Krista J. Li

An important global trend today is the rise of the secondhand market powered by consumers' desire for sustainability and affordability, as well as a surge in the use of digital resale platforms. While marketing research has primarily focused on the success of new product markets, scant research has tried to understand secondhand markets. To advance knowledge in this area, we investigate how product design innovation affects the value of used products in secondhand markets. Specifically, we develop a framework of the intertemporal distinctiveness of a used product's design, defined as the extent to which the design of a used product is distinct from the newest design of the same product. We use image-processing software to analyze product pictures and quantify the intertemporal distinctiveness of design. Analyzing a unique dataset of used cars sold in the U.S. automotive market, we find a U-shaped relationship between the intertemporal distinctiveness of design and the resale price of used products. Moreover, we find that the effect of intertemporal distinctiveness is moderated by the within-category distinctiveness of a used product, defined as the extent to which a used product's design is distinct from other used products in the same product category. This study contributes to the research on product design and the determinants of resale prices, providing practical implications for consumers, manufacturers, and dealers.

Teletriage is a telehealth service that uses telecommunication technologies to remotely assess patients’ conditions and determine their needs for medical treatment. This paper examines how teletriage affects patients’ decisions to seek treatment and when healthcare providers (e.g., medical businesses, hospitals, or clinics) should launch teletriage services. Our findings reveal that teletriage can encourage more mild patients to seek treatment while discouraging more severe patients. This occurs when teletriage lacks sufficient precision and patients’ hassle cost of seeking treatment falls outside a moderate range. Specifically, when hassle costs are low, patients are generally inclined to seek treatment, but teletriage can misclassify severe patients, leading them to avoid necessary care. Conversely, when hassle costs are high, patients tend to stay home, yet teletriage can misidentify mild patients, prompting them to seek unnecessary treatment. As a result, even if teletriage is costless, healthcare providers may abandon this service, even though teletriage always increases patient surplus by improving their assessment of their medical needs. Interestingly, patients can be better off seeking treatment from providers who charge higher prices, as these providers are more likely to adopt teletriage services. These results caution healthcare policymakers that teletriage can exacerbate healthcare inefficiency instead of alleviating it. Nevertheless, to improve patient surplus, the government should sometimes subsidize providers to offer teletriage or allow providers to charge a higher treatment fee.

Firms frequently extend their brand by introducing products in new categories and offering free samples or demonstrations for customers to learn about the quality of the new products before purchasing. When introducing new products based on customers’ purchase behavior in the former category, firms face two customer segments: their own customers and the competitor’s customers. Firms can practice behavior-based pricing (BBP) by charging different prices in the two segments. Moreover, firms can practice behavior-based quality disclosure (BBD) by disclosing quality information to the two customer segments differently. In this paper, we examine how firms practice BBD in addition to BBP. We find that in contrast to the acquisition-focused BBP, firms perform retention-focused BBD by increasing quality disclosure to their own customers and decreasing it to the competitor’s customers. Unlike BBP, which decreases second-period profit and increases first-period profit, BBD increases second-period profit but decreases first-period profit when the disclosure cost is low. We also show that when firms endogenously choose BBD, the equilibrium is a prisoner’s dilemma when the disclosure cost is low and a win-win outcome when the disclosure cost is high.

Product safety is jointly determined by product quality and consumers’ precaution efforts when using products. Product failures because of either party’s negligence can cause deaths and injuries. The strict liability rule holds firms fully responsible for damages, whereas the comparative negligence rule allocates responsibilities based on the firm’s negligence in product quality and the consumer’s negligence in precaution efforts. This paper examines how these two common product liability rules affect firms and consumers when firms can advertise product quality deceptively and consumers exert precaution efforts endogenously. Common wisdom suggests that the comparative negligence rule shifts responsibility from firms to consumers, which benefits firms and motivates consumers to exert precautions to improve safety. However, we find that comparative negligence incentivizes firms to use deceptive advertising, whereas strict liability induces firms to advertise low product quality more truthfully. The latter can induce consumers to exert precaution efforts to avoid product failures, thereby improving firm profit and product safety. Moreover, raising firms’ penalties or the amount that firms compensate consumers for product failures can benefit firms but reduce consumer surplus and product safety. These findings caution public policymakers and firms that with asymmetric information about product quality and endogenous precaution efforts, liability policies can lead to unintended consequences.

Manufacturers and retailers often advance sell seasonal products or services (e.g., holiday decorations, summer or winter entertainment). The authors examine advance selling in marketing channels to offer several insights. First, it is well established that a decentralized channel suffers from the issue of double marginalization; that is, the manufacturer and retailer both add positive margins when setting their prices, which results in inefficiently high retail prices. The authors find that, under a dynamic wholesale-price contract, advance selling can alleviate this double-marginalization problem and benefit the manufacturer, the retailer, and consumers. Second, the benefit of advance selling diminishes with the product’s holding cost, the retailer’s stockpiling ability, and the manufacturer’s commitment to spot wholesale price. Third, with wholesale-price commitment, advance selling benefits the manufacturer and consumers but hurts the retailer; the manufacturer is better off making a price commitment only when its product’s holding cost is sufficiently low and worse off otherwise. Last, the retailer’s stockpiling ability decreases its own profit under a dynamic contract but increases it under a commitment contract.

Manufacturers of consumer-packaged goods invest heavily in trade promotions (i.e., temporary wholesale price discounts), but retailer stockpiling often yields trade promotions unprofitable. In this paper, we investigate how a manufacturer should respond to the retailer’s and consumers’ stockpiling ability by contracting with the retailer. Specifically, we examine when the manufacturer should restrict the retailer’s stockpiling ability and when it should issue trade promotions. Our analysis suggests the following. First, the manufacturer should restrict the retailer’s stockpiling ability when the storage cost is low; such restriction also benefits the retailer, resulting in a win-win outcome. Second, the manufacturer should offer trade promotions when the retailer cannot stockpile products and the storage cost is low but raise the wholesale price when the retailer can stockpile products. Third, stockpiling improves channel coordination and increases the manufacturer’s profit; therefore, the manufacturer should design products to be more storable.

Problem definition: Firms heavily invest in big data technologies to collect consumer data and infer consumer preferences for price discrimination. However, consumers can use technological devices to manipulate their data and fool firms to obtain better deals. We examine how a firm invests in collecting consumer data and makes pricing decisions and whether it should disclose its scope of data collection to consumers who can manipulate their data. Methodology/results: We develop a game-theoretic model to consider a market in which a firm caters to consumers with heterogeneous preferences for a product. The firm collects consumer data to identify their types and issue an individualized price, whereas consumers can incur a cost to manipulate data and mimic the other type. We find that when the firm does not disclose its scope of data collection to consumers, it collects more consumer data.

Parallel imports of gray products across markets are a worldwide concern for manufacturers. Extant research has focused on parallel imports of regular goods that do not provide status value. In this paper, we investigate parallel imports of conspicuously consumed status goods. We consider a manufacturer who directly sells a status product to consumers in two markets that value the product differently and a gray marketer that can import the product across markets. Our analysis shows that, though parallel imports decrease a manufacturer’s profit from selling regular goods, it can increase their profit from selling status goods. Furthermore, the manufacturer decides whether to use the same or different aesthetic design for products across markets. With the same design, the gray and manufacturer-authorized products look identical, while different designs make them distinguishable, which affects their status value. We find that parallel imports benefit the manufacturer in a broader range of situations under the different-design strategy, whereas the same-design strategy increases the gray marketer’s profit. When the two markets are sufficiently similar, the manufacturer uses the same design to induce parallel imports. When the two markets are sufficiently different, the manufacturer uses different designs to either deter parallel imports or improve their profit while competing with the gray marketer.

Research Summary: This research develops a multilevel framework to study optimal distinctiveness (OD) at two levels. We distinguish between within-organization distinctiveness and between-organization distinctiveness of product design and examine how they independently and interactively influence performance. Analyzing a unique data set of 2,203 model-year observations for automobiles sold in the U.S. market from 2001 to 2016, we found that while within-organization distinctiveness of product design hurts market performance, between-organization distinctiveness of product design increases market performance. Moreover, when between-organization distinctiveness of product design is high, the negative impact of within-organization distinctiveness of product design on performance is weakened. These findings contribute to OD research by improving the understanding of OD as a multilevel construct and elaborating on its contextual contingency. Managerial Summary: How should multiproduct organizations design their products to achieve better performance? This article provides a multilevel perspective that encourages managers of multiproduct organizations to consider different frames of references when designing products. We suggest that a product’s design should be consistent with the prototypical design of its organization, whereas the prototypical design of this organization should be different from the average design in the industry. We also found that an atypical design is more desirable if it is from an organization known for distinctive designs in its industry. Our findings help managers of multiproduct organizations achieve the optimal levels of design distinctiveness at both the product and organizational levels.

Product and service innovation is important for brands to succeed in a competitive marketplace. As information technology advances, customer recognition becomes a growing industry trend; that is, brands track customers’ purchase history, recognize and price discriminate between repeat and new customers. The trend of customer recognition has changed the nature and intensity of competition between brands. In this article, we examine how customer recognition and the associated changes in competition affect brands’ incentives to invest in product and service innovation. We find that when brands have similar equity, customer recognition increases brands’ incentives to invest in product and service innovation. However, when brands have sufficiently different equity, customer recognition leads the stronger brand to invest more and the weaker brand to invest less in product and service innovation. In addition, extant literature suggests that customer recognition reduces brand profits. In contrast, we find that customer recognition can increase the weaker brand’s profit but decreases it more for the stronger brand. Thus, collecting customers’ purchase history data for customer recognition can be beneficial for weaker brands but detrimental for stronger brands.

We examine how channel members’ ability to recognize repeat and new customers affects service provision, profits, and welfare. In decentralized channels, when only retailers can recognize customers, customer recognition increases service levels. However, in centralized channels or decentralized channels when both manufacturers and retailers can recognize customers, customer recognition reduces (increases) service levels if service investment persists (diminishes) sufficiently over time. Moreover, in centralized channels, customer recognition reduces firm profits and consumer surplus, whereas in decentralized channels, when manufacturers and retailers can recognize customers, customer recognition increases channel members’ profits but decreases consumer surplus.

Consumers experience a sense of loss when a product’s quality does not match their expectations. To alleviate consumer loss aversion (CLA), firms can disclose information to reduce consumers’ uncertainty about product quality and the resulting psychological loss. In this paper, we investigate the implications of CLA on firm profit, consumer surplus, and social welfare when firms endogenously make quality disclosure decisions. We find that CLA leads symmetric firms to disclose quality more often. Given that CLA weakly reduces consumers’ utility from buying a product and quality disclosure is costly, intuition suggests that CLA is detrimental to firms. We find that this intuition is true only in a monopoly. Surprisingly, CLA makes both firms in a competition better better off. Moreover, CLA increases firms’ profit when they invest in quality disclosure instead of money-back guarantees to respond to CLA. We also find that CLA decreases consumer surplus and social welfare. Therefore, educating consumers to improve decision-making skills by deliberating on future outcomes and emotions can benefit firms at the cost of consumers and society. When firms disclose quality sequentially, CLA can discourage the follower from disclosing quality. A strong level of CLA increases the leader’s profit over the follower’s, thereby encouraging firms to be the first mover in quality disclosure.

New technology enables firms to recognize customers from their purchase histories and then provide different quality levels of product features or services for repeat and new customers. Extant research has examined behavior-based price discrimination (BBP)—that is, how firms set different prices for repeat and new customers. This research extends the literature by investigating behavior-based quality discrimination to reveal the unique effects of quality discrimination beyond the effects of BBP. Academic/practical relevance: This research is relevant to the marketing-OM research/practice community because product feature or service provision is critical for firms. As technology advances, firms could offer product features or services with different quality levels and prices based on consumers’ purchase histories. Researchers need to understand whether, how, and why behavior-based quality discrimination differs from BBP. Managers need to know whether they should reward repeat or new customers with higher quality (product features or services) or lower prices. Methodology: We use a two-period dynamic game-theoretic model. In the first period, firms collect consumers’ purchase history data. In the second period, they use these data for quality and price discrimination. Results: We find that behavior-based quality discrimination is fundamentally different from BBP. BBP intensifies competition in the second period but softens competition in the first period. By contrast, we find that behavior-based quality discrimination reduces competition in the second period but intensifies competition in the first period. We show two new mechanisms: First, firms use quality discrimination to soften second-period price competition by making competitive poaching more costly. Second, quality discrimination increases repeat purchase and customer retention. Anticipating this effect, firms reduce prices in the first period to attract more customers. Managerial implications: We show that managers should reward new customers on the price dimension by offering them a discount and reward repeat customers on the quality dimension by providing them with higher-quality product features or services. Managers should also understand that customer retention will increase with quality discrimination. Therefore, they need to reduce first-period prices to acquire customers and build up their customer base.

Behavior-based pricing (BBP) refers to the practice in which firms collect consumers’ purchase history data, recognize repeat and new consumers from the data, and offer them different prices. This is a prevalent practice for firms and a worldwide concern for consumers. Extant research has examined BBP under the assumption that consumers observe firms’ practice of BBP. However, consumers do not know that specific firms are doing this and are often unaware of how firms collect and use their data. In this article, the authors examine (1) how firms make BBP decisions when consumers do not observe whether firms perform BBP and (2) how the transparency of firms’ BBP practice affects firms and consumers. They find that when consumers do not observe firms’ practice of BBP and the cost of implementing BBP is low, a firm indeed practices BBP, even though BBP is a dominated strategy when consumers observe it. When the cost is moderate, the firm does not use BBP; however, it must distort its first-period price downward to signal and convince consumers of its choice. A high cost of implementing BBP serves as a commitment device that the firm will forfeit BBP, thereby improving firm profit. By comparing regimes in which consumers do and do not observe a firm’s practice of BBP, the authors find that transparency of BBP increases firm profit but decreases consumer surplus and social welfare. Therefore, requiring firms to disclose collection and usage of consumer data could hurt consumers and lead to unintended consequences.

Should brands selling status goods design high-end and low-end products to look the same or different? In this paper, we study how brands make this aesthetic design differentiation decision. We first empirically analyze the impact of a brand’s aesthetic design differentiation on consumers’ preferences for the brand’s products using seven years of data of a status good (i.e., cars). We find that consumers prefer high-end products of a brand to look more differentiated but prefer low-end products of the brand to look less differentiated. This seems to present brands a product design dilemma, that is, neither design unification nor diversification within a brand can enhance the appeal of the brand’s high-end and low-end products at the same time. Based on this finding, we set up a game-theoretic model to analyze brands’ equilibrium design strategies. Interestingly, we find that the opposing preferences for design differentiation can lead brands to choose asymmetric design strategies, that is, one brand unifies design while another brand diversifies design, which can be a win-win outcome. We also give conditions where both brands unify design or both brands diversify design while the latter can be a prisoner’s dilemma. Furthermore, vertical differentiation (e.g., in brand strength) between brands affects the profitability of design diversification or unification. In addition, we show that the aesthetic design decision has important implications on how brands should set prices and functionalities of products and how much brands should invest in brand-building activities (e.g., advertising).

Conspicuous consumption of status goods signals consumers’ status and grants status value to them. In this article, we examine how firms selling status goods make vertical line extension decisions when they take consumers’ status preferences into account. Analyzing an incumbent’s vertical line extensions when it faces a threat of entry, we find that status preferences can make unprofitable extensions profitable. Moreover, without status preferences, an incumbent can introduce line extensions to crowd out the competitor’s profit and deter entry. However, with status preferences, introducing line extensions can increase the competitor’s profit and attract entry. We also find that incumbents should introduce downward extensions when they are monopolists and upward extensions when they face competition from lower-quality entrants. As the cost of entry increases, incumbents should change from introducing upward extensions to introducing downward extensions. As consumers’ status preferences increase, incumbents introduce downward extensions under a wider range of situations.

With behavior-based pricing (BBP), firms use customers’ purchase history data to price discriminate between past and new customers. Prior research has examined BBP in a non-channel setting. In this paper, we investigate BBP in a channel setting in which manufacturers sell to customers through exclusive retailers. We examine how channel members’ adoption of BBP affects wholesale and retail prices, profits, consumer surplus, and social welfare. We find that BBP decreases channel members’ profits when retailers use BBP and manufacturers use uniform pricing. However, BBP increases channel members’ profits when manufacturers and retailers use BBP. In addition, BBP by retailers alone increases consumer surplus, whereas BBP by manufacturers and retailers decreases consumer surplus. When manufacturers also use BBP, BBP decreases social welfare to a greater degree than when only retailers use BBP. Furthermore, when manufacturers cannot use BBP, their profits are higher with long-term wholesale price contracts. When manufacturers can use BBP, short-term wholesale price contracts yield higher profits for manufacturers and retailers.

The rising obesity epidemic is a worldwide concern for consumers, firms, and policymakers. One reason for the rise in obesity is consumers’ over-consumption of vice goods such as cookies, crackers, and soft drinks. Some authors have suggested that firms have incentives to make vice goods unhealthier and to encourage over-consumption. There are calls for regulations to ensure that firms make such products healthier by reducing harmful ingredients and provide nutritional information. Furthermore, public policymakers have begun to educate consumers to avoid over-consumption by using strategies such as pre-purchase planning. In this paper, we investigate how firms selling vice goods should respond to the growing concerns about obesity. We analyze how firms should adjust prices and product design to cater to consumers with self-control problems and obesity concerns. We use the literature on hyperbolic discounting to model consumers with self-control problems. In this framework, we examine how the unhealthiness of vice goods affects prices, firm’s profits, consumer surplus, and public health. In addition, we study how public policy efforts to encourage pre-purchase planning impact firm’s profits and consumers. Our results show that unlike standard goods, for vice goods a decrease in quality (i.e., increase in unhealthiness) and an increase in price can serve as a self-control device and increase demand. Therefore, firms sometimes can charge higher prices and make more profits by producing unhealthier products. Interestingly, producing unhealthier products can sometimes increase consumer surplus and improve public health. We also show that as the proportion of consumers who use pre-purchase planning increases, firms should respond by raising prices. In such situations, consumer surplus and public health improve but firm’s profits decline. These results have important implications for restaurants and firms that sell vice goods and for public policymakers who aim to combat obesity.

A product's physical appearance is difficult to quantify, and the impact of product appearance on demand has rarely been studied using market data. The authors adopt a recently developed morphing technique to measure a product's aesthetic design and investigate its effect on consumer preference. Drawing upon categorization theory, the authors consider the effects of three dimensions of aesthetic design—segment prototypicality (SP), brand consistency (BC), and cross-segment mimicry (CSM)—and their moderating effects on marketing mix effectiveness in a unified framework. The empirical analysis uses a unique, large data set consisting of 202 car models from 33 brands sold in the United States from 2003 to 2010. The authors find that consumer preference peaks at moderate levels of SP and BC and that economy-segment products benefit from CSM of luxury products. Moreover, SP intensifies price sensitivity, and BC muffles price sensitivity while increasing advertising effectiveness. Two what-if studies illustrate how managers can use the empirical model to evaluate alternative aesthetic design choices.

Firms tracking consumer purchase information often use behavior-based pricing (BBP), i.e., price discriminate between consumers based on preferences revealed from purchase histories. However, behavioral research has shown that such pricing practices can lead to perceptions of unfairness when consumers are charged a higher price than other consumers for the same product. This paper studies the impact of consumers’ fairness concerns on firms’ behavior-based pricing strategy, profits, consumer surplus, and social welfare. Prior research shows that BBP often yields lower profits than profits without customer recognition or behavior-based price discrimination. By contrast, we find that firms’ profits from conducting BBP increase with consumers’ fairness concerns. When fairness concerns are sufficiently strong, practicing BBP is more profitable than without customer recognition. However, consumers’ fairness concerns decrease consumer surplus. In addition, when consumers’ fairness concerns are sufficiently strong, they reduce inefficient switching and improve social welfare.