Research Highlights

Chicago Booth marketing faculty are among the best and brightest in the world. The range of contributions to fields of quantitative and qualitative marketing is indicated in the variety of faculty research efforts. Recent and forthcoming publications cover topics including analyses of how physicians prescribe multiple types of prescription drugs, a look at the persistence of brand preferences of consumer packaged goods, and the role that consumers' self-perception plays in choosing financial service products.

"A New Multivariate Count Data Model to Study Multi-Category Physician Prescription Behavior"
Pradeep K. Chintagunta with Xiaojing Dong and Puneet Manchanda
Quantitative Marketing & Economics, 9(3), 301-337, (2011)

Abstract: Multivariate count models represent a natural way of accommodating data from multiple product categories when the dependent variable in each category is represented by a positive integer. In this paper, we propose a new simultaneous equation multicategory count data model - the Poisson-lognormal simultaneous equation model - that allows for the Poisson parameter in one equation to be a function of the Poisson parameters in other equations. While generally applicable to any situation where simultaneity is an issue and the dependent variables are measured as counts, such a specification is particularly useful for our empirical application where physicians prescribe drugs in multiple categories. Accounting for the endogeneity of detailing in such situations requires us to explicitly allow for pharmaceutical firms' detailing activities in one category to be influenced by their activities in other categories. Estimation of such a system of equations using traditional maximum likelihood method is cumbersome, so we propose a simple solution based on using Markov Chain Monte Carlo methods. Our simulation study demonstrates the validity of the solution algorithm and the biases that would result if such simultaneity is ignored in the estimation process.

"Does AMD Spur Intel to Innovate More?"
Ronald L. Goettler with Brett Gordon
Journal of Political Economy, (forthcoming)

Abstract: We estimate an equilibrium model of dynamic oligopoly with durable goods and endogenous innovation to examine the effect of competition on innovation in the PC microprocessor industry. Firms make dynamic pricing and investment decisions while consumers make dynamic upgrade decisions, anticipating product improvements and price declines. Consistent with Schumpeter, we find the rate of innovation in product quality would be 4.2 percent higher without AMD present, though higher prices reduce consumer surplus by $12 billion per year. Comparative statics illustrate the role of product durability and provide implications of the model for other industries.

"Effect of Marketing Contacts in Business Markets"
Pradeep K. Chintagunta with V. Kumar, S. Sriram, and Anita Luo
Marketing Science, 30(5), 924-940, (2011)

Abstract: Recent research has empirically characterized the buyer-seller relationship as dynamically evolving from one discrete state to another. Conventional wisdom would suggest that a customer in a higher relationship state that has a higher transaction value would also have greater lifetime value to the firm. However, recent evidence suggests that higher relationship states can be ephemeral. Hence, the link between transaction value and lifetime value is not obvious. In this study, we seek to understand, within a specific empirical context, (i) the relationship between a customer's transaction value and that customer's lifetime value and (ii) the relationship between the lifetime value of a customer and the optimal level of marketing activity that needs to be directed at that customer. To this end, we develop a trivariate Tobit hidden Markov model that allows for (a) transitions among relationship states, (b) possible synergies between the various products that the supplier firm offers, (c) endogeneity in marketing activity, (d) heterogeneity in model parameters, and (e) the presence of the no purchase option. Our results reinforce recent findings by Schweidel et al. [Schweidel, D. A., E. T. Bradlow, P. S. Fader. 2011. Portfolio dynamics for customers of a multiservice provider. Management Sci. 57(3) 471-486] that higher relationship states can be short-lived. Importantly for the supplier firm, a customer in the highest relationship state in a given period does not yield the highest lifetime value to the firm. Hence, the relationship between transaction value (i.e., relationship state) and lifetime value can be nonmonotonic. At the same time, we also find a nonmonotonic relationship between the optimal expenditures that should be directed at a customer and that customer's lifetime value; i.e., the optimal level of marketing contacts is not the highest for customers with the highest lifetime value. Furthermore, we find that the optimal marketing expenditures for myopic agents are 14-33 percent lower than the corresponding values for forwardlooking agents. Therefore, not accounting for the long-term effects of marketing contacts would lead to suboptimal marketing budgets. Moreover, a comparison with the current marketing expenditures suggests that the current practice is closer to the myopic policy than to the forward-looking one.

"Scope Insensitivity Justifications and the 'Mere Token' Effect"
Oleg Urminsky with Ran Kivetz
Journal of Marketing Research, 48(2), 282-295, (2011)

Abstract: Decisions often involve trade-offs between a more normative option and a less normative but more tempting option. We propose that the intrapersonal conflict evoked by such choices involving incompatible goals can be resolved through scope insensitive justifications. We describe one such mechanism, the "mere token" effect, a new phenomenon in decision making. We demonstrate that adding a certain and immediate "mere token" amount to both options increases choices of the later-larger option in intertemporal choice and of the riskier larger option in risky choice. This effect is found to be scope insensitive, such that the size of the "mere" token amount does not moderate the effect. We show that intrapersonal choice conflict underlies the mere token effect and that reducing the degree of conflict by increasing the psychological distance to the choice outcomes debiases the effect. Further, we show that the mere token effect is enhanced (a) when opposing goals in choice are made salient and (b) when the choice options represent a starker contrast that generates greater conflict. We empirically rule out alternative explanations, including diminishing marginal utility, normative and descriptive utility-based models, liquidity constraints and naïve diversification. We discuss the direct implications of the mere token effect for the marketing of financial services, and more generally, for consumer preference toward bundles and multi-attribute products.

"Tell Me What I Did Wrong: Experts Seek and Respond to Negative Feedback"
Ayelet Fishbach with Stacey Finkelstein
Journal of Consumer Research, (forthcoming)

Abstract: A large proportion of marketing communication concerns feedback to consumers. This article explores what feedback people seek and respond to. We predict and find a shift from positive to negative feedback as people gain expertise. We document this shift in a variety of domains including feedback on language acquisition, pursuit of environmental causes, and use of consumer products. Across these domains, novices sought and responded to positive feedback, and experts sought and responded to negative feedback. We examine a motivational account for the shift in feedback: positive feedback increased novices' commitment and negative feedback increased experts' sense that they were making insufficient progress.

"The Evolution of Brand Preferences: Evidence from Consumer Migration"
Jean-Pierre Dubé with Matthew Gentzkow
American Economic Review, (forthcoming)

Abstract: We study the long-run evolution of brand preferences, using new data on consumers' life histories and purchases of consumer packaged goods. Variation in where consumers have lived in the past allows us to isolate the causal effect of past experiences on current purchases, holding constant contemporaneous supply-side factors. We show that brand preferences form endogenously, are highly persistent, and explain 40 percent of geographic variation in market shares. Counterfactuals suggest that brand preferences create large entry barriers and durable advantages for incumbent firms and can explain the persistence of early-mover advantage over long periods.

"The Supremacy of Singular Subjectivity: Improving Decision Quality by Removing Objective Specifications and Direct Comparisons"
Christopher K. Hsee with Y. Liu, A. Yang, and L. Zhang
Journal of Consumer Psychology, 21(4), 393-404, (2011)

Abstract: When making purchase decisions, consumers want objective product specifications and seek direct product comparison. The present research demonstrates that consumers can make better decisions (i.e., choose what yields a better consumption experience) if objective specifications are removed and direct comparison is inhibited than if not, and this is true even if consumers cannot experience the target products themselves at the time of choice (such as in online shopping). The reason is that consumption is largely subjective and noncomparative, and decisions based on subjective and noncomparative information are often more compatible with consumption. In general discussion, we explore the boundary conditions of our findings and the implications of this research for a new way of marketing that emphasizes subjectivity over objectivity and noncomparison over comparison.