Ups and Downs in Audience Experience Management

Abstract

Within the framework of prospect theory, we consider a service provider who wishes to maximize an audience's experienced utility under three different settings. First, we study the problem of releasing a piece of good news vs. bad news, where the service provider may incrementally reveal the news over a preemptive period. We characterize the optimal release strategy for both cases of good and bad news and show that when the ultimate news is good (resp., bad) and the audience is sufficiently gain-seeking, it is optimal to misguide the audience relative to their initial expectation by first releasing information of a negative (resp., positive) sentiment. Second, we consider the problem of organizing an event such as a concert or show with performances of known valuations, where the service provider needs to arrange the sequence of all performances. We show that for both loss-averse and gain-seeking audiences, it can be optimal to arrange cycles of pleasant and aversive performances alternating throughout the event. Lastly, we investigate the problem of simultaneous vs. sequential release of a series such as songs, TV episodes, or digital book chapters, where the service provider does not know a priori the audience's exact valuation of each item. We show that if the audience's sensitivity to losses is sufficiently small (resp., large), the optimal strategy is to release all items in the series sequentially (resp., simultaneously). Across all of the settings, we show that the audience's sensitivity to losses relative to a reference point is a critical factor that governs how to design and manage the audience's evolving experience dynamics.

Keywords: prospect theory, experienced utility, series release, news release, experiential service design

JEL Classification: D03, L82