Reference groups and product line decisions: An experimental investigation of limited editions and product proliferation
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Some luxury goods manufacturers offer limited editions of their products, whereas some others market multiple product lines. Researchers have found that reference groups shape consumer evaluations of these product categories. Yet little empirical research has examined how reference groups affect the product line decisions of firms. Indeed, in a field setting it is quite a challenge to isolate reference group effects from contextual effects and correlated effects. In this paper, we propose a parsimonious model that allows us to study how reference groups influence firm behavior and that lends itself to experimental analysis. With the aid of the model we investigate the behavior of consumers in a laboratory setting where we can focus on the reference group effects after controlling for the contextual and correlated effects. The experimental results show that in the presence of strong reference group effects, limited editions and multiple products can help improve firms' profits. Furthermore, the trends in the purchase decisions of our participants point to the possibility that they are capable of introspecting close to two steps of thinking at the outset of the game and then learning through reinforcement mechanisms. © 2010 INFORMS.
Published Version (Please cite this version)10.1287/mnsc.1090.1133
Publication InfoAmaldoss, W; & Jain, S (2010). Reference groups and product line decisions: An experimental investigation of limited editions and product proliferation. Management Science, 56(4). pp. 621-644. 10.1287/mnsc.1090.1133. Retrieved from http://hdl.handle.net/10161/4426.
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Thomas A. Finch Jr. Professor of Business Administration, in the Fuqua School of Business
Professor Amaldoss received his Ph.D in Marketing in 1998 from the Wharton School of the University of Pennsylvania. He holds an MBA from the Indian Institute of Management, Ahmedabad. He has taught earlier at the Krannert Graduate School of Management of Purdue University. He is interested in understanding strategic behavior in the context of pricing and advertising. Recent publication credits include “Branding Conspicuous Goods” (joint with Sanjay Jain) in Management Sc