Professor J. Miguel Villas-Boas has been named the first recipient of the Long-Term Impact Award from the INFORMS Society for Marketing Science for changing the way marketers view data and consumer choice.
Villas-Boas' groundbreaking research forms the foundation of developing winning marketing strategies in today’s competitive world of commerce.
Villas-Boas received the award for his paper, “Endogeneity in Brand Choice Models” which was published in Management Science (October 1999). The Institute for Operations Research and the Management Sciences (INFORMS) Society for Marketing Science considered hundreds of papers in the five-year period 1999-2003 and recognized Villas-Boas’ work as having the most long-term impact.
“Endogeneity in Brand Choice Models” focused on the effect of firms’ marketing activities at the individual consumer level. Villas-Boas won the award with his co-author, former Haas Professor Russell S. Winer, who is now with New York University’s Stern School of Business.
Before the paper’s revelations, marketers mostly relied on scanner data and statistics that measure consumer purchase decisions to plan their strategies.
Villas-Boas and Winer provided evidence that a firm’s endogenous, or internal, strategic decisions cannot be ignored. They determined that by incorporating the economics that reflect the interaction between consumers and companies’ strategic marketing decisions, marketers can be more effective. Their study shows that one cannot accurately assess market response without considering behavior both internally within an organization and externally in the realm of consumer choices.
"This award is a great honor and recognition for research which is a seminal contribution to the marketing strategy field," says Ganesh Iyer, associate dean for academic affairs and also a member of the Haas Marketing Group. "The study of consumer product choice has long been central to the marketing field, but this line of research ignored the endogeneity of consumer choices to the decisions made by firms. Miguel’s paper makes a fundamental advance in this literature and provides a methodology that incorporates the effect of a company’s marketing strategy actions into consumer purchase decisions.”
Today it is uncommon to study the effect of a company’s marketing actions without incorporating the strategic nature of “marketing-mix variables” — price, place, product, promotion — with respect to consumers’ purchase decisions. In other words, it is important to address the potential endogeneity of the marketing actions, or those actions’ dependence on one another within a firm, to develop a winning marketing strategy.
The paper launched a significant and fresh perspective to marketing methodology at the individual consumer level. “There was resistance in the academic field but this paper helped influence change,” says Villas-Boas, who holds the J. Gary Shansby Chair in Marketing Strategy and is a member of the Haas Marketing Group.
The research was inspired by UC Berkeley Professor and Nobel Laureate Daniel McFadden’s work on the conditional multinomial logit model. That model analyzes demand by examining consumer choice given unobserved consumer preferences. It supplies the foundation for much of the way marketers determine demand today. The model and its variations are often applied to electronic scanner panel data depicting individual consumers’ purchase behavior.
Villas-Boas was troubled by marketing research that he believed ignored important factors related to the endogeneity, or internal characteristics, within a company. For example, factors such as pricing and advertising were thought to be exogenous or external considerations. The study determined that such components can actually be endogenous. According to the study, accounting for this endogeneity is essential to accurately measure market response.
“By not accounting for the firms’ strategic behavior, one can bias the results to having little price elasticity,” or little response to changes in price, Villas-Boas explains. “If one accounts for the firms and their decisions, one actually realizes that consumers could be more sensitive to price than originally thought.”
The findings resulted from the researchers’ models using one store’s scanner panel data on individual consumer purchases of yogurt and ketchup, several brands each. When it came to which brands consumers choose, the research showed that accounting for endogeneity and firms’ potential strategic behavior, market response could be measured more accurately.
Full paper: http://www.jstor.org/stable/pdfplus/2634842.pdf