Li, Krista J. and Xi Li (2022), "Advance Selling in Marketing Channels," forthcoming, Journal of Marketing Research. pdf
Manufacturers and retailers often advance sell seasonal products or services (e.g., holiday decorations, summer or winter entertainment). We examine advance selling in marketing channels to offer several insights: First,
under a dynamic wholesale-price contract, advance selling benefits the manufacturer, the retailer, and consumers by alleviating the channel's double-marginalization problem. 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.
Li, Xi, Krista J. Li, and Yan Xiong (2022), "Channel Coordination of Storable Goods," forthcoming, Marketing Science. pdf
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 that: 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.
Li, Xi and Krista J. Li (2022), "Beating the Algorithm: Consumer Manipulation, Personalized Pricing and Big-Data Management," forthcoming, Manufacturing and Service Operations Management. pdf
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.
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 a lower cost for consumers to manipulate data can be detrimental to both the firm and consumers. When the firm does not disclose its
scope of data collection to consumers, it collects more consumer data. When the firm discloses its scope of data collection, it reduces data collection even when collecting more data is costless. The optimal scope of data collection
increases when it is more costly for consumers to manipulate data but decreases when consumer demand becomes more heterogeneous. Lastly, disclosure of data collection scope increases firm profit, consumer surplus, and social welfare.
Li, Krista J., Jianqiang Zhang, and Richard Schaefer (2022), "Parallel Imports of Status Goods: A Strategic Analysis of Aesthetic Design," forthcoming, Production and Operations Management. pdf
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 that 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 its 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 its profit while competing with the gray marketer.
Bu, Juan, Eric Zhao, Krista J. Li, and Joanna Li (2022), "Optimal Distinctiveness at Multiple Levels: Examining the Impact of Within- and Between-
Organization Distinctiveness of Product Design on Market Performance", forthcoming, Strategic Management Journal. pdf
This research develops a multilevel framework to study optimal distinctiveness (OD) at two different levels. Specifically, 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
Li, Krista J. (2022), "Product and Service Innovation with Customer Recognition," forthcoming, Decision Sciences. pdf
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.
Li, Krista J. and Jianqiang Zhang (2022), "How Does Customer Recognition Affect Service Provision?" forthcoming, International Journal of Research in Marketing. pdf
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.
Zhang, Jianqiang and Krista J. Li (2021), "Quality Disclosure under Consumer Loss Aversion," Management Science, 67(8), 5052-5069. pdf
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 only true in a monopoly. Surprisingly, CLA makes both firms in a competition better off. These effects are unique to CLA, while related emotion such as anticipated
regret does not affect disclosure decisions or firm profits. 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.
Li, Krista J. (2021), "Behavior-Based Quality Discrimination," Manufacturing & Service Operations Management, 23(2), 425–436. pdf
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. Using a two-period game-theoretic model, we find that firms reward repeat customers on the quality dimension by offering them higher-quality product
features or service than what new customers receive. Such quality discrimination dissuades competitive poaching, softens second-period price competition, and increases second-period profits. Meanwhile,
firms reward new customers on the price dimension by offering them a lower price than what repeat customers pay. Therefore, firms should reward different types of customers with the right attribute
(i.e., product features or services versus price). In addition, quality discrimination increases customer retention in the second period. Anticipating this outcome, forward-looking firms reduce first-period
prices to compete aggressively for initial customers. This effect intensifies first-period competition and reduces first-period profits. Overall, behavior-based quality discrimination decreases firms'
total profits but increases consumer surplus and social welfare.
Li, Xi, Krista J. Li, and Xin (Shane) Wang (2020), "Transparency of Behavior-Based Pricing," Journal of Marketing Research, 57(1), 78-99. pdf
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. BBP 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 this for specific firms and are often unaware of
how firms collect and use their data. In this paper, we examine how firms make BBP decisions when consumers do not observe whether firms perform BBP and how the transparency of firms' BBP practice
affects firms and consumers. We 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 observe and do not observe a firm's
practice of BBP, we find that transparency of BBP increases firm profit but decreases consumer surplus and social welfare. Therefore, commanding firms to disclose collection and usage of consumer
data could hurt consumers and lead to unintended consequences.
Li, Krista J. and Yan (Lucy) Liu (2019), "Same or Different? An Aesthetic Design Question," Production and Operations Management, 28(6), 1465-1485. pdf
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, which 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).
Li, Krista J. (2019), "Status Goods and Vertical Line Extensions," Product and Operations Management, 28(1), 103-120. pdf
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.
Li, Krista J. (2018), "Behavior-Based Pricing in Marketing Channels," Marketing Science, 37(2), 310-326. pdf
With behavior-based pricing (BBP), firms use customers' purchase history data to price discriminate between past customers 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 both manufacturers and retailers
use BBP. In addition, BBP by retailers alone increases consumer surplus, whereas BBP by both 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.
Jain, Sanjay and Krista J. Li (2018), "Pricing and Product Design for Vice Goods: A Strategic Analysis," Marketing Science, 37(4), 592-610. pdf
The rising obesity epidemic is a worldwide concern for consumers, firms, and policy makers. 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 policy makers 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 policy makers who aim to combat obesity.
Liu, Yan, Krista J. Li, Allan Chen, Subramanian Balachander (2017), "The Effects of a Product's Aesthetic Design on Demand and Marketing Mix Effectiveness: The Role of Segment Prototypicality
and Brand Consistency," Journal of Marketing, 81(1), 83-102. pdf
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.
Li, Krista J. and Sanjay Jain (2016), "Behavior-Based Pricing: An Analysis of the Impact of Peer-Induced Fairness," Management Science, 62(9), 2705-2721. pdf
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.
SELECTED WORKING PAPERS
17. Zhang, Jianqiang and Krista J. Li, "Retention or Acquisition? Behavior-Based Quality Disclosure", revising for the 2nd-round review, Management Science.
18. Zhang, Jianqiang and Krista J. Li, "Benefits of Higher Costs: Competition with Endogenous Costs of Quality Disclosure," revising for the 2nd-round review, Manufacturing and Service Operations Management.
19. Li, Krista J., Changying Li, and Jianhu Zhang, "Artificial Intelligence: Information Collection and Behavior-Based Pricing under Privacy
Concerns," revising for resubmission, Marketing Science.
20. Gu, Xian, Juan Bu and Krista J. Li, "Temporal Distinctiveness of Product Design: How It Influences the Value of New Products
and Used Products," under the 2nd-round review, Academy of Management Journal.
21. Li, Krista J., Xi Li, and Yan Xiong, "Perils of Stockpiling under Nonlinear Pricing," under the 1st-round review, Management Science.
Shankar, Venkatesh and Krista J. Li (2014), “Leveraging Social Media in the Pharmaceutical Industry,” Innovation and Marketing in the Pharmaceutical Industry (International Series in Quantitative
Marketing Vol 20.), Min Ding, Jehoshua Eliashberg, and Stefan Stremersch (eds.), Springer. link
How Behavioral Economics and Signaling Can Build Stronger CPG Brands , CODO Design.