REVISION: Big Data and Marketing Analytics in Gaming: Combining Empirical Models and Field Experimentation
Efforts on developing, implementing and evaluating a marketing analytics framework at a real-world company are described. The framework uses individual-level transaction data to fit empirical models of consumer response to marketing efforts, and uses these estimates to optimize segmentation and targeting. The models feature themes emphasized in the academic marketing science literature, including incorporation of consumer heterogeneity and state-dependence into choice, and controls for the endogeneity of the firm's historical targeting rule in estimation. To control for the endogeneity, we present an approach that involves conducting estimation separately across fixed partitions of the score variable that targeting is based on, which may be useful in other behavioral targeting settings. The models are customized to facilitate casino operations and are implemented at the MGM Resorts International's group of companies. The framework is evaluated using a randomized trial implemented at ...
New: Homogenous Contracts for Heterogeneous Agents: Aligning Salesforce Composition and Compensation
Observed contracts in the real-world are often very simple, partly reflecting the constraints faced by contracting firms in making the contracts more complex. We focus on one such rigidity, the constraints faced by firms in fine-tuning contracts to the full distribution of heterogeneity of its employees. We explore the implication of these restrictions for the provision of incentives within the firm. Our application is to salesforce compensation, in which a firm maintains a salesforce to market its products. Consistent with ubiquitous real-world business practice, we assume the firm is restricted to fully or partially set uniform commissions across its agent pool. We show this implies an interaction between the composition of agent types in the contract and the compensation policy used to motivate them, leading to a “contractual externality” in the firm and generating gains to sorting. This paper explains how this contractual externality arises, discusses a practical approach to ...
New: Disentangling Preferences and Learning in Brand Choice Models
In recent years there has been a growing stream of literature in marketing and economics that models consumers as Bayesian learners. Such learning behavior is often embedded within a discrete choice framework that is then calibrated on scanner panel data. At the same time, it is now accepted wisdom that disentangling preference heterogeneity and state dependence is critical in any attempt to understand either construct. We posit that this confounding between state dependence and heterogeneity ...
REVISION: Repositioning Dynamics and Pricing Strategy
We measure the revenue and cost implications to supermarkets of changing their price positioning strategy in oligopolistic downstream retail markets. Our estimates have implications for long-run market structure in the supermarket industry, and for measuring the sources of price rigidity in the economy. We exploit a unique dataset containing the price-format decisions of all supermarkets in the U.S. The data contain the format-change decisions of supermarkets in response to a large shock to ...
REVISION: Enriching Interactions: Incorporating Outcome Data into Static Discrete Games
When modeling the behavior of firms, marketers and micro-economists routinely confront complex problems of strategic interaction. In competitive environments, firms make strategic decisions that not only depend on the features of the market, but also on their beliefs regarding the reactions of their rivals. Structurally modeling these interactions requires formulating and estimating a discrete game, a task which, until recently, was considered intractable. Fortunately, two-step estimation ...
REVISION: Estimating Discrete Games
This paper provides a critical review of the methods for estimating static discrete games and their relevance for quantitative marketing. We discuss the various modeling approaches, alternative assumptions, and relevant trade-offs involved in taking these empirical methods to data. We consider both games of complete and incomplete information, examine the primary methods for dealing with the coherency problems introduced by multiplicity of equilibria, and provide concrete examples from the ...
Update: Disentangling Preferences and Learning in Brand Choice Models
In recent years there has been a growing stream of literature in marketing and economics that models consumers as Bayesian learners. Such learning behavior is often embedded within a discrete choice framework which is then calibrated on scanner panel data. At the same time it is now accepted wisdom that disentangling preference heterogeneity and state dependence is critical in any attempt to understand either construct. We posit that this confounding often carries through to Bayesian learning mo
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New: How Consumers' Attitudes toward Direct-to-Consumer Advertising of Prescription Drugs Influence and
Data from 1081 adults surveyed by the FDA were analyzed to explore consumers’ attitudes toward direct-toconsumer advertising (DTCA) of prescription drugs, and the relation between these attitudes and health related consumption behaviors. We report the favorableness of consumers’ reactions to DTCA, and more importantly, demonstrate that consumers’ attitudes toward DTCA are related to whether they search for more information about a drug that is advertised, and ask their physician about the drug.
Update: A Structural Model of Sales-Force Compensation Dynamics: Estimation and Field Implementation
We present an empirical framework to analyze real-world sales-force compensation schemes. The model is flexible enough to handle quotas and bonuses, output-based commission schemes, as well as "ratcheting" of compensation based on past performance, all of which are ubiquitous in actual contracts. The model explicitly incorporates the dynamics induced by these aspects in agent behavior. We apply the model to a rich dataset that comprises the complete details of sales and compensation plans for a
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REVISION: Scheduling Sales Force Training: Theory and Evidence
To have a productive sales force, firms must provide their salespeople with sales training. But from a profit-maximizing perspective, there are also reasons to limit training: training is expensive, it has diminishing returns, and trained salespeople need to be compensated at a higher level since their value in the outside labor market has increased. Due to these reasons, the following inter-related questions are not straightforward to answer: (1) How much training should be provided and how ...
Contract Duration: Evidence from Franchise Contracts
This study provides evidence on the determinants of contract duration using a large sample of franchise contracts. We find that the term of the contract systematically increases with the franchisee's physical and human capital investments, measures of recontracting costs, and the franchisor's experience in franchising (which we argue is negatively related to uncertainty about optimal contract provisions). These results are consistent with the hypothesis that the optimal contract duration ...
Salesforce Design with Experience-based Learning
This paper proposes and analyzes an integrated model of salesforce learning, product portfolio pricing and salesforce design. We consider a firm with a pool of sales representatives that is split into separate salesforces, one for each product. The salesforce assigned to each product is faced with an independent stream of sales leads. The salesforce may also handle leads that overflow from other product salesforces. In addition, salespeople "learn by doing" over their tenure on the job. In ...