Yi Xiang and David Soberman April Science to Practice Initiative Adapted from Xiang, Yi and David A. Soberman (2011), “Preview Provision under Competition.” Marketing Science, Vol. 30, No 1,

 For many products the preview is an important ingredient to consumer decision making. Consumers process the information in the preview and use it to decide whether to buy. Marketers can design previews to be either 1. Highly informative of the product characteristics. 2. Generic previews that do not necessarily indicate the unique characteristics of the product. 2Science to Practice Initiative

 Previews for products can take many forms ◦ The front page of many publications ◦ Previews aired several hours before a program is scheduled to air ◦ Early descriptions of product characteristics for products like wine and whisky 3Science to Practice Initiative

4 versus Highly informative Uninformative Science to Practice Initiative You know, even 10 feet from the newsstand, that you will read about swine flu Even 3 feet away, it is difficult to know exactly what you will read about.

 There are categories where the marketer does not fully control the product attributes. ◦ Categories where the marketer controls of the product attributes (no uncertainty)  Toothpaste, detergent and cookies, marketers control the product attributes. ◦ Categories where the marketer does not fully control the consumer experience (uncertainty)  News products (magazines, newspapers, TV news)  Chateau bottled wine where the weather and nature have a significant impact.  Ski resorts where the weather has a significant effect on the quality of skiing  Resorts (national parks) e.g. Denali or Kruger, which types of animals will be observed? Science to Practice Initiative5 This model

 The timing of the game 1.The competing firms choose a preview strategy (informative or generic) 2.The firms set a price for their product (or service) 3.Events occur that determine the characteristics of the products (news happens, the weather is good or bad, etc…) 4.Consumers decide which product to buy  Each consumer selects the product that provides her with the highest NET benefit  How well does the product match her preferences?  What is the price? 5.Firms realize profits as a function of demand. 6Science to Practice Initiative

 The optimal policies are affected by the degree of competition ◦ Monopolists do not have an incentive to provide informative previews.  With uninformative previews, consumers assume that the monopolist will provide average content.  This is the best perception if you are a monopolist.  The average product is the best fit for a random consumer. ◦ In contrast, competition creates a strong incentive to utilize informative previews  Two average products appear homogenous (the same)  Previews create differentiation and relax price competition 7Science to Practice Initiative

 In a competitive market with two firms ◦ If one firm chooses informative previews, the firms are perceived to be different and BOTH firms benefit substantially ◦ In fact, the firm that continues to utilize uninformative previews realizes a significant benefit.  One could say they “free-ride” on the informative previews of the competitor. ◦ Surprisingly, the firm that utilizes uninformative previews does not have an incentive to change and use informative previews.  In fact, the average position (associated with uninformative previews) is advantageous.  Firms will often compete in these markets with different preview strategies.  These findings are robust to alternate timings and situations where “precision” is a continuous variable. 8Science to Practice Initiative

 In markets where a) previews are a key ingredients to the buy decision and b) product attributes are subject to uncertainty ◦ Previews are important to create differentiation.  At least one firm MUST use informative previews or price competition will be cutthroat ◦ A competitor confers a positive benefit on you by providing informative previews.  The best response to informative previews may be to continue with uninformative previews. ◦ In markets like newspapers, broadcast news and wine, a high degree of asymmetric competition is normal.  being different than everyone else is not necessarily wrong. 9Science to Practice Initiative