Because consumer research often faces the finite or quantal choice problem, a recent study developed a theory of choice that explicitly considers the difficulty in comparing diverse alternatives. The theory's objective was to offer a methodology for explicitly dealing with 'thinking costs' that uses both the notions of preferences over characteristics and probabilistic predictions of choice. A second objective was to examine the precise cost of using various simplifying decision rules as compared to a utility maximizing procedure, allowing a theoretical comparison of various simplifying strategies on a cost basis. The resulting model does have some restrictive assumptions. However, it is able to quantify decision-making costs and the likelihood of mistakes. The model may be applied in the areas of: 1. Product characteristics in an advertisement, 2. Information presentation, and 3. New product sales forecasting. However, if used on an individual level, the adoption of simplifying choice strategies can leave a consumer vulnerable to manipulation. For example, due to a lack of proper feedback of information, a consumer is kept from learning of mistakes, and the best product may never be found.' The quantal choice, or "all-or-nothing response," refers to problems where responses can be expressed as "occurring" or "not occurring," e.g., whether an insect is dead or living. Problems such as "how much will he buy?" are not quantal choice problems. A large literature exists on statistical techniques for dealing with quantal response data. 99) JOURNAL OF CONSUMER RESEARCH
Advance selling occurs when sellers allow buyers to purchase at a time preceding consumption (Shugan and Xie 2000). Electronic tickets, smart cards, online prepayments, and other technological advances make advance selling possible for many, if not all, service providers. These technologies lower the cost of making complex transactions at a greater distance from the seller's site. They also give sellers more control over advance selling by decreasing arbitrage. As technology enhances the capability to advance sell, more academic attention is vital. This paper strives to exploit these technologies by developing advance-selling strategies.Until recently, advance-selling research focused on the airline industry and specific characteristics of that industry. These characteristics included the price insensitivity of late arrivals (e.g., business travelers) compared with early arrivals (e.g., leisure travelers), demand uncertainty across flights on the same day, and capacity constraints. Recent findings by Shugan and Xie (2000) show that advance selling is a far more general marketing tool than previously thought. It does not require these industry-specific characteristics. It only requires the existence of buyer uncertainty about future valuations. Moreover, sellers without the ability to price discriminate can use advance selling to improve profits to the level of first-degree price discrimination. This finding is important because buyers are nearly always uncertain about their future valuations for most services (e.g., the utility of next year's vacation or a future college education).In this paper, we take the next step from Shugan and Xie (2000). We show that advance-selling profits do not come from buyer surplus, but from more buyers being able to purchase. We determine when and how to advance sell in a variety of situations, including situations with limited capacity, second-period arrivals, refunds, buyer risk aversion, exogenous credibility, continuous preference distributions, and premium pricing. We determine when advance selling improves profits and, when it does, how to set advance prices. We ask and answer seven questions. First, when should sellers advance sell? Second, how much can advance selling improve profits compared with only spot selling? Third, what factors impact the profitability of advance selling and how? Fourth, should advance prices be higher or lower or the same as spot prices? Fifth, how do capacity constraints impact advance-selling strategies? Sixth, should sellers limit the number of advance sales? Finally, what is the possible impact of buyer risk aversion?First, we provide precise conditions when sellers should advance sell. For example, without capacity constraints, we show that sellers should advance sell when marginal costs are sufficiently low to make it profitable to sell to buyers with low valuations and sufficiently high to convince buyers that the spot price will be higher than the advance price.Second, we find that advance selling can almost double the profits fro...
Critics and their reviews pervade many industries and are particularly important in the entertainment industry. Few marketing scholars, however, have considered the relationship between the market performance of entertainment services and the role of critics. The authors do so here. They show empirically that critical reviews correlate with late and cumulative box office receipts but do not have a significant correlation with early box office receipts. Although still far from any definitive conclusion, this finding suggests that critics, at least from an aggregate-level perspective, appear to act more as leading indicators than as opinion leaders.
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