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Continued from previous page
This focus on offering alternatives to long-held, ineffective
business practices or taking a poke at sacred cows in
traditional business is a thread throughout many of the marketing
department's faculty.
Marketing professors David Bell and Xavier Dreze, for
example, proposed a controversial sea change in the way
retailers and manufacturers structure their trade promotions—deals manufacturers and
retailers had traditionally
used as weapons in a zero-sum game.
Manufacturers had
long been tied to an "off
invoice" system that gave
retailers periodic discounts
during a promotion period—discounts that, in
theory, retailers were supposed
to pass on to consumers.
But retailers had
abused these promotion
period and/or diverting the product to other retailers
who were not privy to the trade deal, thereby pocketing the
savings themselves. Not surprisingly, manufacturers despised
the system, and even retailers claimed to be frustrated by
funds wasted on administrative and inventory costs.
A solution could be found, Bell and Dreze argued, in
a variation of what was then a new but unpopular type of
trade promotion known as pay-for-performance—rewarding
retailers based on what they sell rather than offering up-front
discounts. And today, their overhaul has increasingly become
a reality. Roughly 65 percent of packaged-goods retailers'
promotion dollars are devoted to pay-for-performance deals,
up from about one-third a decade ago. And Bell and Dreze
have enjoyed seeing work that began as theory take shape as
practice, and strengthen an industry.
"When you compensate the retailer based on what they
sell, there's no longer any benefit in them loading up on all
this inventory," Bell says. "And all of the inventory infrastructure
and shipping things all over the country—which
is paid for by the retailer at the manufacturer's expense, but
from a systems point of view is a complete dead-weight
loss—is eliminated. Retailers can dramatically cut inventory
costs and reorient their activities around what should be their
core competencies—selling and marketing," he adds. "The
news is good for consumers, too, because retailers are much
more likely to pass on the full amount or even greater than
the full amount of the deal on to the customer."
Recent work by associate professor John Zhang probes
the complex, unintended pitfalls of "targeted pricing" in the
fast-moving Internet age. Once widely hailed as a panacea,
"targeted pricing"—the process of targeting a competitor's
customers with lower prices—has also been condemned by
many as a potential road to ruin. But is "targeted pricing"
really either a panacea or a peril? Zhang's recent research
examines the complex dimensions of "targeted pricing" and
suggests that while this approach isn't for everyone, it can be
an effective tool under the right circumstances.
Others within the department study the emotions executives
bring to business. A manager's healthy sense of confidence,
for instance, is a must in business. But misplaced
confidence, says marketing professor J. Wesley Hutchinson,
can cause big problems.
How well does people's confidence about decisions
compare to the actual results of those decisions? Are people
as right as they think they are? After reviewing hundreds
of "calibration" studies—those that measure the gap between
what people know and what they think they know—Hutchinson found that that the answer is no.
"Keeping our confidence calibrated is tough,"
Hutchinson wrote in the Harvard Business Review, particularly
given the reality that executives tend to see a person's
lack of confidence as a sign of weakness. But managers can
and should calibrate their confidence by first thinking twice
about decisions that seem close to being sure things. "Grill a
manager or salesperson who's 'absolutely sure' to get the deal
or make the number that quarter," he writes. "Force yourself
to consider alternative scenarios."
Hutchinson adds that people tend to confuse their familiarity
with a topic with true expertise, thus overestimating their
skills and knowledge. "Be honest about what you really know,"
he says. "A little knowledge can be a dangerous thing."
In the Consumer's Shoes
"Unlike other schools, because we do have such a
large department we really do cover a board spectrum of
fields, from psychology, to statistics, to economics and management
science," says Hoch. "And because marketing is an
interdisciplinary field, you are always, at the end of the day,
focused on trying to solve a problem. You can't be parochial
when you are trying to solve a problem."
Vice dean and Director of the Wharton Undergraduate
Division Barbara Kahn offers marketing managers a better understanding
of consumers' variety-seeking behavior in a recent
study that answers questions about how people's buying habits
change when they see what looks like unlimited variety.
Creating a visual perception of activity and an abundance
of choices ultimately increases consumption, Kahn found after
conducting a series of experiments that she and University
of Illinois professor Brian Wansink published in the Journal of
Consumer Research. Kahn's research found that the perception
of variety, even when illusory, stimulates people to consume
more, reinforcing other recent studies that challenge long-
held views that a person's ability to control eating, spending
and general overindulgence has solely to do with willpower,
or a lack thereof. Environmental factors, including portion
size, price and the number of choices presented, also play a
key role in America's well-documented passion for overindulgence,
social scientists are now finding.
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