The Empirical Analysis of Advance Selling

Tianfu Wang, Purdue University

Abstract

In this dissertation, I utilize a unique dataset of an advance selling platform to study two marketing problems. ^ First, advance selling deal platforms gain revenue by selling electronic vouchers online that customers can redeem for service. Customers face valuation uncertainty when prepaying for advance selling. The uncertainty becomes an important problem for customers when the platforms adopt restrictive refund policies. A restrictive policy could “lock in” customers but may also deter interested customers from making consumption commitments. On the other hand, a liberal refund policy may lead to frivolous prepayments and subsequent excessive cancellations. Whether a liberal refund policy is beneficial to the advance selling deal platform is an empirical question. This paper uses data from an advance selling platform during the period of a refund policy shift. The data allow us to investigate the impact of the refund policy shift using a quasi-experiment design. Our findings reveal that following the adoption of a full refund policy, the increase in customer prepayments outweighs the increase in cancellations and leads to an increase in net redemptions. The empirical analysis suggests that the adoption of a full refund policy mitigating customer valuation uncertainty is beneficial to the advance selling platform. ^ Second, using mobile applications (i.e., app) as the main channel to reach, engage, and provide service to customers has become the standard marketing practice for firms. On the one hand, firms want to provide sophisticated functionality by developing new features for their apps. On the other hand, some customers are overwhelmed by the growing complexity of apps. Therefore, some firms start to develop simplified versions of their apps (i.e., spinoff app) to cater to the need of such customers. Those spinoff apps include only the essential functions of the comprehensive main apps and provide a more streamlined user experience. The overall impact of spinoff app adoption on customer behavior and channel interdependency are unclear. I answer these questions by applying difference-in-differences regressions coupled with the dynamic propensity score matching technique on a unique dataset on customers’ adoption of a new spinoff app. Our analysis reveals two main findings: (1) the spinoff app channel serves as a substitute for the existing PC and main app channels; (2) the adoption of the spinoff app channel does not impact customer’s overall spending amount and the number of transactions.^

Degree

Ph.D.

Advisors

Manohar U. Kalwani, Purdue University.

Subject Area

Marketing

COinS