Journal Must-reads from Stefano Puntoni, Erasmus University
Stefano Puntoni is Professor of Marketing at Rotterdam School of Management, Erasmus University. An expert in brand management, marketing strategy, and consumer behavior, he offers a review of new research on inequality and consumption.
“Income inequality is soaring,” Stefano notes. “Some economists see increasing inequality as a troubling sign of decreased social mobility and opportunity, while others see it as a natural byproduct of recent technological innovations. Similarly debated are the societal consequences. Regardless of where you stand, it is useful to think about how growing inequality affects marketing practice and consumer behavior. I have selected three recent articles that show different ways in which inequality is relevant to marketers.”
Consumers Avoid Buying from Firms with Higher CEO-to-Worker Pay Ratios by Bhavya Mohan, Tobias Schlager, Rohit Deshpandé, and Michael I. Norton, Journal of Consumer Psychology (free until 12/31/18)
“Several trends are making it easier for consumers to gain information about the internal practices of firms (including social media, political debate, and globalization). One aspect of firm behavior that has received considerable attention in the media is the so-called CEO-to-worker pay ratio, which is a measure of within-firm income inequality. This article uses a variety of data sources and approaches to demonstrate that very high CEO-to-worker pay ratios can hurt firms by deterring customers.
“The findings suggest that boards should not see top management remuneration decisions as an exclusively internal matter, but as one with also external relevance and potentially important PR ramifications. This is especially the case for firms in highly scrutinized or controversial industries, such as finance or energy.
“For example, earlier this year, members of the Dutch Parliament called for a public hearing when the board of a leading European bank increased the CEO’s salary by 50% (Interestingly, that increase meant a still comparably low salary of 3M euros per year while the company has a market cap of over €50B and net profits of almost €5B last year).
“This discussion also underlines a more general issue. Decisions that might appear to have no bearing on marketing outcomes can in fact have potentially important demand-side consequences. For example, my coauthors and I are currently studying how corporate strategy decisions like acquisitions can have detrimental effects on consumer response to brands by diluting perceptions of “value authenticity”. It is important for companies to take a holistic view of marketing and realize that many decisions taken in organizational functions other than marketing can have marketing repercussions. Do you have the cross-silo communication lines that are necessary to manage this challenge?”
Better or Different? How Political Ideology Shapes Preferences for Differentiation in the Social Hierarchy by Nailya Ordabayeva and Daniel Fernandes, Journal of Consumer Research (free until 1/5/19)
“Articles addressing the topic of inequality almost invariably consider the role of political ideology—for obvious reasons. Here, the authors propose a simple and interesting argument. Connecting politics to one of the most basic notions in marketing strategy, they show in a series of studies that U.S. conservatives favor vertical differentiation (i.e., products that signal that they are better than others), whereas U.S. liberals favor horizontal differentiation (i.e., products that signal that they are unique from others).
“These findings are relevant to marketers interested in gauging which source of differentiation is most valued by potential customers and suggest a number of specific managerial implications. For example, research shows that more Americans are choosing to live among politically like-minded neighbors, suggesting that it should become easier for companies to use geographic variables to deliver relevant messages to consumers. Companies might want to emphasize horizontal differentiation in ‘liberal communities’ and vertical differentiation in ‘conservative communities’.
“At a more general level, as citizens become more polarized in the intensity of their political beliefs, using political orientation as a targeting variable is becoming increasingly interesting for marketers. For example, my colleague Jason Roos has demonstrated that political orientation can be used to make accurate predictions of box office sales. It is important to note that companies do not need to step into politically sensitive issues (like Nike did recently) to be able to use information about political orientation to increase the effectiveness of their marketing actions.”
Positional Goods and the Social Rank Hypothesis: Income Inequality Affects Online Chatter about High‐ and Low‐Status Brands on Twitter by Lukasz Walasek, Sudeep Bhatia, and Gordon D. A. Brown, Journal of Consumer Psychology (free until 12/31/18)
“The authors matched geo-located Twitter data with official statistics about a place’s level of income inequality. They collected two large U.S.-based datasets and performed analyses at state, county, and metro area levels. After controlling for a number of other variables, they find that income inequality (simply measured using a standard economic indicator called the Gini Index) correlates with interest in status or luxury brands (relative to non-status-oriented brands).
“The correlation between income inequality and consumer interest in different types of brands is relevant for managers of both status and non-status brands. Different brands may be on average differently appealing to consumers living in areas with low versus high levels of income inequality.
“What I find interesting about this paper is that the authors were able to use widely available information and a general economic indicator to make predictions about a specific brand’s level of local engagement. It’s a powerful illustration of the extent to which inequality shapes motivations and behavior. And thus a good way to end this curation. Happy reading!”
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