An important question that firms face in advertising is developing effective media strategy. Major improvements in the quality of consumer information and the growth of targeted media vehicles allow firms to precisely target advertising to consumer segments within a market. This paper examines advertising strategy when competing firms can target advertising to different groups of consumers within a market. With targeted advertising, we find that firms advertise more to consumers who have a strong preference for their product than to comparison shoppers who can be attracted to the competition. Advertising less to comparison shoppers can be seen as a way for firms to endogenously increase differentiation in the market. In addition, targeting allows the firm to eliminate “wasted” advertising to consumers whose preferences do not match a product’s attributes. As a result, the targeting of advertising increases equilibrium profits. The model demonstrates how advertising strategies are affected by firms being able to target pricing. Target advertising leads to higher profits, regardless of whether or not the firms have the ability to set targeted prices, and the targeting of advertising can be more valuable for firms in a competitive environment than the ability to target pricing.media precision, advertising, targeting, price discrimination
A critical factor in channel relationships between manufacturers and retailers is the relative bargaining power of both parties. In this article, the authors develop a framework to examine bargaining between channel members and demonstrate that the bargaining process actually affects the degree of coordination and that two-part tariffs will not be part of the market contract even in a simple one manufacturer-one retailer channel. To establish the institutional and theoretical bases for these results, the authors relax the conventional assumption that the product being exchanged is completely specifiable in a contract. They show that the institution of bargaining has force, and it affects channel coordination when the complexity of nonspecifiability of the product exchange is present. The authors find that greater retailer power promotes channel coordination. Thus, there are conditions in which the presence of a powerful retailer might actually be beneficial to all channel members. The authors recover the standard double-marginalization take-it-or-leave-it offer outcome as a particular case of the bargaining process. They also examine the implications of relative bargaining powers for whether the product is delivered “early” (i.e., before demand is realized) or “late” (i.e., delivered to the retailer only if there is demand). The authors present the implications for returns policies as well as of renegotiation costs and retail competition.
The increasing availability of customer information is giving many firms the ability to reach and customize price and other marketing efforts to the tastes of the individual consumer. This ability is labeled as consumer addressability. Consumer addressability through sophisticated databases is particularly important for direct-marketing firms, catalog retailers such as L.L Bean and Land's End, credit card-issuing banks, and firms in the long-distance telephone market. We examine the strategic implications of consumer addressability on competition between database/direct marketing firms. We address questions such as: In a competitive environment, how should firms invest in addressability? Will future improvements in the degree of addressability increase or mitigate the intensity of competition between the firms? Will greater addressability always be beneficial for firms? We model competition between two firms in a market where consumers differ on a horizontal attribute of product differentiation. The market comprises consumers located on a linear attribute space and firms located at the ends of the line. We represent the degree of addressability (or the reach of a firm's database) as the proportion of consumers at each point in the market who are in the firm's database. Consequently, the firm can offer these consumers customized prices. Consumer addressability creates two effects that govern the competition between firms: a "surplus extraction" effect because a firm might address a consumer who is not reached by its competitor and a "competitive" effect that is created by the set of consumers who can be addressed by both firms. The key results of the paper pertain to when the addressability decision is endogenous. When the extent of market differentiation (or consumer heterogeneity in preferences for a product/brand attribute), as well as the incremental cost of addressability, are sufficiently large, firms make symmetric investments in equilibrium. Given high costs, firms choose sufficiently low levels of addressability. Low addressability and high levels of market differentiation both help reduce price competition, which facilitates symmetric choice of addressability by the firms in equilibrium. However, when market differentiation and the cost of incremental addressability become small, firms face the prospect of destructive competition. As a result, they strategically differentiate in their choice of addressability to mitigate this competition. Interestingly, even in the extreme case when incremental addressability is costless, not every firm chooses full addressability in equilibrium. This has useful implications for direct marketing. Given that the advances in information technology should improve the ability of firms to address their consumers, it might indeed not be desirable for all direct marketing firms to indefinitely pursue greater addressability as costs of doing so decline. The analysis also shows an interesting effect of market differentiation in addressable markets: Equilibrium profits can decreas...
An interesting phenomenon has been the emergence of “infomediaries” in the form of Internet referral services in many markets. These services offer consumers the opportunity to get price quotes from enrolled brick-and-mortar retailers and direct consumer traffic to particular retailers who join them. This paper analyzes the effect of referral infomediaries on retail markets and examines the contractual arrangements that they should use in selling their services. We identify the conditions necessary for the infomediary to exist and explain how they would evolve with the growth of the Internet. The role of an infomediary as a price discrimination mechanism leads to lower online prices. Perhaps the most interesting result is that the referral infomediary can unravel (i.e., no retailer can get any net profit gain from joining) when its reach becomes too large. The analysis also shows why referral infomediaries would prefer to offer geographical exclusivity to joining retailers.Referral Services, Infomediaries, Intermediaries, Internet, Price Discrimination, Retail Competition, Exclusive Contracts
The objective of this article is to clarify ambiguities in the literature regarding the relationships among three key constructs of work relationships: effort, job performance, and job satisfaction. The relationship between job performance and job satisfaction is of central interest to research in organizational psychology. However, empirical research in that area finds that the link between these constructs is weak at best. A negative effect of effort on job satisfaction is consistent with agency theory, but there is limited empirical evidence to support this assumption. Moreover, some studies have found a positive effect of effort on job satisfaction. Using a model that incorporates the main constructs from agency theory and organizational psychology, the current study finds a negative, direct effect of effort and a positive, direct effect of job performance on job satisfaction. The authors show that conflicting findings in the literature are the result of inconsistency in both the measurement and the definition of constructs across studies that do not fully account for all the relationships between constructs. The current findings emphasize the need to distinguish clearly between factors that represent employees' inputs in a work relationship (i.e., effort) and those that represent their outputs (i.e., job performance). The article also demonstrates the importance of properly accounting or controlling for all key variables to eliminate biases that can arise in empirical research on work relationships.
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