Browsing by Author "Staelin, Richard"

This dissertation investigates the impact of online reviews on downstream demand and firm behavior, for service products with multi-faceted attributes and for which complicated information about those attributes can be found in online text reviews. The two essays in this dissertation examines the review content and its importance for two different product types, both of which comprise an important part of the service sector.

The first essay examines the differential impact of variances in the quality and taste comments found in online restaurant and hotel reviews on firm sales. Using an analytic model, we show that although increased variance in consumer reviews about taste mismatch normally decreases subsequent demand, it can increase demand when mean ratings are low and/or quality variance is high. In contrast, increased variance in quality always decreases subsequent demand, although this effect is moderated by the amount of variance in tastes. Since these theoretical demand effects are predicated on the assumption that consumers can differentiate between the two sources of variation in ratings, we conduct a survey that demonstrates that subjects are indeed able to reliably distinguish quality from taste evaluations from two subsets of reviews of size 5,000 taken from our larger datasets of reviews for 4,305 restaurants and 3,460 hotels. We use these responses to construct sets of reviews that we use in a controlled laboratory experiment on restaurant choice, finding strong support for our theoretical predictions. These responses are also used to train classifiers using a bag-of-words model to predict the degree to which each review in the larger datasets relates to quality and/or taste. Finally, we estimate the effects of the two types of variance in overall ratings on establishment sales, again finding support for our theoretical results.

The second essay explores the association between changes in clinical performance and online hospital reviews. Despite the surging increase in the public awareness and usage of online patient reviews for healthcare services, little is known about how these reviews affect healthcare provider's behavior. To this goal, we study the clinical performance of 2,773 U.S. hospitals in recent years when reviews are widely available and examine how it has changed compared to the performance in the pre-review era. To this end we analyze over 300k Google reviews. Our overarching premise is that multiple measures of patient reviews, including the content focus of the reviews (i.e., clinical or non-clinical), and the valence and variance of the content, may be associated with the changes in the quality of care provided. Of particular interest is the heterogeneity of hospital responses across covariates such as the hospital’s characteristics, patient socio-demographic variables, and the degree of competition facing the hospital. Using an exploratory data analysis approach and causal forests, we identify a number of variables that might influence the association between review variables and changes in hospital performance, including the helpfulness of the reviews, competitive intensity, hospital size, and education level and age of the population the hospital serves. Interestingly, provider type, ownership structure, and whether or not the hospitals write response comments to the online reviews have not materially influenced the association between review variables and changes in hospital performance. We offer insights on how the impact of the review variables is affected by meaningful covariates.

Marketing researchers have long relied on customer perceptions of service encounters to represent the "true" underlying quality. Researchers and practitioners in healthcare, on the other hand, have long dismissed customer perceptions as a credible measure of service quality. We built a quality framework designed to address this fundamental question: are customer perceptions of service encounters unique, redundant, or wholly flawed measures of actual service quality?

We consistently show customer perspectives reflect a measure of service quality that is both unique from, and complimentary to, the competence with which a service is provided. In fact, we found the explanatory power of either single dimension of process care is completely dependent on the state of the other as they relate to service encounter outcomes. This latter finding may require both management and policy makers to rethink how they approach managing and incenting a balanced approach to investments in improving process care dimensions.

Our research also provides evidence of factors both within, and indirectly outside, the control of management in improving healthcare service quality. In addition, government administrators face a particularly challenging roll in the system; their own policies - whether too punitive or too generous - have the potential to institutionalize lower quality healthcare for the very populations they are most trying to protect.

Organizational researchers have long considered innovation a critical activity. While insightful regarding the nature of the innovation process and the rewards and risk associated with innovation, prior work has neglected the perspective that innovations function within a firm's wider product portfolio. This perspective enables assessment of when innovations truly generate value for firms and the mechanisms through which it does so. I propose a general theory for how innovation creates new value for a firm and apply this theory to understanding how new value from innovation is reflected in the changes it manifests in the diversity of a firm's product portfolio.

This dissertation addresses these issues by examining how innovation introductions drive two types of changes in the firm's portfolio - product portfolio and within-brand portfolio diversification - and how those changes influence the new value firms will capture. In addition, I examine the degree to which these outcomes are contingent upon the characteristics of the innovation itself. Thus, I address the inherent interdependencies in managing innovations while still capturing the influence of individual innovation characteristics.

The importance of this topic lies in both theory and practice. Theoretically, this work sheds light on the degree to which innovation value is a function of the value accrued to the innovation itself and its interdependency with the firm's overall product and brand portfolios. Practically, understanding how the new value from innovation incorporates the effect of the innovation on the firm's portfolio enables firms to grasp how decisions they make regarding innovation pipelines and in managing their overall portfolio influences their expected success.

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Managers constantly make decisions that depend, at least in part, on what they believe their competitors (or customers, or employees) will do in response. These judgments are susceptible to error. Indeed, behavioral research suggests a widespread bias towards underestimating others. To explore the ramifications of such an intuitively irrational bias, we provide a theoretical model that compares the long-run effects of consistent underestimation bias with those of consistent overestimation bias across different competitive contexts relevant to marketing managers. In the first set of analyses, we derive analytic equations to calculate the relative expected payoffs associated with conditions of overestimation bias, underestimation bias, and no bias and discern trends as a function of environmental features including game complexity and player skill levels. In the second set of analyses, we derive equations for the relative effort costs associated with each of the three bias conditions as a function of the relevant game and player parameters. We then combine the results of the expected payoffs and effort costs to determine the relative net expected payoffs associated with each bias condition as a function of game and player parameters. In the third set of analyses, we relax many of the assumptions present in the first analysis and test the relationships of interest across additional contexts including risk aversion, power imbalance, and opponent arrogance. The results across all analyses are summarized by fifteen propositions which show that, when effort is at all costly, underestimation will provide the best net expected payoff when games are above some critical level of complexity as well as when opponents have above some critical minimum level of skill. The range of underestimation's advantage compared to overestimation can be increased in contexts with high first mover advantage, when payoffs are cumulative over time, when the player is risk averse, when there is an imbalance in power between the players, and when the opponent exhibits arrogance. Furthermore, underestimation can outperform overestimation even when effort is not costly when there is a power imbalance between the players or when the player exhibits certain risk attitudes. The results provide theoretical support for the ecological rationality of underestimation bias by showing it to be advantageous under many conditions, particularly in comparison to overestimation bias. It also provides managers with prescriptive insights regarding when any opponent skill estimation error is more vs. less harmful, and when managers may fare better in the long run if they don't spend too much time trying to think through the competition's eyes..

Search advertising refers to the practice where advertisers place their text-based advertisement on the search engine's result page along with the organic search results. With its growing importance, search advertising has seen a recent surge in academic interest. However, the literature has been ignoring some practical yet important problems of advertisers, including the keyword selection problem. In my dissertation, I focus on the keyword selection problem, more specifically, the choice of branded keywords in search advertising.

My dissertation begins with an observation on different patterns of branded keyword purchase behavior by the brand owner and its competitor. Under some branded keywords, we observe in the sponsored link, only the brand owner or only the competitor. However, under some other branded keywords, we observe both firms, or neither of them. Upon this phenomenon, I aim to understand what drives this puzzling pattern in a competitive environment. To this purpose, I develop a duopoly model where two firms compete in the product market with both horizontally and vertically differentiated products. Their products are evaluated by consumers whose perception is affected by what they see in search advertising. With this setup, Then I derive a subgame perfect equilibrium of the two stage game.

In a pricing equilibrium, I find that any benefit a firm gets from search advertising either due to exposure benefit or due to contrast or assimilation, helps this firm charge higher price while forcing the other firm charge lower price. This result affects the incentive for each firm to buy the branded keyword in the advertising stage. Specifically, firms have an incentive to buy the keyword only when the cost of advertising is justified by the exposure benefit but even in that case, each firm buys only when the detrimental context effect is not present. If the quality difference between the brand owner and the competitor is large and thus there exists a contrast between the two firms, the competitor with low quality product refrains from buying the keyword, because the contrast effect hurts the competitor. On the other hand, if the quality difference is small and thus two brands are assimilated, the brand owner with high quality product refuses to buy the keyword, because it is hurt by the assimilation effect. If the quality difference is in the intermediate range so that neither context effect is harmful to neither firm, both firms buy the keyword at the same time. On probing further the underlying incentives, I find that in some cases, the brand owner may buy its own keyword only to defend itself from the competitor's threat. In contrast, I also identify the case where the brand owner chooses to buy its own keyword and precludes the competitor from buying it. My result also suggests that both firms may be worse off by engaging in advertising, as in the prisoner's dilemma case.

On an extension, I provide an analysis on the impact of the insufficient advertising budget. If the budget is limited, both firms may have an incentive to hurt the other firm taking the higher slot, by increasing the bid amount and thus quickly exhausting the competitor's budget. The budget constraint also deprives the advertisers of the incentive to buy the keyword and thus, the budget-constrained advertisers may refuse to match the competitor's purchase of the keyword. Finally, the experimental investigation shows the existence of the exposure effect and the context effects. It also supports the model prediction based on estimated model parameters together with the empirical observation.

This dissertation focuses on managerial decision making, and specifically explores conditions wherein managers may increase their propensity to escalate commitment towards a failing project. Escalation researchers (e.g. Schmidt and Calantone, 2002) have listed four classes of factors that may impact a manager's propensity to escalate commitment towards a failing project, and have called for research into how exactly these factors impact escalation. In this dissertation, we explore two such factors. The first factor relates to the characteristics of the decision process used by firms to evaluate the project. Here, for example, researchers have looked at whether the manager was also involved in making decisions about the project in a prior period, and Boulding, Morgan and Staelin (1997) have shown that such manager's positive beliefs about the project (formed in a prior period) make a manager more likely to escalate commitment. The second factor relates to project characteristics. Here, for example, researchers have looked at whether or not the project relates to a product that is perceived as new, and Schmidt and Calantone (2002) have shown that managers are more likely to escalate commitment towards a failing project relating to a new product.

The first dissertation essay uses three experiments to examine how a hitherto unexplored characteristic of the decision process might lead to increasing escalation of commitment. Specifically, building off research into the illusion of control, we examine whether the opportunity to use managerial skill during the decision process makes a manager more willing to escalate commitment towards a failing project. We find that whenever managers act on cues that cause them to think they can use their managerial skill to control some outside factor (even though in reality they cannot), managers overestimate their ability to "control the odds" related to this outside factor. Such beliefs feed forward and lead managers to make suboptimal decisions about the overall project.

The second dissertation essay looks at how project characteristics might make a manager more (or less) likely to escalate commitment towards a failing project. We explore this issue in the hitherto unexplored real options setting. Real options have emerged as an important part of marketing strategy, and have been used to structure new product alliances, value customers etc. We run a controlled experiment and we examine whether differences in option-structure (which is a project characteristic) impact the propensity to make suboptimal option-exercise decisions. We find that managers are more likely to make suboptimal option-exercise decisions in the case of put options (vis. call options), and - as predicted by the endowment effect literature - this increased propensity to make a suboptimal decision is mediated by/ explained by the psychological ownership construct.

This dissertation explores how consumers learn from repeated experiences with a product offering. It develops a new Bayesian consumer learning model, the unstable learning model. This model expands on existing models that explore learning when quality is stable, by considering when quality is changing. Further, the dissertation examines situations in which consumers may act as if quality is changing when it is stable or vice versa. This examination proceeds in two essays.

The first essay uses two experiments to examine how consumers learn when product quality is stable or changing. By collecting repeated measures of expectation data and experiences, more information enables estimation to discriminate between stable and unstable learning. The key conclusions are that (1) most consumers act as if quality is unstable, even when it is stable, and (2) consumers respond to the environment they face, adjusting their learning in the correct direction. These conclusions have important implications for the formation and value of brand equity.

Based on the conclusions of this first essay, the second essay develops a choice model of consumer learning when consumers believe quality is changing, even though it is not. A Monte Carlo experiment tests the efficacy of this model versus the standard model. The key conclusion is that both models perform similarly well when the model assumptions match the way consumers actually learn, but with a mismatch the existing model is biased, while the new model continues to perform well. These biases could lead to suboptimal branding decisions.

Marketers have long looked for observables that could explain differences in consumer behavior. Initial attempts have centered on demographic factors, such as age, gender, and race. Although such variables are able to provide some useful information for segmentation (Bass, Tigert, and Longdale 1968), more recent studies have shown that variables that tap into consumers’ social classes and personal values have more predictive accuracy and also provide deeper insights into consumer behavior. I argue that one demographic construct, religion, merits further consideration as a factor that has a profound impact on consumer behavior. In this dissertation, I focus on two types of religious guidance that may influence consumer behaviors: religious teachings (being content with one’s belongings), and religious problem-solving styles (reliance on God).

Essay 1 focuses on the well-established endowment effect and introduces a new moderator (religious teachings on contentment) that influences both owner and buyers’ pricing behaviors. Through fifteen experiments, I demonstrate that when people are primed with religion or characterized by stronger religious beliefs, they tend to value their belongings more than people who are not primed with religion or who have weaker religious beliefs. These effects are caused by religious teachings on being content with one’s belongings, which lead to the overvaluation of one’s own possessions.

Essay 2 focuses on self-control behaviors, specifically healthy eating, and introduces a new moderator (God’s role in the decision-making process) that determines the relationship between religiosity and the healthiness of food choices. My findings demonstrate that consumers who indicate that they defer to God in their decision-making make unhealthier food choices as their religiosity increases. The opposite is true for consumers who rely entirely on themselves. Importantly, this relationship is mediated by the consumer’s consideration of future consequences. This essay provides an explanation to the existing mixed findings on the relationship between religiosity and obesity.