Stephen Hoch

Stephen Hoch and E. M. Eisenstein (Working), Intuitive Compounding: Framing Temporal Perspective and Expertise.

Stephen Hoch, Alan L. Montgomery, Young-Hoon Park (Working), Long-Term Growth Trends in Private Label Market Shares.

Abstract: Previous research has shown that most consumer product markets are in long-run competitive equilibrium. In most categories, a given brand’s market share is stationary, showing remarkable stability over long time horizons (10 years). This empirical generalization has been attributed to both consumer inertia and competitive reaction elasticities that lead to offsetting marketing spending which nullifies attempts by one brand to take unilateral action to increase share. Despite consumer inertia and competitive matching, we find that during the period 1987-94 one brand consistently showed positive market share evolution — the retailer’s own brand, the private label. In 225 consumer packaged goods categories, private labels trended upward 86% of the time. To provide some insight into these empirical findings we develop an analytic explanation for how private labels can grow even though national brands exhibit no growth on average. We argue that this can occur because unlike its national brand competitors, the retailer through its private label is the only brand that not only controls its own marketing spending but also exerts some influence over the ultimate marketplace spending of their national brand competitors.

Edward J. Fox and Stephen Hoch (2005), Cherry Picking, , Journal of Marketing, 69 (1), 2005, 46-62.

Abstract: Cherry picking means taking the best and leaving the rest. This paper focuses on buyer-side cherry picking in the context of grocery shopping and compares the behavior of consumers who cherry pick by visiting two grocery stores on the same day (8% of all trips) compared to visiting a single store. Both trait and state aspects of cherry picking are examined. Consistent with economic theory of search, the propensity to cherry pick is found to be inversely related to shoppers’ transaction and inventory holding costs, both due to demographics (e.g., working women, age, income, household size, home ownership) and geography (distance between nearby stores). The likelihood of cherry picking is found to be higher on the weekends and when household inventory is low due to an extended time since the last shopping trip or a smaller basket purchased on that trip. The question of whether cherry picking is economically justified is also addressed by investigating the cost-benefit tradeoff between the extra money saved and the extra shopping costs incurred when making an additional store visit. Shoppers are found to save over $14 more on average when cherry picking two stores rather than just one; this savings compares favorably with the opportunity cost of shopping in terms of wage rates. The economic benefits of cherry picking arise from two sources: (i) higher percent savings on items purchased (about 5% higher); and equally important (ii) much larger market baskets (about 67% larger in both dollar and units terms). Finally, cherry picking is found to be significantly more painful for shoppers’ secondary compared to their primary stores because not only do consumers buy at lower prices at secondary stores, they also buy significantly less.

Stephen Hoch and Erica Mina Okada (2004), Spending Time versus Spending Money, , Journal of Consumer Research, 31 (2), 2004, 313-323.

Abstract: Ben Franklin warned all who would listen that time is money and economists ever since have concurred. Although we agree that an understanding of the opportunity costs of time is important to making good decisions, in this research we find systematic differences in the way that people ex ante spend time versus money and ex post differences in how they evaluate decision outcomes experienced after spending time or money. Specifically, people ex post are able to more easily accommodate negative outcomes by adjusting the value of their temporal inputs. Also, ex ante people are willing to spend more time for higher risk, higher return options whereas when spending money the pattern is reversed and the more standard pattern of risk aversion is observed. The inherent ambiguity of the value of time promotes accommodation and rationalization and may explain the rather obvious observation that most people are a lot more willing to waste time than money.

Stephen Hoch and Joseph P. Redden (Working), The Psychology of Two-Part Tarriffs.

Abstract: This paper investigates preferences for two-part tariff pricing plans which require consumers to pay a flat fee plus a per unit surcharge for usage beyond an allowance. People have difficulty estimating the effective cost of a two-part tariff, so they apply heuristics to the most salient attributes. Compared to a normative benchmark of expected cost, these heuristics lead people to excessively choose plans with smaller flat fees, larger usage allowances, and lower overage rates. When these attributes are in conflict, people assign greater importance to comparisons of the two attributes that provide upside protection against overage charges: the usage allowance and the overage rate. The presence of usage uncertainty heightens the reliance on these comparisons, and calculating a cost does not appear to reduce them.

Stephen Hoch, Jagmohan Raju, Serdar Seyman (2002), Positioning of Store Brands, , Marketing Science, 21 (4), 2002, 278-397.

Abstract: We examine the retailer’s store brand positioning problem. Our game-theoretic model helps us identify a set of conditions under which the optimal strategy for the retailer is to position the store brand as close as possible to the stronger national brand. In three empirical studies, we examined whether market data are consistent with some of the implications of our model. In the first study, using observational data from two US supermarket chains, we found that store brands are more likely to target stronger national brands. Our second study estimated cross-price effects in 19 product categories, and found that only in categories with high-quality store brands, store brand and the leading national brand compete more intensely with each other than with the secondary national brand. In a third product perception study, we found that although explicit targeting by store brands influenced consumer perceptions of physical similarity, it had no influence on consumers’ perceptions of overall or product quality similarity. While it appears that retailers do follow a positioning strategy consistent with our model, it changes buying behavior in the intended fashion only if the store brand offers quality comparable to the leading national brands.

Stephen Hoch (2002), Product Experience is Seductive, , Journal of Consumer Research, 29 (December, 2002), 448-454.

Abstract: Product experience seduces consumers into believing that they learn more than is actually so. There are several reasons for this. First, experience is more engaging than most attempts at education, both more vivid and intentional, and consequently more memorable. Second, experience is viewed as nonpartisan, devoid of the didacticism of formal education and the self-serving interests of advertisers. Third, much of experience is ambiguous, but not recognized as such. Experience supports a pseudodiagnosticity that draws the consumer in as a willing partner in the seduction. Finally, the endogeneity of tastes allows consumers to accommodate to chosen alternatives and results in infrequent regrets about being seduced.

H. Kunreuther and Stephen Hoch, Wharton on Making Decisions (:, 2001)

Xavier Drèze and Stephen Hoch (1998), Exploiting the Installed Base Using Cross-Merchandising and Category Destination Programs, International Journal of Research in Marketing, 15 (5), 459-471. 10.1016/S0167-8116(98)00017-2

Abstract: We investigate two ways to increase sales and customer loyalty by taking advantage of a store's installed base of current customers. We propose a classification of products into two types. Products of Type 1 are products for which consumers have a loyalty to a specific retailer and, as far as possible, always shop at that retailer for these products. The other products (Type 2) are not associated with any retailer and are bought at whichever retailer consumers happen to shop when they plan or remember to buy the product. With this in mind, we test the potential of two marketing tools to help retailers increase their share of sales of the Type 2 segment. Using a category destination program we show that one can successfully transform Type 2 into Type 1 products. Using cross-merchandising promotions, we show that one can increase the sales of Type 2 products thereby gaining a larger share of discretionary purchases than what one would receive from a straight random allocation. Both series of tests yielded significant increases in sales and profits and were deemed successful by the retailers who implemented them.

Stephen Hoch and Leonard Lodish (1998), Store Brands and Category Management, Journal of Retailing.

Abstract: This report is organized as follows. First, we briefly review previous research that supports our contention that the most appropriate category management roles for the store brand program are first as profit contributor and second as value creator. Next, we outline the primary purpose of the paper, which is to investigate the optimal price gap between national