is costly, the superior incumbent continues to select a higher quality and price for each product in the line to credibly substantiate its competitive advantage, though the distortions necessary from the optimal values are lower than before. After informative signalling and deterring entry, the firm retains the higher quality product line.signalling, adverse selection, product line, quality, pricing, separating equilibrium, pooling equilibrium, entry deterrence, marketing strategy

Limited Edition Products: When and When Not to Offer Them

Many brands today introduce limited edition (LE) products as part of their product line. However, little is known about the conditions under which a brand should introduce an LE product or the competitive implications of doing so. We investigate this issue using a game theoretic model of a market where two brands compete for consumers who desire exclusivity. Our analysis shows that adding an LE product has a positive direct effect on brand profits through the increased willingness of consumers to pay for such a product, but also has a negative strategic effect by increasing price competition between brands. These effects result in different conclusions depending on the nature of brand differentiation. When brands differ in quality, we show that only the high-quality brand may gain in comparison to a scenario where there are no LE products. Although a low-quality brand may offer an LE product as a defensive strategy, its profits are lower than would be in a world without LE products because of the negative strategic effect. When we consider brands that are differentiated on a horizontal attribute such as taste, we find that the negative strategic effects cause lower equilibrium profits if both brands introduce LE products. Yet brands cannot avoid introducing LE products because they face a .game theory, marketing strategy, product management, pricing research, limited edition products

Research Note--Competitive Bundling and Counterbundling with Generalist and Specialist Firms

Bundling, which is the practice of selling two or more products or services in a package, is a pervasive marketing practice and is often used as a strategic competitive tool. However, there has not been enough consideration of competitive bundling situations in which exit of a competitor is not a concern. In this paper, we address this issue by identifying conditions under which strategic competitors may or may not resort to bundling when competitor exit considerations are absent. We study competition between a multiproduct generalist firm and two single-product specialist firms in two product categories, one of which has undifferentiated products and the other has differentiated products. In our model, the specialist firms can form an alliance to bundle their products in competing with the generalist firm. In contrast to the previous literature, we find that concurrent bundling by competitors, if it occurs in equilibrium, is profitable. We also find that when one competitor bundles and the other does not, the bundling firm gains a greater share of customers and makes a higher profit. However, when conditions favor counterbundling by a competitor, such counterbundling helps the competitor retain its customers. Finally, we note that under other market conditions, concurrent bundling by competitors escalates price competition to the extent that retaining customers through bundling is not profitable. In such a case, we show that strategic competitors are better off having asymmetric product lines with one competitor bundling and the other selling unbundled.competition, game theory, bundling, pricing

Modifying Customer Expectations of Price Decreases for a Durable Product

We study the introductory signalling strategy for a durable product that faces optimistic expectations among customers about price declines over time. The firm introducing the product knows that experiential learning is low for the product. However, customers, being uncertain about the extent of experiential learning, assign a nonzero probability that the firm's new product will enjoy a high cost reduction with cumulative experience. The optimistic expectations of customers reduce their willingness to pay a high price at the product's introduction while predisposing them to buying later. The challenge facing the low-experience firm is to choose an introductory strategy that will credibly convey the low experience-curve effect to customers. We use the sequential equilibrium concept in a game-theoretic framework to identify the firm's signalling strategy. We identify the unique separating equilibrium of the game after refining the set of separating equilibria. We demonstrate that a high introductory price credibly signals the low experiential learning to customers. We also show that signalling causes an artificial learning-curve effect.Customer Expectations, High-Technology Marketing, Learning Curve, Pricing, Signalling