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.

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 »

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.

Thin friends who eat a lot could put your waistline in danger. That’s the warning from researchers studying how other people’s weight and food choices influence how much we eat.

Researchers from Duke University, the University of British Columbia and Arizona State University used snack foods, an obesity prosthesis, and the ruse of a study related to movies to track how students’ food consumption was influenced by a companion. Their findings will appear online this week in the Journal of Consumer Research.

“Obesity is obviously a tremendous public health concern,” said Gavan Fitzsimons, F.M. Kirby Research Fellow and professor of marketing and psychology at Duke University’s Fuqua School of Business. “Because people often dine in social settings, we decided to investigate how someone’s size and food choices could influence how much the people around them order and eat.”

The research team recruited 210 college students to participate in a study ostensibly about movie watching. Upon arriving at a research lab, each student was informed that he or she would be paired with another student taking part in the same study. The other student was in fact a member of the research team whose size was manipulated to make her appear to be either size 0 and 105 pounds (her natural build), or size 16 and 180 pounds (when wearing the obesity prosthesis, a rubber suit that made her look much larger).

Read the rest of this entry »

For at least 50 years, television advertisements have been ordered randomly within commercial breaks. But given the spread of digital video recorders (DVR) that allow users to blip-blip past the ads in fast-forward, it’s time to change this business model to maximize ads’ effectiveness, according to a new study.

The research, by Kenneth C. Wilbur of Duke University’s Fuqua School of Business and David Kempe of the University of Southern California’s Viterbi School of Engineering, was presented by Wilbur on June 23 at the Advertising Research Foundation Audience Measurement 4.0 conference in New York City.

“Think of two very different ads: the iconic Coca-Cola polar bears commercial, and a commercial for ‘natural male enhancement,’” said Wilbur. “The Coke ad will keep the audience glued to its screen, but the other ad will annoy some viewers, causing them to fast-forward or switch the channel. If the Coke ad is placed first during the commercial break, it still delivers most of the audience to the second ad. But if the Coke ad is placed second, it gets a significantly smaller audience.”

To account for these types of ad sequencing issues, the researchers have developed the Audience Value Maximization model. This new algorithm shows how to optimally select, order, and price ads based on a mathematical formula that considers advertisers’ willingness to pay and viewers’ propensity to switch channels during commercial breaks.
Read the rest of this entry »

Just seeing a salad on the menu seems to push some consumers to make a less healthy meal choice, according a Duke University researcher.

It’s an effect called “vicarious goal fulfillment,” in which a person can feel a goal has been met if they have taken some small action, like considering the salad without ordering it, said Gavan Fitzsimons, professor of marketing and psychology at Duke’s Fuqua School of Business, who led the research.

In a lab experiment, participants possessing high levels of self-control related to food choices (as assessed by a pre-test) avoided french fries, the least healthy item on a menu, when presented with only unhealthy choices. But when a side salad was added to this menu, they became much more likely to take the fries.
Read the rest of this entry »

With all the hype before product launch, why were the sales of the Segway scooter so disappointing?  According to research by Duke alumnus David Alexander of the University of St. Thomas, John Lynch of Duke University, and Qing Wang of Warwick University, the highly-touted, innovative product may have been just too new and unfamiliar.

While novelty may create advertising buzz, when it comes time to part with their money, consumers prefer the familiar over the really new—especially when using the new product requires a behavior change.

The research, reported in “As Time Goes By: Warm Intentions and Cold Feet for Really New versus Incrementally New Products,” was funded by the Marketing Science Institute (MSI).  It was recently awarded the Robert D. Buzzell MSI Best Paper Award, chosen by MSI trustees for its lasting value to marketing executives.
Read the rest of this entry »

The next time a contractor tells you the kitchen remodeling will be done in six weeks, you might ask him to get real and reconsider his estimate.

People often fail to remember that the world is not ideal when they predict when they will complete a project, how frequently they will exercise, or how much money they will save.  However, a subtle reminder of the difference between ideal and realistic predictions can yield a more accurate estimate, according to new research from Duke University’s Fuqua School of Business and the Wisconsin School of Business.
Read the rest of this entry »

In these difficult economic times, top marketing officers are turning to new and often unproven strategies that focus on the Internet, partnerships, new markets, new products and services to help their companies.

These are some of the results of The CMO Survey, a poll of 581 U.S. marketing executives conducted in February 2009. The survey was conducted by professor Christine Moorman of Duke University’s Fuqua School of Business in conjunction with the American Marketing Association.

Overall, the survey indicates that 59 percent of marketers are less optimistic about the economy than they were one quarter ago, a reduction from the 77 percent of respondents who reported a decrease in optimism during the August 2008 CMO survey.

“While marketers in general remain unexcited about the economic situation, it is encouraging to at least see that pessimism is not increasing among the marketing community,” Moorman said. “This could either indicate that marketers think the worst times are behind us, or they have simply adjusted to operating in an adverse environment.” Read the rest of this entry »

The following analysis by Fuqua Marketing Professor Andres Musalem and Professor Ricardo Montoya of the University of Chile was recently published in the Chilean newspaper La Tercera.

With annual sales of 324 billion dollars, Wal-Mart is within a select group of companies that has successfully weathered the economic crisis. In Chile, the arrival of the largest retail chain in the world raises alarms among their local rivals and also among the workers of D&S, the Chilean supermarket chain just acquired by Wal-Mart. Nevertheless and beyond any controversy, consumers’ interest in Wal-Mart’s entry is built upon expectations of more competitive prices.

In this regard, the question that many would like to answer is how much prices will drop once Wal-Mart lands on Chilean soil. The arguments of those who argue that prices will actually fall are based on Wal-Mart’s increased efficiency, which might lead to lower operation costs as suggested by Máximo Bosch and Claudio Pizarro from the Retail Center at the University of Chile. Furthermore, its substantial bargaining power would help the retailer obtain lower wholesale prices when purchasing merchandise from its vendors. Part of these savings would be transferred directly to consumers through lower prices. Indeed, a study published in 2005 in the Journal of Applied Econometrics notes that Wal-Mart prices are on average between 5% and 25% cheaper than other supermarkets in the United States.

Another related argument is that Wal-Mart’s low prices might force local competitors to adjust their own prices to remain competitive. However, there are multiple studies showing that the real impact of the arrival of Wal-Mart in various U.S. markets does not generate large changes in the prices charged by its competitors. Therefore, when considering Wal-Mart’s effect on competitors, the results are in fact counterintuitive.

This evidence begs the question of why the local competition does not lower prices after Wal-Mart’s entry. Read the rest of this entry »