Research Interests: consumer behavior and learning, decision support systems and the psychology of forecasting, private label products., psychology of self-control, retail merchandising, assortment, pricing, and promotion strategy
Stephen J. Hoch is the Laura and John J. Pomerantz Professor Emeritus of Marketing. Professor Hoch is internationally known for research on retail merchandising, assortment, pricing, and promotion strategy. He consults extensively with leading consumer goods manufacturers and retailers around the world, assisting them in focusing retail strategies and improving pricing and merchandising tactics via point-of-sale data.
Most recently, Professor Hoch’s research offered retailers new insights into a valuable sub-species of shopper, the "cherry picker," a shopper who visits more than one store looking for the best price per unit. The study provided new details about the specific behavior and demographic characteristics of such shoppers, information that will help managers better formulate their approach to attracting discriminating shoppers.
A prolific scholar, Professor Hoch’s research has been published in top-tier academic journals including the Journal of Marketing, the Journal of Consumer Research, Marketing Science and the Journal of Retailing. He also serves as an Associate Editor for Management Science, the Journal of Consumer Research and other leading journals, is a past president of the Association for Consumer Research, and has won numerous academic awards.
Professor Hoch’s teaching interests include courses in Marketing Management, Pricing, Consumer Behavior, Retailing and Marketing-Operations Integration, as well as teaching Competitive Marketing Strategy, Essentials of Marketing and Pricing Strategies for Wharton’s Executive MBA program.
Professor Hoch received his PhD in Marketing from Northwestern University, his MBA from the University of California, Los Angeles and his BA in Human Biology from Stanford University.
Abstract: We examine the process by which consumers make sequential decisions whether to continue or abandon waits for service. We focus on the case of invisible queues, where consumers cannot observe their location in a queue as it progresses, only the passage of time. Our hypothesis is that stay-or-renege decisions will frequently sub-optimal, marked by a tendency to prematurely abandon waits from distributions for which it is never optimal to renege (e.g., uniform waits) but excessively persist given distributions that have optimal early reneging windows. We propose a competing-hazards theory that models on-going stay-or-renege decisions as a blend of two opposing influences: the escalating displeasure of waiting and the opposing desire to complete a wait that has been initiated. Among the theoretical predictions that emerge from this theory is that reneging rates will display an inverted U-shape function over time, with consumers being most prone to renege near the mid-point of waits. Reneging is also hypothesized to be affected by a number of normatively-irrelevant moderators, such as the initial number of alternative queues and the amount of physical activity that is engaged in during a wait. Evidence supporting these hypotheses is provided by four experimental studies in which respondents have the goal to complete as many downloads as possible from a hypothetical website within a finite time window, where there is a continuous opportunity to abandon a wait to begin a new one.
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.
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.
This course explores the domain of retailing; marketing to the final consumer. Emphasis is placed on marketing aspects of retailing not covered in other courses: retail strategy, merchandising, vendor relations and location.
The course provides a systematic presentation of the factors to be considered when setting price, and shows how pricing alternatives are developed. Analytical methods are developed and new approaches are explored for solving pricing decisions.
RETAIL ECOSYSTEM ACTION LEARNING PROJECTS: This course offers graduate students from Wharton and other Penn schools an opportunity to work on real-world projects for companies in the retail industry and in the wider retail ecosystem. It requires the exploration and analysis of actual business issues or opportunities identified by sponsoring/client companies, as well as the formulation of recommendations. It combines 1) academic principles, 2) application of prior business knowledge to the project at hand, and 3) a solutions-oriented mentality. In addition to supervised project work and regular updates to the corporate client/project sponsor, the course involves classroom meetings and discussions on topics pertaining to the projects. While this course focuses on "marketing" topics, projects might also incorporate topics from related disciplines such as operations, management of innovation & technology, data analytics, international management, design, and real estate. Indeed, the goal will be to constitute interdisciplinary teams from Wharton and other relevant Penn graduate schools. ADVANCED STUDY PROJECT (GENERAL): The principal objectives of this course are to provide opportunities for undertaking an in-depth study of a marketing problem and to develop the students' skills in evaluating research and designing marketing strategies for a variety of management situations. Selected projects can touch on any aspect of marketing as long as this entails the elements of problem structuring, data collection, data analysis, and report preparation. The course entails a considerable amount of independent work. (Strict library-type research is not appropriate) Class sessions are used to monitor progress on the project and provide suggestions for the research design and data analysis. The last portion of the course often includes an oral presentation by each group to the rest of the class and project sponsors. Along with marketing, the projects integrate other elements of management such as finance, production, research and development, and human resources.
This course is a two part series. The first part concentrates on the Indian Consumer and the second part concentrates on the Chinese Consumer. India and China add up to half of the world's population. Each presents its own challenges and opportunities. US and European MNCs have been in both countries for many years, but emerging market MNC's are becoming stronger and in many cases overtaking US and European companies despite their strong brands and know-how. Marketing to the Indian Consumer will provide a careful understanding of: The opportunity and challenges in the Indian consumer market 2) Various segments within the Indian consumer market. 3) Consumer psychology and decision making processes in each segment 4) Distribution channels in Indi Media in India: Mass, Local and non-traditional. 6) Bottom of the pyramid consumers and rural markets. 7) Product design and development decisions. The course will focus on the following industries: consumer packaged goods, mobile phones, financial services (insurance and banking), healthcare, sports and entertainment, and transportation. The course will involve case studies from local and international companies, guest lecturers, and visits to consumer homes to observe their tastes, habits, and preferences. Marketing to the Chinese Consumer will provide students with a critical understanding of the Chinese consumer, distribution channels, pricing environment, branding and competitive dynamics so as to enhance their ability to market to the Chinese consumer successfully. The course will consist of a combination of lectures, case studies, presentations by industry experts, and a short evening field trip.
A student contemplating an independent study project must first find a faculty member who agrees to supervise and approve the student's written proposal as an independent study (MKTG 899). If a student wishes the proposed work to be used to meet the ASP requirement, he/she should then submit the approved proposal to the MBA adviser who will determine if it is an appropriate substitute. Such substitutions will only be approved prior to the beginning of the semester.
Requires written permission of instructor and the department graduate adviser.
Please be in touch with the department for further details
From the Journal of Marketing for the article making the most significant contribution to marketing practice
Stephen Hoch, Patty and Jay H. Baker Professor; Professor of Marketing, Chairperson, Marketing Department; Director, Jay H. Baker Retailing Initiative, was quoted in an article about how gas prices affect retail sales. (A similar article appeared in the Sarasota Herald-Tribune, 5/8/06 )
Stephen Hoch, Patty and Jay H. Baker Professor; Professor of Marketing, Chairperson, Marketing Department; Director, Jay H. Baker Retailing Initiative, was quoted in an article about negative consumer mood and how this affects shopping behavior.
Stephen Hoch, Patty and Jay H. Baker Professor; Professor of Marketing, was quoted in an article about common traits in fast-food product brands.
Stephen Hoch, Patty and Jay H. Baker Professor; Professor of Marketing, was quoted in an article about global customer dissatisfaction trends. ( Similar articles appeared in several other outlets including: The Plain Dealer, 3/15/06, Investment Dealer’s Digest, 3/28/06, and Detroit News, 3/28/06 )
Stephen Hoch, Patty and Jay H. Baker Professor; Professor of Marketing, was quoted in an article about overall U.S. consumer-spending trends.
Stephen Hoch, Patty and Jay H. Baker Professor; Professor of Marketing, was quoted in an article about the effect of gas prices on holiday shopping.
Stephen Hoch, Patty and Jay H. Baker Professor; Professor of Marketing, was quoted in an article about the overall retail industry and the results of holiday shopping.
Stephen Hoch, Patty and Jay H. Baker Professor; Professor of Marketing, was quoted in an article about recycling practices throughout the Wal-Mart stores’ network.
Stephen Hoch, Patty and Jay H. Baker Professor; Professor of Marketing, was quoted in an article about holiday shopping trends in discount department stores. (A similar article appeared in The San Francisco Chronicle, 12/2/05)
Recent M&A deals by both Amazon and Walmart have set the two firms on a direct collision course to become the “everything store” in an omnichannel world.Knowledge @ Wharton - 6/27/2017
As the e-commerce and retail companies expand their empires and continue on their collision course, which giant will prevail?Wharton Magazine - 10/17/2017