Many markets have historically been dominated by a small number of best-selling products. The Pareto principle, also known as the 80/20 rule, describes this common pattern of sales concentration. However, information technology in general and Internet markets in particular have the potential to substantially increase the collective share of niche products, thereby creating a longer tail in the distribution of sales. This paper investigates the Internet's "long tail" phenomenon. By analyzing data collected from a multichannel retailer, it provides empirical evidence that the Internet channel exhibits a significantly less concentrated sales distribution when compared with traditional channels. Previous explanations for this result have focused on differences in product availability between channels. However, we demonstrate that the result survives even when the Internet and traditional channels share exactly the same product availability and prices. Instead, we find that consumers' usage of Internet search and discovery tools, such as recommendation engines, are associated with an increase the share of niche products. We conclude that the Internet's long tail is not solely due to the increase in product selection but may also partly reflect lower search costs on the Internet. If the relationships we uncover persist, the underlying trends in technology portend an ongoing shift in the distribution of product sales. This paper was accepted by Ramayya Krishnan, information systems.long tail, search cost, product variety, concentration, product sales, Internet, electronic commerce

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Customer satisfaction incentive schemes are increasingly common in a variety of industries. We offer explanations as to how and when incenting employees on customer satisfaction is profitable and offer several recommendations for improving upon current practice. Faced with employee groups (including managers) who may have shorter time horizons than the firm, such systems enable a firm to use customer reaction to monitor implicitly how employees allocate effort between the short and long terms. These systems can be used to encourage employees to make tradeoffs that are in the best interests of the firm. We derive optimal reward systems for an equilibrium in which the firm maximizes profits, employees maximize their expected utility, and customers choose purchase quantities based on initial reputations, employee efforts (both ephemeral and enduring), and price. The formal model shows how the reliance placed on customer satisfaction in an incentive scheme should depend upon the precision with which customer satisfaction is measured and the extent to which employees focus on the short term. Recommendations for improving upon current practice include: measure customers, former customers, potential customers; measure satisfaction with competitors' products; disaggregate satisfaction to reflect better the performance of employee groups, and, when different customer segments have different switching costs or they vary in the precision with which their satisfaction can be measured, then measure the segments separately and assign different weights in the incentive plan. Throughout the paper we interpret the formal results based on our experience with actual firms and the current literature. We close with a brief discussion of on-going research at field sites.competitive strategy, measurement, customer satisfaction, incentives

There is now an extensive theoretical literature investigating optimal inventory policies for retailers. Yet several recent reviews have recognized that these models are rarely applied in practice. One explanation for the paucity of practical applications is the difficulty of measuring how stockouts affect both current and future demand. In this paper, we report the findings of a large-scale field test that measures the short- and long-run opportunity cost of a stockout. The findings confirm that the adverse impact of a stockout extends to both other items in the current order as well as future orders. We show how the findings can be used to provide input to inventory planning models and illustrate how failing to account for the long-run effects of a stockout will lead to suboptimal inventory decisions. We also demonstrate how the findings can be used in a customer lifetime value model. Finally, the study investigates the effectiveness of different responses that firms can offer to mitigate the cost of stockouts. There is considerable variation in the effectiveness of these responses. Offering discounts to encourage customers to backorder rather than cancel their orders is widely used in practice, but that was the least profitable of the responses that we evaluated. The findings have important implications for retailers considering the use of discounts as a response to stockouts.inventory, long run, stockouts

We gratefully acknowledge the contribution of Robert M. Freund who proposed the use of the analytic center and approximating ellipsoids and gave us detailed advice on the application of these methods.This research was supported by the Sloan School of Management and the Center for Innovation in Product Development at M.I.T. This paper may be downloaded from http://mitsloan.mit.edu/vc. That website also contains (1) open source code to implement the methods described in this paper, (2) open source code for the simulations described in this paper, (3) demonstrations of web-based questionnaires based on the methods in this paper, and (4) related papers on web-based interviewing methods. All authors contributed fully and synergistically to this paper. We wish to thank Ray Faith, Aleksas Hauser, Janine Sisk, Limor Weisberg, Toby Woll for the visual design, programming, and project management on the Executive Education Study. This paper has benefited from presentations at the CIPD Spring Research Review, the Epoch Foundation Workshop, the Marketing Science Conferences in Wiesbaden Germany and Alberta Canada, the MIT ILP Symposium on "Managing Corporate Innovation," the MIT Marketing Workshop, the MIT Operations Research Seminar Series, the MSI Young Scholars Conference, the New England Marketing Conference, and Stanford Marketing Workshop, and the UCLA Marketing Seminar Series. Polyhedral Methods for Adaptive Choice-Based Conjoint Analysis AbstractChoice-based conjoint analysis (CBC) is used widely in marketing for product design, segmentation, and marketing strategy. We propose and test a new "polyhedral" question-design method that adapts each respondent's choice sets based on previous answers by that respondent. Individual adaptation appears promising because, as demonstrated in the aggregate customization literature, question design can be improved based on prior estimates of the respondent's partworths -information that is revealed by respondents' answers to prior questions. The otherwise impractical computational problems of individual CBC adaptation become feasible based on recent polyhedral "interior-point" algorithms, which provide the rapid solutions necessary for real-time computation.To identify domains where individual adaptation is promising (and domains where it is not), we evaluate the performance of polyhedral CBC methods with Monte Carlo experiments. We vary magnitude (response accuracy), respondent heterogeneity, estimation method, and question-design method in a We close by describing an empirical application to the design of executive education programs in which 354 web-based respondents answered stated-choice tasks with four service profiles each. The profiles varied on eight multi-level features. With the help of this study a major university is revising its executive education programs with new formats and a new focus.