Prof. Lin Bao Boldt, assistant professor of marketing in the Graduate School of Management, has received the first place Davidson Award for 2014 for “The impact of household level heterogeneity in reference price effects on optimal retailer pricing policies,” which was published in the March 2012 issue of the Journal of Retailing.
Prof. Boldt’s co-authors on the article are Praveen Kopalle, P.K. Kannan and Neeraj Arora. The article’s abstract reads:
The field of marketing has witnessed substantial improvement in modeling household level heterogeneity. However, relatively little has been written about how modeling household heterogeneity translates into better marketing decisions. In this paper, we study the impact of household level heterogeneity in reference price effects on a retailer’s pricing policy. Reference prices are certain anchors or standards that households use to compare the observed purchase price of a product against. If the observed price is greater than the reference price it is perceived as a “loss” and if it is smaller than the reference price it is perceived as a “gain”. In order to study the impact of heterogeneity in reference price effects on retail pricing, we test a nested logit model under two alternative reference price (memory and stimulus based) and heterogeneity (finite mixture and hierarchical Bayes) specifications. In the empirical analysis, we find that households are quite heterogeneous in terms of their gain and loss effects. For some households a gain has higher impact than a corresponding loss, while the opposite is true for others. Using individual level estimates we then develop a normative pricing policy for a retailer maximizing category profit. Our results indicate that the optimal pricing policy derived from the heterogeneous case is qualitatively different, and more profitable, than the case when heterogeneity is ignored. We show that for an important marketing problem pertaining to a retailer, the optimal pricing decisions for various brands in a category are inextricably related to household heterogeneity in reference effects and brand preference.
The Davidson Award winners were selected on the basis of votes cast by the members of the Journal of Retailing Editorial Review Board and Associate Editors. This year close to 62 ERB members cast their votes for the best papers. The winning articles reflect originality, technical competence, and a strong contribution to the theory and practice of Retailing. The awards will be presented at the AMA Winter Conference to be held in Orlando, Fla. in February.