Establishing the internet channel : short-term pain but long-term gain ?.

The emergence of the Internet has pushed many established companies to explore this radically new distribution channel. Like all market discontinuities, the Internet creates opportunities as well as threats - it can be performance-enhancing as readily as it can be performance-destroying. One industry where this certainly holds is the newspaper industry, where several players have rushed to supplement their traditional channels with an Internet channel, in spite of a lingering fear of cannibalizing their existing business. Making use of event-study methodology, we assess the net impact of setting up an additional Internet channel on a firm's stock market return, a measure of the change in expected future cash flows. We find that, on average, Internet channel investments are positive net-present-value investments: the present value of the expected cash inflows is greater than the present value of the anticipated cash outflows. We then identify firm, introduction-strategy, and marketplace characteristics that influence the direction and magnitude of the stock-market reaction. More specifically, our results indicate that powerful firms with fewer direct channels achieve greater gains in financial performance than less powerful firms with a broader direct channel offering. In terms of introduction timing, early followers have a competitive advantage vis-à-vis both innovators and later followers. We also find that firms which provide additional advertising support to their Internet channel introduction achieve greater financial gains. Finally, in terms of marketplace characteristics, firms operating in fast-growing Internet environments benefit more than players operating in less munificent markets.Time series;

Weathering product-harm crises.

Product-harm crises can seriously imperil a brand's performance. Consumers tend to weigh negative publicity heavily in product judgments, customer preferences may shift towards competing products during the recall period, and competitors often increase their advertising spending in the wake of a brand's misfortune. To counter these negative effects, brands hope to capitalize on their equity, and often use advertising as a communication device to regain customers' lost trust. We develop a multiple-event hazard model to study how consumer characteristics and advertising influence consumers' first-purchase decisions for two affected brands of peanut butter following a severe Australian product-harm crisis. Buying a recently affected brand is perceived as highly risky, making the trial purchase a first hurdle to be taken in the brand's recovery. Both pre-crisis loyalty and familiarity are found to form an important buffer against the product-harm crisis, supporting the idea that a brand's equity prior to the crisis offers resilience in the face of misfortune. Also heavy users tend to purchase the affected brands sooner, unless their usage rate decreased significantly during the crisis. Brand advertising was found to be effective for the stronger brand, but not for the weaker brand, while competitive advertising delayed the first-purchase decision for both brands affected by the crisis.(pro-environmental) attitudes; Behavior; Claim; Cognitive; Consumption; Control; Control theory; Decision; Decisions; Demand; Ecological consumer behaviour; Effects; Ego depletion; Implications; Marketing; Model; Performance; Research; Self-control; Self-perception theory; Social marketing; Studies; Theory; Product; Judgments; Preference; Recall; Advertising; Brands; Communication; Trust; Characteristics; Loyalty;

Intra- and inter-channel competition in local-service sectors.

Although economically very important, local-service sectors have received little attention in the extensive literature on competitive interactions. Detailed data gathering in these sectors is hard, not only because of the multitude of local players, but also because key service dimensions are hard to quantify. Using empirical entry models, we show how to infer information on these sectors' degree of intra- and inter-channel competition from the observed entry decisions in different local markets. The approach also controls for relevant socio-demographic characteristics of the trading area that may affect performance. We apply the proposed empirical entry model to the video-rental market. Additional entries of video stores are found to significantly increase the level of intra-channel competition. Unlike the predictions of many normative economic models, we find this increase to be larger when the entry occurs in a duopoly than in a monopoly, a pattern consistent with recent experimental research on collusive behavior in oligopolies. We also find evidence of inter-channel cannibalization from the upstream channel (movie theatres), but not from the downstream channel (premium cable). Finally, various socio-demographic characteristics of the trading zone, such as income and household size, are found to also have a significant impact on store performance.Competition; Sector; Channel competition; Characteristics; Oligopoly; Monopoly;

Do promotions benefit manufacturers, retailers or both ?.

While there has been strong managerial and academic interest in price promotions, much of the focus has been on the impact of such promotions on category sales, brand sales and brand choice. In contrast, little is known about the long-run impact of price promotions on manufacturer and retailer revenues and margins, although both marketing researchers and practitioners consider this a priority area (Marketing Science Institute 2000). Do promotions generate additional revenue and for whom? Which brand, category and market conditions influence promotional benefits and their allocation across manufacturers and retailers?To answer these questions, we conduct a large-scale econometric investigation of the effects of price promotions on manufacturer revenues, retailer revenues and margins. This investigation proceeds in two steps. First, persistence modeling reveals the short- and long-run effects of price promotions on these performance measures. Second, weighted least-squares analysis shows to what extent brand and promotion policies, as well as market-structure and category characteristics, influence promotional impact. A first major finding of our paper is that price promotions do not have permanent monetary effects for either party. Second, in terms of the cumulative, over-time, promotional impact on their revenues, we find significant differences between the manufacturer and retailer. Price promotions have a predominantly positive impact on manufacturer revenues, but their effects on retailer revenues are mixed. Retailer (category) margins, in contrast, are typically reduced by price promotions. Even when accounting for cross-category and store-traffic effects, we still find evidence that price promotions are typically not beneficial to the retailer. Third, our results indicate that manufacturer revenue elasticities are higher for promotions of small-share brands and for frequently promoted brands. Moreover, they are higher for storable products and lower in categories with a high degree of brand proliferation. Retailer revenue elasticities, in turn, are higher for brands with frequent and shallow promotions, for storable products and in categories with a low extent of brand proliferation. As such, from a revenue-generating point of view, manufacturer and retailer interests are often aligned in terms of which categories and brands to promote. Finally, retailer margin elasticities are higher for promotions of small-share brands and for brands with infrequent and shallow promotions. Thus, the implications with respect to the frequency of promotions depend upon the performance measure the retailer chooses to emphasize. The paper discusses the managerial implications of our results for both manufacturers and retailers and suggests various avenues for future research.

How Cannibalistic is the Internet Channel?

During the past decade, irrational exuberance has turned into a possibly equally irrational pessimism about what the Internet can accomplish. The fear of getting ruined through cannibalization losses has recently deterred many firms from deploying the Internet as a distribution channel. But do Internet channels really cannibalize firms' entrenched channels, or is this widely held assumption exaggerated? To answer this question, we apply recent structural-break time-series econometrics to quantify the impact of an Internet channel addition on the long-run performance evolution of a firm's established channels. Using a database of 85 Internet channel additions over the last ten years in the British and Dutch newspaper industries, we find that the often-cited cannibalization fears have been largely overstated. The Internet therefore need not be disruptive to established companies and channels. This does, however, not imply that firms enjoy free play in setting up Internet channels. In cases where the newly established Internet channel too closely mimics the entrenched channels, substantial cannibalization is more likely to take place.cannibalization;internet channel;structural-break time-series analysis

How To Seize a Window of Opportunity: The Entry Strategy of Retail Firms into Transition Economies

In most western countries, grocery retailers are faced with maturing domestic markets with a year-to-year sales growth close to zero. Moreover, most Western-European markets are characterized by a high concentration rate, with a combined market share of the top five players easily exceeding 70%. One important outcome of this evolution has been a growing interest in cross-border initiatives. However, even though the industry gained importance, retailers are still struggling to develop the competencies to compete and survive in this new, more global, arena. In this paper, we study entry investments into Central and Eastern-European transition economies to unveil when, to what extent, and to which retailer the strategic window in these different markets opens. We develop and empirically test a set of hypotheses on factors that affect (1) the speed (timing) and (2) size of retailers’ decisions to enter Central and Eastern European markets. A conceptual framework is proposed which looks at strategic decisions through the option lens. This perspective offers an economic rationale for the behavioral process of major resource allocations. The resulting hypotheses are tested, using a joint hazard/poisson-regression framework, on a data set covering all entry decisions of the top 75 European grocery retailers towards Central and Eastern Europe. We find that in these transition economies important legitimization effects can be derived from rivals’ actions. Especially the moves, made and anticipated, by home rivals are carefully monitored. This reflects the idea that retailers are motivated not only by the chance of creating value in these new markets, but also by the fear of being left out