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Abstract:
Professional services firms (e.g. Consultants, Accounting Firms or Advertising Agencies) generate and sell business solutions to their customers. In doing so, they can leverage the cumulative experience gained from serving their customer base to either reduce their variable costs or increase the quality of their products/services. In other words, their "production technology" exhibits some form of increasing returns to scale. Growth and globalization coupled with recent advances in information technology, have led many of these firms to introduce sophisticated Knowledge Management (KM) systems in order to create sustainable competitive advantage. In this paper, our goal is to analyze how KM is likely to affect competition among such professional services firms. In particular, first, we explore what type (supply-side versus demand-side) economies of scale are likely to be exploited in KM systems. In the former case, KM's role is to reduce the operating costs of the firm while in the latter case its role is to create added value to customers by significantly increasing product quality. Second, we would like to analyze the competitive dynamics and market structure that emerge as a result of firms competing with KM systems. Our results shed light on the current literature exploring the deployment of KM systems by suggesting that in a competitive setting, when the firms' ability to leverage their customer base is high, KM should lead to quality improvement rather than cost reductions. In a dynamic setting, it is also shown that when firms use their KM system to improve product quality, higher ability to leverage the customer base may actually hurt profits and lead to industry shakeout. Beyond, normative insights, the results also support a number of recent market trends in management consulting, including the increased emphasis on knowledge creating activities in modern KM systems, the wave of mergers between consulting firms and the recent emergence of "retail consulting" services.

Abstract:
In this paper, we ask when will a firm earn more profits from selling the attention of its customers to advertisers than from selling the underlying product itself. In other words, when will a firm become an advertising "medium"? We investigate this decision as a function of the intensity and nature of competition. We show that regardless of inherent product value to customers, when the firm faces high within-industry competition it will always earn more profits from the product market. Thus, firms cannot "advertise their way out" of intense competition. However, for products of moderate inherent value, we find that the product model is more attractive when competition is at either extreme (very high or low) but the advertising model is more attractive when competition is in the middle range. This results in an inverse-U pattern for relative source of profits as a function of within-industry competition. We also look at the level of competition between-media and identify conditions for firm profits in one industry to increase as result of heightened competition with another industry. Moreover, we showed that as two media are more substitutable (hence competing more head-to-head for advertising dollars) their source of profits will diverge. In addition, the paper considers the impact of the disutility created by advertising for the product consumer. Interestingly, we find that low levels of consumer disutility may actually increase the proportion of profits from advertising as compared to products.

Media, circulation industries, business model selection, competitive strategy, game theory

Abstract:
This paper develops and tests a model of sequential decision making where a first stage of ranking a set of alternatives is followed by a second stage of determining the value of these same alternatives. The model assumes a boundedly rational Bayesian decision maker who is uncertain about his/her underlying preferences over the relevant attributes, and who has to exert costly cognitive effort to resolve this uncertainty. Compared to when only valuation takes place, the analysis reveals that ranking a set of alternatives prior to determining their value has three primary effects: a) the spread (or dispersion) of valuations between most and least preferred alternatives increases, b) decision makers will, on expectation, exert more effort in the valuation phase, and c) the more each attribute contributes to overall utility the greater the relative impact of ranking is on valuation spread. The analysis also sheds light on how prior ranking impacts the demand for a product. These results are then corroborated in a series of controlled lab experiments with actual prizes. The findings have implications for many real life decision making situations ranging from auctions, where there is a tendency to prioritize items before determining a bid, to the ranking of job candidates prior to determining wages and benefits to be offered. More generally, the results bear on our understanding of how past decisions can affect future related decisions.

Bounded rationality, Preference for Consistency

Abstract:
We study the effect of brand name selection on consumer perceptions and adoption of next-generation product innovations. In four experiments, participants evaluated next-generation offerings whose brand names either continued or interrupted the existing naming sequences. The first set of results show that while consumers anticipate enhanced performance on existing product features (i.e., alignable improvements) irrespective of the branding decision, a name change triggers significantly higher expectations of new features (i.e., nonalignable improvements). Next, we examined the implication of this finding for purchase intentions. The added layer of innovation inferred from a brand name change led participants to believe they were exposed to greater risk as well as greater reward. As a result, in the last two experiments we found that situational and dispositional factors influencing the relative salience of these conflicting beliefs ultimately determined whether a particular naming option stimulated or hindered demand.

Next-generation product innovation, brand name selection, branding, structural alignment theory, consumer inference

Abstract:
The research presented in this paper provides evidence that add-on features sold to enhance a product can be more than just discretionary benefits. We argue that consumers draw inferences from the mere availability of add-ons, which in turn lead to significant changes in the perceived utility of the base good itself. Specifically, we propose that the improvements supplied by add-ons can be classified as either alignable or nonalignable and that they have opposing effects on evaluation. A set of four experiments with different product categories confirms this prediction. In addition, we show that the amount of product information available to consumers and expectations about product composition play important moderating roles. From a practical standpoint, these results highlight the need for firms to be mindful of the behavioral implications of making add-ons readily available in the marketplace.

Add-Ons, product design, consumer inference, structural alignment, price discrimination