Hernan Bruno (University of Cologne):
"The dynamic effects of prices paid in salesperson-mediated transactions"
(with Shantanu Dutta and Wayne Zhang)
Thursday, November 26, 02:00pm - 04:00pm (WiSo Building, Room 410)
This paper studies how prices paid and interactions with specific salespeople influence long-term changes in the propensity to buy industrial products. Long-term effects are particularly important in industrial markets because customers cannot readily switch to an alternative supplier, so the consequences of a particular event (e.g. paying a high price) will only be observed beyond the timeframe of the transaction. We develop a dynamic model of the quantity of an industrial product purchased and the price paid on a given time period as a function of the price charged, transaction-, customer-, and salesperson-specific covariates. Central to our model is a customer-product-specific state variable that captures the propensity to buy a product at a point in time and that can be affected by time-varying covariates. The model accounts for the joint outcome of price and quantity, and uses hurdles to account for specific features of industrial transactional data such as many zero-quantity observations and price-stickiness. The estimates provide evidence that there are lasting effects that can be ascribed to price changes and to interactions with specific salespeople. In addition, the salesperson-specific covariates show that there is cross-salesperson variation in terms of the effects they have on customers transaction later on. Moreover, we show that even reference price effects vary in magnitude depending on the salesperson involved in the transaction. These results have implications for salesforce compensation and management. Finally, our models captures spillovers effects across products that show that price levels in one product affects the propensity to purchase in other products.