Shantanu Dutta - Academia.edu (original) (raw)
Papers by Shantanu Dutta
University of Chicago Press eBooks, 2003
Managerial and Decision Economics, Mar 1, 1998
We empirically study the price adjustment process at multiproduct retail stores. We use a unique ... more We empirically study the price adjustment process at multiproduct retail stores. We use a unique store level data set for five large supermarket and one drugstore chains in the U.S., to document the exact process required to change prices. Our data set allows us to study this process in great detail, describing the exact procedure, stages, and steps undertaken during the price change process. We also discuss various aspects of the microeconomic environment in which the price adjustment decisions are made, factors affecting the price adjustment decisions, and firm-level implications of price adjustment decisions. Specifically, we examine the effects of the complexity of the price change process on the stores' pricing strategy. We also study how the steps involved in the price change process, combined with the laws governing the retail price setting and adjustment, along with the competitive market structure of the retail grocery industry, influence the frequency of price changes. We also examine how the mistakes that occur in the price change process influence the actions taken by these multiproduct retailers. In particular, we study how these mistakes can make the stores vulnerable to civil law suits and penalties, and also damage their reputation. We also show how the mistakes can lead to stockouts or unwanted inventory accumulations. Finally, we discuss how retail stores try to minimize these negative effects of the price change mistakes. 3 "It is unfortunate that so little attention has been given to characterizing the circumstances that give rise to high and low levels of nominal price inertia. Progress in this dimension calls for more detailed empirical work and for increased understanding of the manner in which corporations actually arrive at pricing decisions." Andrew Caplin "Perhaps in no area of economic inquiry is there so wide a gap between theoretical and empirical work as in the field which has long been considered the core of economic analysis-the formation of prices." NBER Committee on Price Determination
Social Science Research Network, 2003
The Thanksgiving-Christmas holiday period is a major sales period for US retailers. Due to higher... more The Thanksgiving-Christmas holiday period is a major sales period for US retailers. Due to higher store traffic, tasks such as restocking shelves, handling customers' questions and inquiries, running cash registers, cleaning, and bagging, become more urgent during holidays. As a result, the holiday-period opportunity cost of price adjustment may increase dramatically for retail stores, which should lead to greater price rigidity during holidays. We test this prediction using weekly retail scanner price data from a major Midwestern supermarket chain. We find that indeed, prices are more rigid during holiday periods than non-holiday periods. For example, the econometric model we estimate suggests that the probability of a price change is lower during holiday periods, even after accounting for cost changes. Moreover, we find that the probability of a price change increases with the size of the cost change, during both, the holiday as well as non-holiday periods. We argue that these findings are best explained by higher price adjustment costs (menu cost) the retailers face during the holiday periods. Our data provides a natural experiment for studying variation in price rigidity because most aspects of market environment such as market structure, industry concentration, the nature of long-term relationships, contractual arrangements, etc., do not vary between holiday and nonholiday periods. We, therefore, are able to rule out these commonly used alternative explanations for the price rigidity, and conclude that the menu cost theory offers the best explanation for the holiday period price rigidity.
EconStor Open Access Articles, 2006
Using weekly retail transaction scanner price data from a large US supermarket chain, significant... more Using weekly retail transaction scanner price data from a large US supermarket chain, significantly higher retail price rigidity is found for private label products than for nationally branded products during the Christmas and Thanksgiving holiday periods relative to the rest of the year. The finding cannot be explained by changes in holiday period promotional practices because it is found that private label promotions appear to diminish at least as much as national brands. The increased rigidity of private label products relative to national brands is only partially accounted for by increased rigidity of wholesale prices. After ruling out other potential explanations, it is suggested that the higher private label price rigidity might be due to the increased emphasis on social consumption during holiday periods, raising the customers' value of nationally branded products relative to the private labels.
RePEc: Research Papers in Economics, Oct 1, 2006
Patent expiration represents a turning point for the brand losing patent protection as bioequival... more Patent expiration represents a turning point for the brand losing patent protection as bioequivalent generic versions of the drug quickly enter the market at reduced prices. In this paper, we study how physician characteristics and their prescribing decisions impact the competition among molecules of a therapeutic class, once generic versions of one of these molecules enter the market. Specifically, we study the evolution of the Selective Serotonine Reuptake Inhibitors (SSRIs) after the introduction of generic versions of fluoxetine (brand name Prozac) in the United Kingdom (UK). Our results suggest that, to fully understand the market evolution after generic entry, public health officials need to consider the marketing activities of pharmaceutical companies and determine how (1) individual physicians prescribe all competing drugs, and (2) respond to drug prices and marketing actions. For example, we find that a group of physicians sensitive to detailing switch from fluoxetine to nonbioequivalent branded alternatives after patent expiration, as Prozac significantly reduces its marketing support. Consequently, the market share of fluoxetine decreases despite being available at significant price discount under generic form, and despite the increase of prescriptions by price-sensitive physicians. Hence, governments interested in assessing generics diffusion should consider the prescribing across all competitors, whether or not bioequivalent, and determine the size of physician segments sensitive to pharmaceutical marketing activity and prices.
RePEc: Research Papers in Economics, Sep 1, 2006
There has been increasing interest in understanding how firms undertake nonprice adjustment activ... more There has been increasing interest in understanding how firms undertake nonprice adjustment activities, especially in situations where prices may be rigid despite changes in market conditions. Using scanner price data for over 4,500 different food products from a large US supermarket chain, we document periods of rigidity in product additions and deletions: new products are less likely to be introduced, and existing products are less likely to be discontinued during holiday periods than throughout the rest of the year. We argue that this is due to higher costs of undertaking these kinds of product assortment activities during holiday periods. We discuss how this relates to the exiting literature on non-price adjustment and price rigidity.
Patent expiration represents a turning point for the brand losing patent protection as bioequival... more Patent expiration represents a turning point for the brand losing patent protection as bioequivalent generic versions of the drug quickly enter the market at reduced prices. In this paper, we study how physician characteristics and their prescribing decisions impact the competition among molecules of a therapeutic class, once generic versions of one of these molecules enter the market. Specifically, we study the evolution of the Selective Serotonine Reuptake Inhibitors (SSRIs) after the introduction of generic versions of fluoxetine (brand name Prozac) in the United Kingdom (UK). Our results suggest that, to fully understand the market evolution after generic entry, public health officials need to consider the marketing activities of pharmaceutical companies and determine how (1) individual physicians prescribe all competing drugs, and (2) respond to drug prices and marketing actions. For example, we find that a group of physicians sensitive to detailing switch from fluoxetine to nonbioequivalent branded alternatives after patent expiration, as Prozac significantly reduces its marketing support. Consequently, the market share of fluoxetine decreases despite being available at significant price discount under generic form, and despite the increase of prescriptions by price-sensitive physicians. Hence, governments interested in assessing generics diffusion should consider the prescribing across all competitors, whether or not bioequivalent, and determine the size of physician segments sensitive to pharmaceutical marketing activity and prices.
Social Science Research Network, Oct 26, 1999
Social Science Research Network, 2003
In this paper we argue that pricing is all about price changes, and that the costs of price chang... more In this paper we argue that pricing is all about price changes, and that the costs of price changes are often simultaneously subtle and substantial. We discuss a framework to deal with the dynamics of changing prices. This framework incorporates customer interpretations of price changes, an awareness of the organizational costs of price changes, investments in future pricing processes, and an understanding of the role that supply chains play in price change strategy. The framework can be used at the tactical level to improve the specific price changes chosen and made, at the managerial level to decide whether or not to make a particular price change at all, and at the strategic level to determine what price adjustment processes should be invested in to improve pricing effectiveness in the future.
We study the price adjustment practices and provide quantitative measurement of the managerial an... more We study the price adjustment practices and provide quantitative measurement of the managerial and customer costs of price adjustment using data from a large U.S. industrial manufacturer and its customers. We nd that price adjustment costs are a much more complex construct than the existing industrial-organization or macroeconomics literature recognizes. In addition to physical costs (menu costs), we identify and measure three types of managerial costs (information gathering, decision-making, and communication costs) and two types of customer costs (communication and negotiation costs). We nd that the managerial costs are more than 6 times, and customer costs are more than 20 times, the menu costs. In total, the price adjustment costs comprise 1.22% of the company's revenue and 20.03% of the company's net margin. We show that many components of the managerial and customer costs are convex, whereas the menu costs are not. We also document the link between price adjustment costs and price rigidity. Finally, we provide evidence of managers' fear of antagonizing customers. I have no answer to the question of how to measure these menu change costs, but these [menu cost] theories will never be taken seriously until an answer is provided. Edward Prescott (1987, p. 113) Given the large number of theoretical papers that evaluate the implications of [price] adjustment costs, obtaining direct evidence that such costs are present seems crucial. Margaret Slade (1998, p. 104)
Quarterly Journal of Economics, Aug 1, 1997
Social Science Research Network, 2005
We are thankful to the participants of the NBER-CRIW conference in Cambridge, MA, and to the Pric... more We are thankful to the participants of the NBER-CRIW conference in Cambridge, MA, and to the Price Rigidity Session participants at the American Economic Association Meetings for comments. We are particularly grateful to Walter Oi, the discussant at the NBER-CRIW conference, and to John Carlson, the discussant at the AEA meeting, for insightful comments and suggestions. We also thank Dennis Carlton, Haipeng (Allan) Chen, Bob Chirinko, Hashem Dezhbakhsh, Akshay Rao, Sourav Ray, as well as the Economics Seminar participants at Emory University and the Marketing Seminar participants at Harvard University and University of Minnesota, for useful comments and discussions. Finally, we thank the University of Chicago and Dominick's for providing access to their data set. All authors contributed equally: we rotate co-authorship. The usual disclaimer applies.
Journal of Marketing Research, Feb 1, 1996
Manufacturers frequently offer myriad variations of a branded product. In many cases, manufacture... more Manufacturers frequently offer myriad variations of a branded product. In many cases, manufacturers have tens to hundreds of models. Seiko wrist watches, for example, may come with different bands, chimes, and special features. The authors call these variations branded variants and suggest that manufacturers offer branded variants for the benefit of their most direct customers-retailers. With branded variants, a consumer must remember, evaluate, and process a wider variety of product features to make comparisons across variants and retail outlets. The authors suggest that as branded variants increase, some consumers experience an increased cost of shopping for a branded product across retail stores. Consequently, fewer consumers shop across retail stores. This reduced shopping translates into reduced competition across retail stores, which encourages (1) more retailers to carry a branded product and (2) retailers to supply that branded product with more retail service support. The authors use data from three retailers across 14 product categories to demonstrate that a branded product with more variants often has greater retail availability and higher levels of retail service. Branded Variants: A Retail Perspective Manufacturers frequently offer numerous variations of branded products. We call these variations branded variants (Shugan 1989). It is virtually impossible to avoid branded variants. They permeate most durable and semidurable goods, including alarm clocks, answering machines, appliances, baby items, binoculars, dishwashers, luggage, mattresses, microwaves, sports equipment, stereos, televisions, tools, watches, and many others. Manufacturers create branded variants in many ways, such as changing color, design, flavor, options, style, stain, motif, features, and layout (Shugan 1989). Imagine shopping for a Seiko watch. Although many stores carry Seiko watches, each store often carries more than 40 variants. Seiko watches come with different colored bands; in digital or analogue; with large, small, or luminous hands; and with a myriad of other features (see Figure 1). Oster blenders offer another example. Four of the many variants made by Oster and available at one store are shown in Figure 2. Two blenders each have 10 speeds (7 continuous), the other blenders have 14 and 16 speeds, respectively. They all differ in weight, appearance, and many other minor features. One blender includes a cookbook. Sealy mattresses provide another example. Sealy offers a wide variety of mattresses that vary along numerous dimensions, including durability, *Mark Bergen is an associate professor, and Shantanu Dutta is an assistant professor, Graduate School of Business, University of Chicago. Steven M. Shugan is the Russell Berrie Eminent Scholar Chair and Professor, University of Florida. The authors are listed in alphabetical order for lexicographic convenience; all authors contributed equally to the paper. firmness, padding, number of springs, color, and covering style. The major reason suggested by existing marketing literature for manufacturers offering these product variations is heterogeneous consumer tastes. The literature uses the term product assortment to describe these variations and suggests that product assortment is a way for manufacturers to reach different market segments (Kotler 1991; Stern and El-Ansary 1992, p. 51). Consequently, manufacturers produce different products with the same brand name, because brand names are a way to build brand loyalty (Wernerfelt 1991).
Journal of Marketing, Oct 1, 1999
Harvard Deusto Márketing y Ventas, 2003
Las empresas que saben establecer precios adecuados para sus productos y servicios son consciente... more Las empresas que saben establecer precios adecuados para sus productos y servicios son conscientes de que la determinacion del precio no es simplemente una cuestion de buena tactica. Para poder determinar el precio correcto en el momento adecuado, las empresas deben invertir en recursos, infraestructuras y procesos. La tres claves de la determinacion de precios son el capital humano, el capital de sistemas y el capital social; lo esencial es saber de que forma se combinan estas diferentes formas de capital para que a los competidores les resulte dificil imitarlo y, por tanto, realizar las inversiones necesarias para crear una capacidad estrategica nueva.
Social Science Research Network, Apr 21, 2003
Strategic Management Journal, 2003
Strategists following the resource-based view argue that firms can generate rents through value c... more Strategists following the resource-based view argue that firms can generate rents through value creation. To create value, firms develop and use resources and capabilities that other firms cannot imitate, trade for, or substitute other assets for. Even a firm that has created value, however, may not capture the potential rents associated with that value. To capture rents, a firm must set the right prices for what it sells. Most views of pricing assume that a firm can readily set appropriate prices. In contrast, we argue that pricing is a capability. To develop the ability to set the right prices, a firm must invest in resources and routines. We base our argument on a study of the pricing process of a large Midwestern manufacturing firm. We show that pricing resources, routines, and skills may help or inhibit a firm in setting the right price-and hence in appropriating value created. Our view of pricing as a capability contributes to the resourcebased view because it suggests that strategists should consider the portfolio of value creation and value appropriation capabilities a firm uses to create competitive advantage. Our view also contributes to economics because it suggests that strategic decisions about pricing capabilities have important implications for a fundamental economic action, determining prices. Managers in firms without effective pricing processes may be unable to set prices that reflect the wishes of its customers, so the customers may misuse their resources. As a result, resources may be used ineffectively. Our view of pricing as a capability therefore takes the resource-based-view straight to the heart of what is perhaps the central economic question: the best use of resources.
RePEc: Research Papers in Economics, May 12, 2005
We use a unique store-level data set to directly measure menu costs and to study the price change... more We use a unique store-level data set to directly measure menu costs and to study the price change process at a large U.S. drugstore chain. We compare and contrast the magnitude of these measures with similar measures from 4 large U.S. supermarket chains. We find that (1) the actual magnitude of menu costs as a share of revenues, (2) menu costs per price change, (3) the frequent use of promotional pricing, and (4) the use of weekly pricing rules, are similar across both retail formats. Given that the main common features of these two types of retail formats are that (i) they both use posted prices, and (ii) both are multiproduct retailers selling a large number of products, our findings suggest that the magnitude of the menu cost components we measure, and the price change practices we document, may be generalizable across retail formats with these two features.
RePEc: Research Papers in Economics, May 12, 2005
We use a unique store-level data set to directly measure menu costs and to study the price change... more We use a unique store-level data set to directly measure menu costs and to study the price change process at a large U.S. drugstore chain. We compare and contrast the magnitude of these measures with similar measures from 4 large U.S. supermarket chains. We find that (1) the actual magnitude of menu costs as a share of revenues, (2) menu costs per price change, (3) the frequent use of promotional pricing, and (4) the use of weekly pricing rules, are similar across both retail formats. Given that the main common features of these two types of retail formats are that (i) they both use posted prices, and (ii) both are multiproduct retailers selling a large number of products, our findings suggest that the magnitude of the menu cost components we measure, and the price change practices we document, may be generalizable across retail formats with these two features.
University of Chicago Press eBooks, 2003
Managerial and Decision Economics, Mar 1, 1998
We empirically study the price adjustment process at multiproduct retail stores. We use a unique ... more We empirically study the price adjustment process at multiproduct retail stores. We use a unique store level data set for five large supermarket and one drugstore chains in the U.S., to document the exact process required to change prices. Our data set allows us to study this process in great detail, describing the exact procedure, stages, and steps undertaken during the price change process. We also discuss various aspects of the microeconomic environment in which the price adjustment decisions are made, factors affecting the price adjustment decisions, and firm-level implications of price adjustment decisions. Specifically, we examine the effects of the complexity of the price change process on the stores' pricing strategy. We also study how the steps involved in the price change process, combined with the laws governing the retail price setting and adjustment, along with the competitive market structure of the retail grocery industry, influence the frequency of price changes. We also examine how the mistakes that occur in the price change process influence the actions taken by these multiproduct retailers. In particular, we study how these mistakes can make the stores vulnerable to civil law suits and penalties, and also damage their reputation. We also show how the mistakes can lead to stockouts or unwanted inventory accumulations. Finally, we discuss how retail stores try to minimize these negative effects of the price change mistakes. 3 "It is unfortunate that so little attention has been given to characterizing the circumstances that give rise to high and low levels of nominal price inertia. Progress in this dimension calls for more detailed empirical work and for increased understanding of the manner in which corporations actually arrive at pricing decisions." Andrew Caplin "Perhaps in no area of economic inquiry is there so wide a gap between theoretical and empirical work as in the field which has long been considered the core of economic analysis-the formation of prices." NBER Committee on Price Determination
Social Science Research Network, 2003
The Thanksgiving-Christmas holiday period is a major sales period for US retailers. Due to higher... more The Thanksgiving-Christmas holiday period is a major sales period for US retailers. Due to higher store traffic, tasks such as restocking shelves, handling customers' questions and inquiries, running cash registers, cleaning, and bagging, become more urgent during holidays. As a result, the holiday-period opportunity cost of price adjustment may increase dramatically for retail stores, which should lead to greater price rigidity during holidays. We test this prediction using weekly retail scanner price data from a major Midwestern supermarket chain. We find that indeed, prices are more rigid during holiday periods than non-holiday periods. For example, the econometric model we estimate suggests that the probability of a price change is lower during holiday periods, even after accounting for cost changes. Moreover, we find that the probability of a price change increases with the size of the cost change, during both, the holiday as well as non-holiday periods. We argue that these findings are best explained by higher price adjustment costs (menu cost) the retailers face during the holiday periods. Our data provides a natural experiment for studying variation in price rigidity because most aspects of market environment such as market structure, industry concentration, the nature of long-term relationships, contractual arrangements, etc., do not vary between holiday and nonholiday periods. We, therefore, are able to rule out these commonly used alternative explanations for the price rigidity, and conclude that the menu cost theory offers the best explanation for the holiday period price rigidity.
EconStor Open Access Articles, 2006
Using weekly retail transaction scanner price data from a large US supermarket chain, significant... more Using weekly retail transaction scanner price data from a large US supermarket chain, significantly higher retail price rigidity is found for private label products than for nationally branded products during the Christmas and Thanksgiving holiday periods relative to the rest of the year. The finding cannot be explained by changes in holiday period promotional practices because it is found that private label promotions appear to diminish at least as much as national brands. The increased rigidity of private label products relative to national brands is only partially accounted for by increased rigidity of wholesale prices. After ruling out other potential explanations, it is suggested that the higher private label price rigidity might be due to the increased emphasis on social consumption during holiday periods, raising the customers' value of nationally branded products relative to the private labels.
RePEc: Research Papers in Economics, Oct 1, 2006
Patent expiration represents a turning point for the brand losing patent protection as bioequival... more Patent expiration represents a turning point for the brand losing patent protection as bioequivalent generic versions of the drug quickly enter the market at reduced prices. In this paper, we study how physician characteristics and their prescribing decisions impact the competition among molecules of a therapeutic class, once generic versions of one of these molecules enter the market. Specifically, we study the evolution of the Selective Serotonine Reuptake Inhibitors (SSRIs) after the introduction of generic versions of fluoxetine (brand name Prozac) in the United Kingdom (UK). Our results suggest that, to fully understand the market evolution after generic entry, public health officials need to consider the marketing activities of pharmaceutical companies and determine how (1) individual physicians prescribe all competing drugs, and (2) respond to drug prices and marketing actions. For example, we find that a group of physicians sensitive to detailing switch from fluoxetine to nonbioequivalent branded alternatives after patent expiration, as Prozac significantly reduces its marketing support. Consequently, the market share of fluoxetine decreases despite being available at significant price discount under generic form, and despite the increase of prescriptions by price-sensitive physicians. Hence, governments interested in assessing generics diffusion should consider the prescribing across all competitors, whether or not bioequivalent, and determine the size of physician segments sensitive to pharmaceutical marketing activity and prices.
RePEc: Research Papers in Economics, Sep 1, 2006
There has been increasing interest in understanding how firms undertake nonprice adjustment activ... more There has been increasing interest in understanding how firms undertake nonprice adjustment activities, especially in situations where prices may be rigid despite changes in market conditions. Using scanner price data for over 4,500 different food products from a large US supermarket chain, we document periods of rigidity in product additions and deletions: new products are less likely to be introduced, and existing products are less likely to be discontinued during holiday periods than throughout the rest of the year. We argue that this is due to higher costs of undertaking these kinds of product assortment activities during holiday periods. We discuss how this relates to the exiting literature on non-price adjustment and price rigidity.
Patent expiration represents a turning point for the brand losing patent protection as bioequival... more Patent expiration represents a turning point for the brand losing patent protection as bioequivalent generic versions of the drug quickly enter the market at reduced prices. In this paper, we study how physician characteristics and their prescribing decisions impact the competition among molecules of a therapeutic class, once generic versions of one of these molecules enter the market. Specifically, we study the evolution of the Selective Serotonine Reuptake Inhibitors (SSRIs) after the introduction of generic versions of fluoxetine (brand name Prozac) in the United Kingdom (UK). Our results suggest that, to fully understand the market evolution after generic entry, public health officials need to consider the marketing activities of pharmaceutical companies and determine how (1) individual physicians prescribe all competing drugs, and (2) respond to drug prices and marketing actions. For example, we find that a group of physicians sensitive to detailing switch from fluoxetine to nonbioequivalent branded alternatives after patent expiration, as Prozac significantly reduces its marketing support. Consequently, the market share of fluoxetine decreases despite being available at significant price discount under generic form, and despite the increase of prescriptions by price-sensitive physicians. Hence, governments interested in assessing generics diffusion should consider the prescribing across all competitors, whether or not bioequivalent, and determine the size of physician segments sensitive to pharmaceutical marketing activity and prices.
Social Science Research Network, Oct 26, 1999
Social Science Research Network, 2003
In this paper we argue that pricing is all about price changes, and that the costs of price chang... more In this paper we argue that pricing is all about price changes, and that the costs of price changes are often simultaneously subtle and substantial. We discuss a framework to deal with the dynamics of changing prices. This framework incorporates customer interpretations of price changes, an awareness of the organizational costs of price changes, investments in future pricing processes, and an understanding of the role that supply chains play in price change strategy. The framework can be used at the tactical level to improve the specific price changes chosen and made, at the managerial level to decide whether or not to make a particular price change at all, and at the strategic level to determine what price adjustment processes should be invested in to improve pricing effectiveness in the future.
We study the price adjustment practices and provide quantitative measurement of the managerial an... more We study the price adjustment practices and provide quantitative measurement of the managerial and customer costs of price adjustment using data from a large U.S. industrial manufacturer and its customers. We nd that price adjustment costs are a much more complex construct than the existing industrial-organization or macroeconomics literature recognizes. In addition to physical costs (menu costs), we identify and measure three types of managerial costs (information gathering, decision-making, and communication costs) and two types of customer costs (communication and negotiation costs). We nd that the managerial costs are more than 6 times, and customer costs are more than 20 times, the menu costs. In total, the price adjustment costs comprise 1.22% of the company's revenue and 20.03% of the company's net margin. We show that many components of the managerial and customer costs are convex, whereas the menu costs are not. We also document the link between price adjustment costs and price rigidity. Finally, we provide evidence of managers' fear of antagonizing customers. I have no answer to the question of how to measure these menu change costs, but these [menu cost] theories will never be taken seriously until an answer is provided. Edward Prescott (1987, p. 113) Given the large number of theoretical papers that evaluate the implications of [price] adjustment costs, obtaining direct evidence that such costs are present seems crucial. Margaret Slade (1998, p. 104)
Quarterly Journal of Economics, Aug 1, 1997
Social Science Research Network, 2005
We are thankful to the participants of the NBER-CRIW conference in Cambridge, MA, and to the Pric... more We are thankful to the participants of the NBER-CRIW conference in Cambridge, MA, and to the Price Rigidity Session participants at the American Economic Association Meetings for comments. We are particularly grateful to Walter Oi, the discussant at the NBER-CRIW conference, and to John Carlson, the discussant at the AEA meeting, for insightful comments and suggestions. We also thank Dennis Carlton, Haipeng (Allan) Chen, Bob Chirinko, Hashem Dezhbakhsh, Akshay Rao, Sourav Ray, as well as the Economics Seminar participants at Emory University and the Marketing Seminar participants at Harvard University and University of Minnesota, for useful comments and discussions. Finally, we thank the University of Chicago and Dominick's for providing access to their data set. All authors contributed equally: we rotate co-authorship. The usual disclaimer applies.
Journal of Marketing Research, Feb 1, 1996
Manufacturers frequently offer myriad variations of a branded product. In many cases, manufacture... more Manufacturers frequently offer myriad variations of a branded product. In many cases, manufacturers have tens to hundreds of models. Seiko wrist watches, for example, may come with different bands, chimes, and special features. The authors call these variations branded variants and suggest that manufacturers offer branded variants for the benefit of their most direct customers-retailers. With branded variants, a consumer must remember, evaluate, and process a wider variety of product features to make comparisons across variants and retail outlets. The authors suggest that as branded variants increase, some consumers experience an increased cost of shopping for a branded product across retail stores. Consequently, fewer consumers shop across retail stores. This reduced shopping translates into reduced competition across retail stores, which encourages (1) more retailers to carry a branded product and (2) retailers to supply that branded product with more retail service support. The authors use data from three retailers across 14 product categories to demonstrate that a branded product with more variants often has greater retail availability and higher levels of retail service. Branded Variants: A Retail Perspective Manufacturers frequently offer numerous variations of branded products. We call these variations branded variants (Shugan 1989). It is virtually impossible to avoid branded variants. They permeate most durable and semidurable goods, including alarm clocks, answering machines, appliances, baby items, binoculars, dishwashers, luggage, mattresses, microwaves, sports equipment, stereos, televisions, tools, watches, and many others. Manufacturers create branded variants in many ways, such as changing color, design, flavor, options, style, stain, motif, features, and layout (Shugan 1989). Imagine shopping for a Seiko watch. Although many stores carry Seiko watches, each store often carries more than 40 variants. Seiko watches come with different colored bands; in digital or analogue; with large, small, or luminous hands; and with a myriad of other features (see Figure 1). Oster blenders offer another example. Four of the many variants made by Oster and available at one store are shown in Figure 2. Two blenders each have 10 speeds (7 continuous), the other blenders have 14 and 16 speeds, respectively. They all differ in weight, appearance, and many other minor features. One blender includes a cookbook. Sealy mattresses provide another example. Sealy offers a wide variety of mattresses that vary along numerous dimensions, including durability, *Mark Bergen is an associate professor, and Shantanu Dutta is an assistant professor, Graduate School of Business, University of Chicago. Steven M. Shugan is the Russell Berrie Eminent Scholar Chair and Professor, University of Florida. The authors are listed in alphabetical order for lexicographic convenience; all authors contributed equally to the paper. firmness, padding, number of springs, color, and covering style. The major reason suggested by existing marketing literature for manufacturers offering these product variations is heterogeneous consumer tastes. The literature uses the term product assortment to describe these variations and suggests that product assortment is a way for manufacturers to reach different market segments (Kotler 1991; Stern and El-Ansary 1992, p. 51). Consequently, manufacturers produce different products with the same brand name, because brand names are a way to build brand loyalty (Wernerfelt 1991).
Journal of Marketing, Oct 1, 1999
Harvard Deusto Márketing y Ventas, 2003
Las empresas que saben establecer precios adecuados para sus productos y servicios son consciente... more Las empresas que saben establecer precios adecuados para sus productos y servicios son conscientes de que la determinacion del precio no es simplemente una cuestion de buena tactica. Para poder determinar el precio correcto en el momento adecuado, las empresas deben invertir en recursos, infraestructuras y procesos. La tres claves de la determinacion de precios son el capital humano, el capital de sistemas y el capital social; lo esencial es saber de que forma se combinan estas diferentes formas de capital para que a los competidores les resulte dificil imitarlo y, por tanto, realizar las inversiones necesarias para crear una capacidad estrategica nueva.
Social Science Research Network, Apr 21, 2003
Strategic Management Journal, 2003
Strategists following the resource-based view argue that firms can generate rents through value c... more Strategists following the resource-based view argue that firms can generate rents through value creation. To create value, firms develop and use resources and capabilities that other firms cannot imitate, trade for, or substitute other assets for. Even a firm that has created value, however, may not capture the potential rents associated with that value. To capture rents, a firm must set the right prices for what it sells. Most views of pricing assume that a firm can readily set appropriate prices. In contrast, we argue that pricing is a capability. To develop the ability to set the right prices, a firm must invest in resources and routines. We base our argument on a study of the pricing process of a large Midwestern manufacturing firm. We show that pricing resources, routines, and skills may help or inhibit a firm in setting the right price-and hence in appropriating value created. Our view of pricing as a capability contributes to the resourcebased view because it suggests that strategists should consider the portfolio of value creation and value appropriation capabilities a firm uses to create competitive advantage. Our view also contributes to economics because it suggests that strategic decisions about pricing capabilities have important implications for a fundamental economic action, determining prices. Managers in firms without effective pricing processes may be unable to set prices that reflect the wishes of its customers, so the customers may misuse their resources. As a result, resources may be used ineffectively. Our view of pricing as a capability therefore takes the resource-based-view straight to the heart of what is perhaps the central economic question: the best use of resources.
RePEc: Research Papers in Economics, May 12, 2005
We use a unique store-level data set to directly measure menu costs and to study the price change... more We use a unique store-level data set to directly measure menu costs and to study the price change process at a large U.S. drugstore chain. We compare and contrast the magnitude of these measures with similar measures from 4 large U.S. supermarket chains. We find that (1) the actual magnitude of menu costs as a share of revenues, (2) menu costs per price change, (3) the frequent use of promotional pricing, and (4) the use of weekly pricing rules, are similar across both retail formats. Given that the main common features of these two types of retail formats are that (i) they both use posted prices, and (ii) both are multiproduct retailers selling a large number of products, our findings suggest that the magnitude of the menu cost components we measure, and the price change practices we document, may be generalizable across retail formats with these two features.
RePEc: Research Papers in Economics, May 12, 2005
We use a unique store-level data set to directly measure menu costs and to study the price change... more We use a unique store-level data set to directly measure menu costs and to study the price change process at a large U.S. drugstore chain. We compare and contrast the magnitude of these measures with similar measures from 4 large U.S. supermarket chains. We find that (1) the actual magnitude of menu costs as a share of revenues, (2) menu costs per price change, (3) the frequent use of promotional pricing, and (4) the use of weekly pricing rules, are similar across both retail formats. Given that the main common features of these two types of retail formats are that (i) they both use posted prices, and (ii) both are multiproduct retailers selling a large number of products, our findings suggest that the magnitude of the menu cost components we measure, and the price change practices we document, may be generalizable across retail formats with these two features.