Business Positioning in the Age of On-Line Reviews

Dr. Simone SantoniLecturer in Strategy, Cass Business School

City Unruly, May 11, 2016

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Outline

About Me

Product Positioning and Value Creation

The Age of On-Line Reviews (and Ratings)

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Industry/Context Experience

Industries:

• Music industry;

• Arts;

• Scientific productivity.

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Skills

Techniques:

• Statistical modeling;

• Analysis of big data.

Scientific and technicalcomputing:

• Julia;

• Python;

• R.

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Superstar extinction in cultural markets

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Indigenous scouting in the market for DJs

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Novelty emergence in ‘hot’ and ‘cold’ markets

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Outline

About Me

Product Positioning and Value Creation

The Age of On-Line Reviews (and Ratings)

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Technological Change = Crowded Markets

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So, how should I stand-out from the crowd?

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“Well, in our country,” said Alice, still panting a little, “you’d generally getto somewhere else—if you run very fast for a long time, as we’ve beendoing.”

“A slow sort of country!” said the Queen. “Now, here, you see, it takes allthe running you can do, to keep in the same place. If you want to getsomewhere else, you must run at least twice as fast as that!”

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“Well, in our country,” said Alice, still panting a little, “you’d generally getto somewhere else—if you run very fast for a long time, as we’ve beendoing.”

“A slow sort of country!” said the Queen. “Now, here, you see, it takes allthe running you can do, to keep in the same place. If you want to getsomewhere else, you must run at least twice as fast as that!”

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Innovation is the response!

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Product Differentiation ⇔ Consumer Preferences

Most entrepreneurs have responsibility for product or services for which noother firms produces really good substitutes:

• once a venture’s offerings are (seem to be) at least somewhat differentfrom those of its rivals, the entrepreneur has more control over the firm’sdestiny—by offering a distinctive product to a particular market segment,the entrepreneur can create a competitive advantage there that firmswith different products cannot match;

• although the entrepreneur in a niche market has more freedom to operatethan she would if other firms in her industry produced identical products,her products are not so strongly differentiated that she can behave like anunconstrained monopolist.

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Product Differentiation and Consumer Preferences

• What consumers care about—other than price—is productcharacteristics;

• We can think of consumers’ preferences as preferences about the maincharacteristics that existing (or potential) product possess;

• When consumers’ preferences are displayed graphically, the result issometimes called a “perceptual map”:◦ maps are defined not by the product characteristics themselves, but by

consumers’ preferences over them;◦ we can map consumer preferences either about characteristics of existing

products or over products that do no exist;◦ the structure of the map depends on consumers’ preferences only—so, if

consumers don’t care about a particular product characteristic, it cannot bemapped.

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Perceptual Map: A Simple Example (1 of 2)

Imagine that consumers care only about how crunch a cereal is → we canenvisage consumer preferences as being located along a line representing thecontinuum from the extreme of “turns immediately to mush in the presenceof milk”—say soggy—to the other extreme of “mantains the texture ofwood chips even after two hours of immersion”—say crunchy.

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Perceptual Map: A Simple Example (2 of 2)

• Once we have mapped consumer tastes, we can then easily locate aparticular product on the map—the characteristics of the productdetermine its location;

• Because there are typically fewer products than consumers locations,come consumers are more fortunate than others. Any consumer whomost prefers the amount crunchiness that General Mill’s Cheerios has, forexample, has an ideal crunchiness point that is in the same location asCheerios → she doesn’t sacrifice any amount of crunchy satisfaction fromnot having a product that exactly matches her taste.

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Niche and Neighbors (1 out of 3)

• Consumers who are farther away from Cheerios value it less than do consumersclose to it;

• Consumers whose most preferred point on the crunchiness continuum is veryfara way from Cheerios’ location probably wouldn’t buy it any price, no matterhow low.

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Niche and Neighbors (2 out of 3)

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Niche and Neighbors (3 out of 3)

Comparing the ‘low’ and ‘high’ differentiation scenarios we conclude that:

• When the demand segments to which the product appeal overlap, firmscompete for the consumers located in the area(s) of overlap—i.e., someconsumers probably like both Cheerios and Grape-Nuts enough to buyeither of them;

• However, to the extent that consumers care about crunchiness,Grape-Nuts and Corn-Flakes are less likely to compete for manycustomers—i.e., any customers who is buying Grape-Nuts might, if itsprice increased, switch to Cheerios but it less likely to switch to CornFlakes.

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Each product competes more intensely with

products that are closer to it!

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Differentiation Softens Competition

Differentiation reduces competition through two effects:

1. Holding, price constant, increasing the differentiation among productsleads to an increase in the number of potential consumers who prefer aspecific product;

2. Increasing the differentiation among product leads to higher prices.

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Outline

About Me

Product Positioning and Value Creation

The Age of On-Line Reviews (and Ratings)Social ValuationSocial Valuation and Categorization

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Technological Change = Crowded Markets

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...Now Take a Consumer’s Perspective

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Do you still agree with the ‘product

differentiation model?’

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How can consumers infer the quality of

product offerings in a super-crowded market?

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Why Are On-Line Reviews So Important?

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The Columbia Music Lab Experiment

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The Columbia Music Lab Experiment

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The Columbia Music Lab Experiment

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The concept of ‘quality’ is socially constructed!

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So, how does social influence work?

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Category Spanning Penalty in Dining Industry

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Category Spanning Penalty in Music

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Category Spanning Penalty in Movies

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Category Spanning Penalty in Wine Market

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The Categorical Imperative

• Offerings that do not fit into one category are ignored by consumers;

• When offerings that do not fit into one category are considered, theytend to be devalued by consumers.

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So, how can I be ‘different’ and fit into an

existing category at the same time?

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...DJs Use Aliases

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