Haas Marketing Group Professor J. Miguel Villas-Boas becomes the first recipient of INFORMS Society for Marketing Science Long-Term Impact Award for changing the way marketers view data and consumer choice. This ground-breaking 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 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. Villas Boas co-authored the paper with then Haas School colleague, Professor Russell S. Winer, who is now with New York University’s Stern School of Business.
The Institute for Operations Research and the Management Sciences (INFORMS) is the largest professional society in the world for professionals in the field of operations research. The INFORMS Society for Marketing Science is the premier academic society in quantitative marketing, dedicated to improving and understanding the practice of marketing.
“Endogeneity in Brand Choice Models” focused on the effect of firms’ marketing activities at the individual consumer level. Before the paper’s revelations, marketers mostly relied on scanner data and statistics that measure consumer purchase decisions to plan their strategies. This award-winning research provided evidence that a firm’s endogenous, or internal, strategic decisions cannot be ignored. It determined that by incorporating the economics that reflect the interaction between consumers and companies’ strategic marketing decisions, marketers can be more effective. The 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.
Today it is uncommon to study the effect of a company’s marketing actions without incorporating the strategic nature of “marketing-mix variables” 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.
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, is 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,” 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
Villas-Boas is the Haas School’s J.Gary Shansby Professor of Marketing Strategy and Director of the Ph.D. program.
Haas Marketing Group Professor J. Miguel Villas-Boas has received the INFORMS Society for Marketing Science Long-Term Impact Award for changing the way marketers view data and consumer choice. This ground-breaking research forms the foundation of developing winning marketing strategies in today’s competitive world of commerce.