Management Insights

Label Confusion: The Groucho Effect of Uncertain Standards (p. 1512)

Rick Harbaugh, John W. Maxwell, Beatrice Roussillon

What does “organic” mean, exactly? Producers like to use labels to certify that a product meets some standard for quality, but often consumers are unsure of the exact standard that the label represents. The authors show how even small amounts of uncertainty can create consumer confusion that reduces or eliminates the value to firms of adopting voluntary labels. First, consumers are most suspicious of a label when a product with a bad reputation has it, so labels are often unpersuasive at showing that a seemingly bad product is actually good. Second, label proliferation aggravates the effect of uncertainty, causing the informativeness of labels to decrease rather than increase. Third, uncertainty makes consumers face greater uncertainty over how to interpret the presence or absence of a label. Finally, a label can be legitimitized or spoiled for other products when a product with a good or bad reputation displays it, so firms may adopt labels strategically to manipulate such information spillovers, which further exacerbates label confusion. The insight for management: Managers can reduce label confusion by supporting mandatory labeling or by undertaking investments to make certain labels “focal”—that is, a “look for the label” campaign helps to reduce confusion and build confidence in consumers.

Corporate Social Responsibility and Competitive Advantage: Overcoming the Trust Barrier (p. 1528)

Shuili Du, C. B. Bhattacharya, Sankar Sen

Does corporate social responsibility (CSR) pay for business? The authors show that the challenger can reap more positive attitudinal and behavioral outcomes among consumers who had participated in the challenger's CSR initiative than those who were merely aware of the initiative. Specifically, participant consumers demonstrate the desired attitudinal and behavioral changes in favor of the challenger, regardless of their affective trust in the leader, whereas aware consumers' reactions become less favorable as their affective trust in the leader increases. Furthermore, participant consumers, but not aware ones, form a communal, trust-based bond with the challenger. The insight for management: CSR initiatives are effective only if the customer takes part.

Optimal and Competitive Assortments with Endogenous Pricing Under Hierarchical Consumer Choice Models (p. 1546)

A. Gürhan Kök, Yi Xu

How should a seller of a variety of products plan its assortment? On one hand, sellers want to “cover the waterfront” to make sure that they offer all of the varieties that consumers might want; on the other hand, variety is expensive to offer, and narrowly spaced options might serve only to cannibalize each other and potentially confuse the consumer. Varieties and SKUs have been proliferating over the last decade, growing by 50% to more than 47,000 times, but major retailers like Kroger's, Walgreens, and Walmart have recently reduced variety by 15%. These authors claim that the right variety depends heavily on the way that consumers make choices. The result is a limited number of premium and off-premium options that maximize profit. The insight for management: To offer the right set of products and prices, category and/or brand managers should create an assortment planning process that is aligned with the hierarchical choice process that consumers commonly follow to make purchasing decisions.

The Labor Illusion: How Operational Transparency Increases Perceived Value (p. 1564)

Ryan W. Buell, Michael I. Norton

The longer people wait for websites to load or complete tasks, the less satisfied they become. Frustrated by the hourglass on the screen and infuriated by the slow progress bar, they ask, “What could be taking so long?” However, customers are more forgiving when they know the cause of the delay. For example, an online travel site might take some time to provide travel options. If, during the calculations, the site informs the user of the specific tasks it is undertaking, the consumer better understands the reason for—and is subsequently more forgiving of—the wait. The authors show that when websites engage in “operational transparency” by signaling that they are exerting effort, people actually prefer websites with longer waits to those that return instantaneous results—even when those results are identical. The authors describe this as the labor illusion; when customers understand the service being provided, and are not simply waiting in ignorance, they are more forgiving of the time spent. The insight for management: Time and consumer assessment are subjective; providing information to your customer will improve perceptions, even if total service time is higher.

The Threat from Within: Account Managers' Concern About Opportunism by Their Own Team Members (p. 1580)

Brian R. Murtha, Goutam Challagalla, Ajay K. Kohli

A good account manager at, say, IBM knows the customer's needs and how to get the right technical (database, networking, finance, etc.) resources assigned to any problems. The account manager has to manage the external risk of maintaining the customer relationship at the expense of the company. These authors suggest a second threat from within the team: opportunistic behavior of team members. For example, the account manager might suspect that the technical specialist is promoting a solution that is easiest for them, not best for the customer. The authors say that such a threat leads account managers to engage in internal blocking of their own team members—that is, restricting their access to customers and to customer information—which actually results in lower performance with customers. This phenomenon is a conundrum in that account managers interested in stronger performance with customers appear to block the very functional specialists who can help them attain better performance. The insight for management: Cross-functional teams that are designed to bring different functional areas together are more complex to manage than was previously believed.

The Stock Market in the Driver's Seat! Implications for R&D and Marketing (p. 1594)

Anindita Chakravarty, Rajdeep Grewal

For a company in tough times, in order to avoid unexpected short-term earnings shortfalls and meet investor expectations for short-term stock returns, the first thing to be cut is often the budget for research and development (R&D). Does such behavior myopically focus on the short term, sacrificing long-term performance? The authors propose that the past behavior of firm stock returns and volatility may create investor expectations of short-term financial performance, which drives managers to cut R&D. The authors examine high-technology firms and show that firms display moderate myopic reactions, in the form of unanticipated decreases in R&D budgets. They also find that managers increased budgets for marketing functions. They find that the tendency to manage myopically increases as firm size decreases or industry concentration decreases. The insight for management: Firms tend to cut R&D and increase marketing in the face of tough times to meet investor expectations; instead they should avoid being overly myopic and sacrificing long-term performance.

The Dark Side of Rapport: Agent Misbehavior Face-to-Face and Online (p. 1610)

Sandy Jap, Diana C. Robertson, Ryan Hamilton

If NFL players and team owners got along better, would that have shortened the 2011 lockout? It is common knowledge that a good rapport helps negotiators reach a fast and mutually agreeable conclusion. Although rapport generally has been found to have positive effects in standard negotiation settings, the authors investigate the effects of rapport in impasse settings, where conflict between negotiators' core needs means that a successful deal can be reached only when one or both parties acts unethically or “misbehaves,” for example, by lying to the negotiation partner. The authors find that negotiators who have a high level of rapport are more likely to behave unethically than are negotiators who have a low level of rapport. The insight for management: Despite its several advantages, in certain situations rapport has a dark side, of which negotiators must be wary.

Creating Social Contagion Through Viral Product Design: A Randomized Trial of Peer Influence in Networks (p. 1623)

Sinan Aral, Dylan Walker

Twitter, Facebook, and other social network devices have a growing impact on the “buzz” about a product. How can firms create word-of-mouth peer influence and social contagion by designing viral features into their products and marketing campaigns? The authors evaluate the features that help create social contagion in these networks by evaluating 1.4 million friends of 9,687 experimental users on Facebook.com. Firms can either use passive, “broadcast” messages or hope for more active, personal referrals. Surprisingly, the authors find that the passive-broadcast viral features generate a 246% increase in peer influence and social contagion, whereas active-personalized viral features generate only a 98% increase. Although active-personalized viral messages are more effective in encouraging adoption per message and are correlated with more user engagement and sustained product use, passive-broadcast messaging is used more often, generating more total peer adoption in the network. The insight for management: Traditional broadcast-style messages might be more effective than the personal recommendations that “viral” marketers crave.

Newspaper Reports and Consumer Choice: Evidence from the Do Not Call Registry (p. 1640)

Khim-Yong Goh, Kai-Lung Hui, Ivan P. L. Png

How effective are mass media? Despite annual expenditures on public relations exceeding $19.42 billion, U.S. businesses lack practical guidance about the effectiveness of publicity in mass media. The authors conducted a study on the impact of news reports on consumer sign-ups with the U.S. Do Not Call (DNC) Registry. They found robust evidence that news reports increased consumer registrations: Overall, a 1% increase in the number of news reports increased DNC registrations by 0.018%. The response was greater if a toll-free telephone or URL were given. The response was lower if the headline or main text of the story was longer. The bandwagon effect found support: The impact on registration was higher for reports that mentioned the number of other people registering. Finally, the impact of news reports on consumer registration was stronger in national than local newspapers and in politically neutral and Democrat than Republican newspapers. The insight for management: Publicity does drive consumer behavior; a short and punchy story in a neutral national news source drives best results.

Durable Products, Time Inconsistency, and Lock-in (p. 1655)

Stephen M. Gilbert, Sreelata Jonnalagedda

Printers require ink, iPods require songs, and razors require blades. As long as cartridges, file formats, and blade refills don't fit competitors' offerings, gaining customer adoption of the durable good locks in customers for the complementary nondurable items. So manufacturers have incentive to give away the durable, and then price the consumable at a higher rate. But when customers recognize this strategy they become less willing to buy the durable item in the first place because of the risk of being locked in. Interestingly, allowing competition from another consumable of a slightly lower quality can benefit the manufacturer by mitigating consumers' fears of being held up. The insight for management: With savvy consumers, the sales and profits of durables can be increased by allowing the presence of a competitive consumables producer.

An Empirical Analysis of User Content Generation and Usage Behavior on the Mobile Internet (p. 1671)

Anindya Ghose, Sang Pil Han

Rapid advances in mobile Internet technologies now allow consumers to interact, create, and share content based on physical location. Exploding data demand has prompted wireless providers like AT&T and Verizon to consider usage-based data pricing. As is already the case in many countries, content consumption (downloads such as music) and creation (uploads such as pictures) would be billed in a pay-as-you-go fashion. The authors evaluate how mobile-phone-based content generation behavior of users relates to content usage behavior. The authors find that there is a significant negative temporal interdependence between content generation and usage. This finding implies that an increase in content usage in the previous period has a negative impact on content generation in the current period. The marginal effect of this interdependence is stronger on content usage (up to 8.7%) than on content generation (up to 4.3%). Interestingly, the authors find that users more frequently engage in content usage compared to content generation when they are traveling. The insight for management: Effective pay-as-you-go data pricing might take advantage of clear patterns in content consumption and generation.

Pooling, Access, and Countervailing Power in Channel Governance (p. 1692)

George Hendrikse

The Greenery BV is a produce cooperative and one of the leading companies in Europe in the fruit and vegetable sector. Its main activity is to provide a complete range of fruits and vegetables to supermarket chains in Europe, North America, and the Far East throughout the year. The Greenery has experienced numerous governance structure changes, including horizontal merger, forward integration, and the emergence of grower associations. Which cooperative governance structures result in efficient investments? The author examines three governance strategies: pooling efforts such as cooperatives to equitably share revenues among growers, countervailing negotiation arrangements of growers to negotiate a single price, and priority access guarantees to volumes of produce. The author finds that the presence of cooperatives allows a dual distribution channel for growers, improving their efficiency. The insight for management: Properly managed cooperatives benefit growers and tend to result in more efficient market outcomes.

Cyclical Bid Adjustments in Search-Engine Advertising (p. 1703)

Xiaoquan (Michael) Zhang, Juan Feng

Keyword advertising, or sponsored search, is one of the most successful advertising models on the Internet. One distinctive feature of keyword auctions is that they enable advertisers to adjust their bids and rankings dynamically, and the payoffs are realized in real time. The authors examined two data sets containing detailed bidding records of all advertisers for a sample of keywords in two leading search engines. They find that advertisers may engage in cyclical bid adjustments and that equilibrium bidding prices may follow a cyclical pattern: price-escalating phases interrupted by price-collapsing phases. The insight for management: Sponsored search pricing is dynamic and cyclical; the most affective bidding strategy takes advantage of the ebb and flow of pricing behavior.