What happens when shoppers find empty spaces on store shelves instead of their preferred brands of shampoo, soda or other products?  Do they buy different brands, or remain loyal and head to another store in search of their favorite products? And can a price reduction convince shoppers to buy the product again once it is back on shelves?

These questions have challenged brand managers and store owners for ages.  Sophisticated inventory tracking systems can help reduce product outages, known as stockouts, in some retail settings.  However, these systems are not available in all retail settings, and even the best systems don’t completely eliminate stockouts.

Duke University professor Andres Musalem and co-authors have developed a new model to help managers estimate the effects of stockouts and find the best ways to recapture lost sales.

“It can be difficult for managers to know how long their products have been out of stock, and thus how many sales they may have lost,” Musalem said. “Our model can help managers overcome this lack of information and identify the best ways to mitigate lost sales.”

The team tested the model using real-world data from shampoo sales of six supermarkets in Spain. Their findings, published in the July issue of Management Science, demonstrate the value of using mathematical models and simulation methods to understand consumer responses to stockouts and to design plans to protect a retailer or a manufacturer’s revenue under situations of insufficient inventory.

In the case of shampoo purchases in Spain, Musalem found customers were likely to purchase another product in the same store when fewer than five types of products were missing from the shelf.  But when more than five products were out of stock, stores sacrificed 20% of their expected normal sales.

“A store manager could use this analysis to balance product availability with staff workloads and inventory costs,” Musalem said.  “In the case of our shampoo study, we learned that you can tolerate a certain amount of empty spaces on your shelves before restocking, but you have to be careful not to let the product selection slip to the point where sales drop precipitously.”

The model also demonstrated that discounting similar products can discourage customers from heading to another store to find their preferred product. In the shampoo example, the model indicated discounting a similar item is a good way to overcome a stockout of one particular product, but it’s better to discount an already popular product if many of a store’s brands are out of stock.

“Implementing an analysis of this type can help brand managers and retailers protect their revenues and customer loyalty,” Musalem said.

More information about the model, including the researchers’ full paper, “Structural Estimation of the Effect of Out-of-Stocks” is available here.

Choosing primary care over a specialty career costs physicians an estimated $2.7 million in potential lifetime earnings and wealth, according to a Duke University analysis.

The study looked at average lifetime income and wealth accumulation of specialist physicians, primary care physicians, physician assistants, MBAs and college graduates.

With 32 million more Americans about to be covered for primary care by the health care reforms, the current shortage of primary care providers may become more acute. Fixing the shortage could require policy changes to reduce this income gap, say Bryan Vaughn and Steven DeVrieze, 2009 graduates of the MBA program at Duke’s Fuqua School of Business.

The pair’s research, which began as part of a class project in Fuqua’s Health Sector Management program, will be published in the May issue of the journal Health Affairs.

Using physician income data from the American Medical Group Association and the Association of American Medical Colleges, as well as publicly reported sources of salary data for physician assistants, MBAs and college graduates, the team created a model to estimate the net present value of career wealth potential for each group. The calculation accounted for years of schooling and work, student loan debt, income and investment income potential. Salary information for cardiologists was used to represent medical specialties as a whole, with the model allowing for differences in training time and residency stipends for primary care physicians and cardiologists.

According to the model, a physician who enters medical school at age 23 and practices until age 65 would have a lifetime wealth potential of $5.2 million as a cardiologist, and $2.5 million as a family medicine or internal medicine practitioner. Average wealth potential for MBAs was $1.7 million, compared to $850,000 for physician assistants and $340,000 for college graduates. Read the rest of this entry »

When digital video recorders (DVRs) like TiVo went mainstream, advertisers assumed the devices’ fast-forward buttons would doom the traditional 30-second TV spot. Most advertisers surveyed said they planned to reduce their television ad budgets in response.

But using TiVo actually has no effect on consumers’ buying behavior, a professor at Duke University’s Fuqua School of Business has discovered. People with TiVo don’t fast-forward nearly as many ads as you might expect.

“Companies are afraid of a ‘TiVo effect’ and are changing their media spending as a result,” says Fuqua Professor Carl L. Mela. “But we find no change in people’s shopping patterns when we compare a group that has TiVo with a group that doesn’t. The manufacturers’ fears seem to be overstated.”

In partnership with Information Resources Inc. (IRI) and TiVo, Mela and colleagues from The University of Chicago and Tilburg University conducted a multimillion-dollar, three-year field study in which some households were given a DVR and their shopping behavior was compared to those without one. The authors tracked purchases of new products, advertised products and store brands across 50 categories as well as the viewing behavior of those with the DVRs.

No matter how the researchers looked at it, DVRs did not affect what people bought. This conclusion astonished the researchers.

“Our initial goal was to simply measure how bad DVRs were for advertisers,” Mela says. “We tried a vast array of methodological approaches to find a DVR effect. And we just couldn’t.”

Mela offers these factors to account for the lack of a TiVo effect:

Read the rest of this entry »

There were no evening gowns, swimsuits, or artistic talents on display, but a corporate beauty contest staged by Duke University researchers nevertheless revealed strong ties between appearance and success in the business world.

By pairing photos of the chief executive officers of large and small companies with photos of non-executives with similar facial features, hairstyles and clothing, finance professors John Graham, Campbell Harvey and Manju Puri of Duke’s Fuqua School of Business found that CEOs are more likely than non-CEOs to be rated as competent looking, but less likely to be classified as likeable.

The trio found that CEOs who appear competent earn more money than less competent-looking CEOs, even though appearance is not associated with measurable differences in company profitability.

“Other researchers have found links between beauty and workers’ pay, and demonstrated that politicians benefit from good looks at election time,” Graham said.  “We wanted to see whether appearance also plays a role at the corporate executive level.”

John Graham, Manju Puri and Cam Harvey

Read the rest of this entry »

Using advanced tools to see the human brain at work, a new generation of marketing experts may be able to test a product’s appeal while it is still being designed, according to a new analysis by two researchers at Duke University and Emory University.

So-called “neuromarketing” takes the tools of modern brain science, like the functional MRI, and applies them to the somewhat abstract likes and dislikes of customer decision-making.

Though this raises the specter of marketers being able to read people’s minds (more than they already do), neuromarketing may prove to be an affordable way for marketers to gather information that was previously unobtainable, or that consumers themselves may not even be fully aware of, says Dan Ariely, the James B. Duke professor of psychology and behavioral economics at Duke.

In a perspective piece appearing online in the journal Nature Reviews Neuroscience , Ariely and Gregory S. Berns of Emory’s departments of psychiatry, economics and neuropolicy, offer tips on what to look for when hiring a neuromarketing firm, and what ethical considerations there might be for the new field. They also point to some words of caution in interpreting such data to form marketing decisions.

Neuromarketing may never be cheap enough to replace focus groups and other methods used to assess existing products and advertising, but it could have real promise in gauging the conscious and unconscious reactions of consumers in the design phase of such varied products as “food, entertainment, buildings and political candidates,” Ariely says.

“Neuromarketing: the hope and hype of neuroimaging in business,” Dan Ariely and Gregory S. Berns. Nature Reviews Neuroscience.

New work by Duke and University College London (UCL) researchers suggests that our response to disasters depends partly on the range of death tolls we are usually exposed to.

Millions of lives are lost around the world each year to accidents, terrorist attacks, wars, epidemics and natural disasters. What’s more, the prediction is that climate change will increase the number and intensity of some of these events.

Newly published research from suggests that the way people – whether members of the public or policymakers – react when faced with human fatalities is highly dependent on the distribution of death tolls they are typically exposed to.

The findings could have important implications for multi-lateral donors, national governments, aid agencies and the press in terms of planning for, fundraising for, reporting on and responding to such emergencies. Read the rest of this entry »

Professor Ralph Keeney is helping Freakonimics blog readers learn to make better decisions.  Check out the Freakonomics site for Keeney’s guidance on how to make good decisions and minimize regret.

by Kevin Schulman

One of the most obscure organizations in the federal government is the U.S. Preventive Services Task Force which began in 1984. While convened by the government, the group is comprised of outside experts in medicine, health services research, and epidemiology.1 The task force’s job is to review the evidence around primary care services and to make recommendations to physicians about the quality of the evidence to support specific recommendations for what services should or should not be included as part of routine clinical practice.

The group’s efforts are very disciplined and scripted. Specific services are assessed on the basis of the risks and benefits to ascertain the potential “net benefit” to patients, with recommendations graded A through D (a grade of I means there is insignificant evidence to make a recommendation). A grade of A indicates high probability there is substantial benefit, B indicates high probability of moderate benefit or moderate probability of substantial benefit, C is a recommendation against a service with at least moderate evidence that the benefit is small, D is a recommendation against a service with a moderate or high evidence that there is no benefit or that the harms outweigh the benefits. The probability estimates in these statements are based on the quality of the evidence in the clinical literature on these topics.2

This group recently performed a periodic update of its 2002 recommendations for breast cancer screening.3 The task force conducted an evidence review to assess all of the new clinical studies on breast cancer screening since its last report, and it commissioned a decision analysis of different screening strategies for breast cancer to assess the net benefit or harm for each strategy.

Read the rest of this entry »

The Washington Times recently featured  Aaron Chatterji and Christopher Gergen’s views on ways in which successful social enterprises can scale up to serve larger populations.  Read their column here.

The Raleigh News & Observer recently featured Professor (and physician) Marco Huesch’s thoughts on health care reform, highlighting ways in which physicians can lead innovation.  Read his thoughts here.