Image of Advisory Board Companies

Winter 2012

Letter from the Director

Wayne Mueller

Earlier this year I discussed how Eric Kaler, our new University president, met with the Carlson School Marketing Department and challenged us to engage with our business community to deliver value through leveraging the outstanding research efforts of our world-class marketing faculty.

Linking our research with our Institute for Research in Marketing board members has been a key objective this past year for the Institute. Our board is our strength and provides a conduit between their corporate research needs and our faculty. It is a prestigious group of research and marketing executives from Fortune 500 corporations across many of the major industries, including Augeo Affinity Marketing, Best Buy, Cargill, Ecolab, G&K Services, General Mills, Polaris Industries, The Schwan Food Company, Target, United Healthcare, Wells Fargo, and 3M Corporation.

Our Vision and Mission for the Institute Board continues to be the following:

The Institute for Research in Marketing leverages the expertise of the Carlson School's world class marketing faculty and an advisory board of practitioners from leading corporations to foster rigorous and relevant research that improves the science and practice of marketing.

Through its many initiatives, the Institute provides a forum for dialogue among marketing scholars, industry practitioners, policymakers, and students.

Fostering joint research projects that deliver value to our practitioner Institute partners and our faculty should be our long-term goal.

This mission has produced these results over the past few years:

  • Schwan's sponsorship of a PhD student engaged in its business in the area of channel marketing is a first for the Institute.
  • The Institute set up a PhD fund in 2012 for student research.
  • The Institute funded an Academic Camp for faculty in 2012 and will again in 2013.
  • The Institute sponsorship of the Carlson on Sustainability Conference in 2010 led to a substantial funding commitment - $250,000 - in 2011 by Wells Fargo to set up the Sustainability Initiative. Professor Akshay Rao now heads up that initiative.
  • In the past five years, the Institute has funded 18 research projects, supporting 19 different professors for a total of over $275,000.
  • Many of our professors have presented at board members' key executive meetings and have engaged with them on their research needs.

Our marketing professors continue to be extremely productive in their research, which is reported on worldwide with the help of the Institute. This coverage enhances the brand image of each faculty member and at the same time, the name of the Carlson School of Management and the Marketing Department.

This faculty research is regularly updated on our Institute website and is even more accessible due to newly enhanced search capabilities on the publications page. Another new website feature is on the expertise page, which is categorized by topical areas, making it easier to search for faculty expertise. All this has been due to Institute Program Coordinator Ashley Dziuk's efforts to provide greater access and awareness of our faculty research.

In the past six months, our faculty research has received outstanding media exposure in the following:

ABC news
Atlanta Journal-Constitution
Boston Herald
Business Insider x4
Calgary Herald
China Times
City Pages
CNBC Money Control (India)
Current
Daily Mail
Detroit City and Press
e! Science News
europa press
Fox News
Grazia
Harvard Business Review
Huffington Post (across the globe)
Knack Weekend
La national Observateur
LA Tribune
Madame Noire
MinnPost
MSN (across the globe)
MSNBC
Mundo
Nacion
New Scientist
New York Magazine
New York Post
NPR
Pakistan Times
Popular Science
Psychology Today
Radio Taiwan International
Science Friday
Science World Romania
Scientific American
Seattle News
Slate
Star Tribune
The Atlantic
The Australian
The China Post
The Guardian
The Indian Express
The Journal (Ireland)
The New York Times
The Rush Limbaugh Show
The Straits Times (Singapore)
The Sydney Morning Herald
The Times of India
The Wall Street Journal
The Washington Post
TIME Moneyland
Weight Watchers
Yahoo! (across the globe)

 

Our faculty has also been recognized in the past year with the following awards:

In closing, 2012 has been a highly productive year for our faculty and our board. We have continued to work on our mission to enhance our value to our Institute members, the businesses worldwide that access our research, and to our faculty through ongoing partnerships with our practitioner partners.

Thank you to all of our faculty and Institute members for their dedication, continued support, and engagement with our faculty. Continued best wishes and success to you in 2013!!


Best wishes,

Wayne G. Mueller
Director, Institute for Research in Marketing



Highlighted Media Coverage of Faculty Research

Hidden Fees and Pricing Strategies

Maria Ana Vitorino

Maria Ana Vitorino has had previous faculty appointments at The Wharton School of the University of Pennsylvania and at the Catholic University of Portugal.

EDUCATION

Ph.D., 2008
Marketing
The University of Chicago Booth School of Business

MBA, 2008
The University of Chicago Booth School of Business

MSc, 2002
Statistics
London School of Economics (LSE)

Licenciatura (B.A. equivalent), 2000
Business
Catholic University of Portugal

Mario Ana Vitorino

Assistant Professor Maria Ana Vitorino looks forward to continuing interdisciplinary research

Respect for different approaches employed by individual faculty is one reason Vitorino was drawn to the Carlson School Marketing Department. She also appreciates the departmental ties with many companies in the Twin Cities area and the opportunity to interact with other departments at the University.

"It's a great marketing department - top faculty with multiple and rich perspectives," she said. "Marketing is a very interdisciplinary area so it's good to have researchers around who work in different research areas."

Her research has been mostly on topics that lay at the intersection of marketing and economics. More specifically, she has focused on firms' entry and pricing strategies. Entry decisions include why firms decide to enter into a geographic market, specific products, or new product categories. When thinking about entering a new market, firms consider the competition.

"I think about firms' strategies in a game theory framework where basically they are all players playing a game and making decisions, taking into account what the other players are doing," Vitorino said.

The same can be said for pricing strategies. Firms consider what other firms are doing with their pricing strategies, such as price decisions for specific products or implementing outside-the-box strategies.

Her most recent research concerns biases that consumers may have that lead firms to use certain pricing strategies. For example, drip pricing occurs when companies advertise only part of a product/service to consumers and add other charges later. Consumers make a decision based on a price, without realizing extra fees will be added on. This often happens with hotels and airlines.

Vitorino has been trying to understand how these strategies can emerge as a result of consumer biases. It may be that some consumers don't think ahead in terms of all the possible charges and firms take advantage of that. While some people think these firms' practices are bad for the consumer, it's important to look at each specific context. Drip pricing is a complex problem - companies use it for different reasons and there are a variety of factors that affect how it influences consumers. Worried that these practices may be harmful for the consumers, some are in favor of regulatory intervention.

"My research interests end up touching on the topics of government intervention and regulation because firms usually act within regulated environments and a lot of times when people talk about firms' marketing strategies they forget about that," she said. "It's always important to take into account what effect the regulator will have on firms' activities."

For example, some say that, in order to deal with hidden fees, airlines should advertise fares that include all fees, so when comparing prices, consumers aren't comparing apples to oranges. The flip side argues that consumers differ in their demand for certain attributes that can be offered with a product. Some consumers want a no-frills price, because they won't be using the extras, so why pay a price that has everything included? Not all consumers are interested in in-flight snacks or in checking in their baggage.

Still others advocate providing more information to the consumer. A regulator could force firms to do so, but some research has shown that firms' reactions may include higher base prices. And maybe having tons of information is not the best. Consumers would be informed, but wouldn't be able to process all of the information. In the end, they may be more confused. So it's not certain, again, that this would help. The market is not static. If the regulators introduce new regulations, there's going to be consequences.

"So there's always this long-standing debate about whether the regulators should intervene or not, so it's important to know how firms and consumers would behave if the regulator were to intervene," Vitorino said. "And that's some of what I do - research whether an intervention from the regulator would change things and in what way, before the regulator actually does it."

Looking forward, Vitorino will continue her work in pricing strategies - how they affect consumers, firms, and regulators - not just in terms of partitioned pricing, but also how transparently firms communicate their prices. Marketers often only look at the pricing strategies of whatever price the firm sets, but pricing strategies are usually more complicated than that. It's not just about setting a price, it's about deciding how to present and communicate that price. Since most of Vitorino's research is empirical, she works with specific industries - diving in and studying them in detail.

"I like doing things that have an impact, not just in academia but in industry," she said. "Impact is getting the regulator, the firms, and the consumers to think about my research. If they act (or do not act) as a result of it, impact is even greater. It's important to me that firms, consumers, and regulators really get something out of my work."



Commercial Algorithms and Price Advertising

Linli Xu

EDUCATION

PhD, 2012
Marketing
University of Southern California

M.A., 2004
Economics
University of British Columbia

B.A., 2002
Economics
Jilin University

Linli Xu

Assistant Professor Linli Xu's interest in effective advertising started young

When Xu was growing up in China, she watched a lot of TV. But she wasn't just watching the programs; she was also paying attention to the commercials. Xu became interested in what makes
advertising effective and how companies could improve their message.

"Some of those ads were really good, I enjoyed watching them," she said. "But some ads were really bad. I just wanted to turn off the TV."

Following that thought, Xu is working on a new algorithm for TV networks to better select, order, and price ads within commercial breaks. The common business model right now is that TV networks choose advertisers with the highest bids and then show a certain number of ads in random order within the commercial breaks. But there is a problem associated with this model. If the first ad is uninteresting, it could lead the audience to leave the room or switch channels, leaving the following ads with no audience, a phenomenon known as audience externality.

Xu is proposing a model for the retention of a heterogeneous audience and developing a new algorithm which aims to eliminate the audience externality. Using data collected from Nielsen, her team knew exactly when each household tuned in and out of a certain program. Comparing their algorithm to other alternatives, including the current business model, they showed that their proposed algorithm can lead to higher advertiser benefits and would also be better for TV networks.

Her other research focus concerns price advertising effectiveness among different channel members, specifically manufacturer price advertising versus retailer price advertising. Price advertising contains price information, discounts, promotions, and sales. It differs from brand advertising, which mainly focuses on communicating brand image, quality, and perception. Often manufacturers do both brand and price advertising, while retailers usually use price advertising.

Xu and her fellow researchers hypothesized that manufacturer price advertising is less effective than retailer price advertising. Since the most important function of a manufacturer is to design and produce the product, researchers believed when consumers attribute price advertising to the product or manufacturer, it lowers quality perception of that product. However, the most important function of the retailer is to sell the product. So when consumers attribute the low price in the ad to retailer competition or inventory concern, it doesn't lower their quality perception of the product. The team tested their hypothesis on the U.S. full-size pick-up truck market using both experiment and econometric analysis.

In the experiment, Xu randomly showed either a manufacturer price ad or a dealer price ad to a group of consumers and then asked them to rate the quality of the product and potential demand indicators. People who saw the manufacturer price ad gave lower ratings on demand than those who saw dealer price advertising. After establishing the internal validity of their hypothesis, they set up an empirical model to examine the effectiveness of manufacturer price advertising versus dealer price advertising using market data. From this analysis, they found that manufacturer price advertising led to lower quality perceptions than dealer price advertising.

After using both methods to establish their hypothesis, they went one step further to explain why this effect is important. They performed a series of counterfactual analysis looking at how channel profits are affected if manufacturers and dealers are allowed to coordinate their price advertising. They found that coordinating price advertising among channel members could lead to an increase in total channel profits by shifting the price advertising budget from the manufacturer to the dealer.

"We should be careful. We're not trying to push that conclusion too far saying manufacturers shouldn't do price advertising at all," Xu said. "The advice we want to give is if manufacturers want to do price advertising on their own, they should design their messages in a way that won't hurt their sales or brand image."

As she continues her research here at the Carlson School and the Institute for Research in Marketing, she looks forward to finding common research interests with faculty and local companies.

"The department's a really collegial environment and it's very good and important for young faculty who just got out of a PhD program," she said. "The senior faculty members want young faculty to be successful in their career and they give constructive feedback."



Finding the Right Price

Mark Zbaracki

Mark J. Zbaracki is an Associate Professor in General Management at the Richard Ivey School of Business. He joined the Ivey Faculty in 2008.
He has had previous faculty appointments at the Stern School of New York University, The Wharton School of the University of Pennsylvania and the Graduate School of Business of the University of Chicago.

EDUCATION

  • PhD Stanford University
  • MS Stanford University
  • BS Iowa State University
  • BA Iowa State University
Mark Zbaracki

Visiting Scholar Mark Zbaracki continues pricing work during his year at U of M

Zbaracki was drawn to the University of Minnesota for several reasons, including family ties in the area. But another factor in choosing his sabbatical location was the opportunity to make new connections within the Carlson School's Marketing Department, as well as the Strategic Management and Organization Department and the Work and Organizations Department. "It is just a very talented and collegial group of faculty," he said. The Institute for Research in Marketing has also been a financial and intellectual supporter of his research for some time.

While here, Zbaracki will continue his work on pricing with Professor Mark Bergen. "Price is this piece of information that you and I both look at to figure out 'Do we want to exchange resources?'" he said.

Presumably, as prices rise, demand drops and people adjust their allocations of resources as a consequence. In practice, what actually happens is someone has to sit down and do that negotiation. Zbaracki and Bergen's research addresses that problem, which is that the cost of changing prices is important to macroeconomics. They want to better articulate that process, which can help economists model how prices adjust, and hence how economies adjust to changes in supply.

This impacts the consumer in many ways, since it impacts all areas of the economy. As companies figure out what prices to set for their products and how big of a discount to give, they must take into account not only how consumers are going to react but also how managers think the consumers are going to react.

"It's one thing to have Mark [Bergen] teach a course in pricing," Zbaracki said, "but none of that stuff matters until you understand how your managers are responsible for implementing it, actually taking it to the marketplace."

And it's not limited to pricing - it could be an operations problem, managing inventory, a finance problem - there's a whole range of areas where the same problem is going to exist for companies. Say a company wants to engage in value-based pricing and wants to communicate to its customers the value of the product they have. In the setting that Zbaracki dealt with, industrial products, there was a question of extending maintenance intervals. If they offered better maintenance, how would the customer value that? For managers, or anyone dealing with the price of their product, presenting that value to the market is extraordinarily important. If managers don't understand how to communicate that value, then their understanding of the value isn't necessarily going to make it to the consumer.

"If you can't communicate that value proposition to the customer, then you're going to leave money on the table," he said. "The customer may not be as well off because they may not get the benefits from a product you have, and you as a firm are not going to be as well off because you're not making profits that you could otherwise make."

What intrigues Zbaracki about management practice is that it's sitting in between the material world and the constructed world. He wants to be in the middle of the physical and the completely esoteric, reaching both directions. One example is Total Quality Management, or Six Sigma. If companies think about how they will run their production line, or how to do things more efficiently, there is a material piece to worry about, but it is still a way of thinking about variance.

"You can think of me as sort of a frustrated engineer," he said. "It's one thing to understand what something looks like. It's quite another to do the analysis of figuring out how to design it, how to redesign it, how to make it more efficient."

With the Twin Cities having such a diverse range of companies from General Mills, Cargill, and Land O'Lakes to food processors, distribution companies, and grocery stores, it is a superb place for Zbaracki to explore the food supply chain, from farm to fork. In this new context of pricing, how the process of value allocation affects what farmers, food processors, distribution companies, and retailers do, affects the products and prices that are available to consumers.

"The omnivore's dilemma is kind of the contemporary illustration," he said. "It's a strong point of view, but it sets up a fairly important problem, which is basically 'Where does the value get allocated along the supply chain?' Because it has extraordinarily important implications to how our resources get allocated, what kind of things we see in the grocery store, what it is that we eat, what it means to be at the table at a restaurant, and [the Twin Cities] is an extraordinary place to pursue that."



New Advisory Board Members

ADVISORY BOARD

David Kadrie, 3M
David Kristal Augeo Affinity Marketing
Drew Panayiotou Best Buy Co., Inc.
Paul Hillen Cargill, Inc.
Julie Moore Ecolab
Dave Euson G&K Services
Steve Audette General Mills
Michael Jonikas Polaris Industries
Brent Sherwin The Schwan Food Company
Shadee Kazemi-Carlson Target
David Mucha UnitedHealthcare
James S. Henney Wells Fargo

ACADEMIC REPRESENTATIVE

David Hopkins
George John
Akshay Rao

INSTITUTE STAFF

Wayne G. Mueller Director
Ashley F. Dziuk Program Coordinator

Kadrie

David Kadrie

David leads marketing for 3M Health Care, a $5 billion global business. It is a global leader offering innovative products and solutions for medical technology, oral care, health information management, drug delivery, and food safety. 3M Health Care leverages 3M technology, world-class manufacturing, and global reach to provide trusted products that help promote health and improve the quality, cost, and outcomes of care.

Kadrie has worked at 3M for 20 years in various marketing and business leadership roles. His most recent position was global marketing and business development vice president for the 3M Skin & Wound Care Division. Kadrie's previous assignments at 3M include leading strategy for 3M Health Care, business director for the Personal Care Division in Europe, and the first Six Sigma director for 3M Health Care. Prior to that, he held various roles in product marketing and business team leadership. Kadrie served on active duty for six years as an officer in the United States Navy prior to joining 3M.

He is a co-chair of the 3M Marketing Council, sits on the North American Advisory Board for the Chief Marketing Officer (CMO) Council, and also serves on the boards of directors for Lifetrack Resources Inc. and Friends of the Elderly.

Kadrie holds a BAS degree in political science from Northwestern University, and he received an MBA with a focus in marketing from the Carlson School of Management.

 

Audette

Steve Audette

Steve is the director of consumer insights for General Mills' Baking Division which includes Pillsbury Dough Products and Betty Crocker Baking Mix Items. Pillsbury and Betty Crocker are market share leaders in their respective categories.

Audette started his career at General Mills in 1983. Prior to his current assignment, he has worked on a wide-range of General Mills businesses, including Big G Breakfast Cereal, Yoplait Yogurt, Totino's Pizza, Progresso Soup, Old El Paso Dinner Kits, and Green Giant Vegetables. Audette and his family also relocated to Morges, Switzerland from 1997 to 2000 to support Cereal Partners Worldwide; General Mills joint venture with Nestle to market breakfast cereal around the world. He leads the recruiting effort for General Mills Consumer Insights Function at the Carlson School.

Audette has a BA in statistics and an MA. in journalism and mass communication, both from the University of Minnesota.



Advisory Board Members

Thank you for your continued support of the Institute for Research in Marketing.


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Dave Euson
David Kristal
Steve Audette
Brent Sherwin
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David Kadrie
Julie Moore
David Mucha
Shadee Kazemi-Carlson
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Michael Jonikas
Drew Panayiotou
Paul Hillen
James S. Henney


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