The Effect of Online Secondary Markets on Season Ticket Sales

Updated: Dec 04 2015
  • Under review at Journal of Marketing Research
  • Co-authored with Yanwen Wang and Michael Lewis

Abstract

Sports organizations businesses and other performing arts organizations often derive significant portions of their revenues from customers that purchase season tickets. Given the importance of these customer relationships, it becomes critical for sports organizations to understand and model the drivers of season ticket decisions. Season ticket holders are unique among customers as they pre-purchase, at price discounts, all (or a subset of) events for a season. This pre-purchasing is a unique behavior because it implies that these customers purchase prior to the quality of a team being revealed through on-field performance. A relatively recent development that may have significant consequences for customer relationship management efforts is the growth of a robust and convenient secondary market for tickets. These markets such as StubHub make it increasingly possible for fans to recoup expenses by selling some subset of the season ticket package. This research investigates the role of ticket resale markets on CRM metrics such as renewal rates and customer lifetime value via a panel of season ticket customers over a five-year period. We build an econometric model and estimate it with Bayesian methods. Our results allow us to assess how the existence and policies of a secondary market alters buyer behavior.

Keywords: Sports Marketing, Season Ticket Sales, CRM

Profiting from Asymmetrically Dominated Alternatives: The Case of Online Diamond Pricing

Updated: Nov 24 2015

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  • Revise and Resubmit at Journal of Marketing Research.
  • With Koray Cosguner

Abstract

The asymmetric dominance effect, first documented by Huber et al. (1982), has been robustly documented in various lab experiments in the literature. However, the practical validity and significance in a real marketplace has never been verified. In this paper, we empirically test the existence of this effect and, more importantly, quantify its magnitude using a unique panel data set from a major online jewelry market. We estimate a proportional hazard model by carefully incorporating the underlying dominance relationships among every diamond pair in our data set. Our model estimates suggest that in general consumers have low awareness about the existence of the decoys in the market place; however once they discover, the decoy diamonds significantly increase sales likelihoods of dominant diamonds, and this effect becomes stronger for diamonds in higher price ranges. We further quantify the overall profit impact of selling decoys and decompose this impact into two effects: the information effect that comes from selling to uninformed (about the existence of decoys) consumers; and the decoy effect that comes from selling to informed consumers.We find that the existing decoy pricing in the diamond market improves the retailer's overall gross profit by 11.85%, compared to a uniform pricing strategy. This profit contribution is driven largely by the decoy effect rather than by the information effect. Finally, we explore various strategies that the retailer can adopt to improve its profitability through further utilizing the asymmetric dominance effect. We find that there is a great potential for the retailer to gain additional profits.

Keywords: Asymmetric Dominance Effect, Proportional Hazard Model, Diamond Pricing, Context Dependent Choice

Product Design Outsourcing in Competitive Markets

Updated: Nov 21 2015

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  • Under review at Marketing Science.
  • Co-authored with Kangkang Wang.

Abstract

Original design manufacturers (ODM) is a new form of global outsourcing. Traditional outsourcing only transfers the production of a product from brands to manufacturers. An ODM, in contrast, not only manufactures the product for a brand, but also designs the product. Using an analytical model, we investigate strategic design outsourcing decisions of firms. Two firms competing in a horizontally differentiated market decide whether to design the products by themselves or to outsource product design to an ODM. We consider two different channel structures – one in which each firm partners with an exclusive ODM and the other in which both firms partner with a common ODM. We find that both symmetric and asymmetric outsourcing outcomes can arise in the equilibrium, even though competing firms are assumed to be completely symmetric. Surprisingly, firms’ outsourcing incentive can be inversely related to the cost of designing a product, i.e., neither firm outsources product design when the cost is high, one firm outsources product design and the other insources when the cost is in an intermediate range, and both firms outsource product design when the cost is low. We also find that firms are more likely to outsource product design when there is a common ODM in the channel than when there are exclusive ODMs.

Keywords: Original Design Manufacturer, Firm Competition, Outsourcing, Supply Chain Management