Strategy

How to view pricing, cross-selling, and customer loyalty during difficult economic times.  (Reprinted from "Marketing in Difficult Times," Effective Executive, July, 2009, pp. 11-18.)

We argue that a fundamental reason for the short-term perspective of corporate executives is the short-term orientation of shareholders themselves and the financial markets that drive the performance benchmarks of CEOs. Although some shareholders are prepared to take a more long-term view they are generally not rewarded for their loyalty to the company.

We examine whether securitization impacts renegotiation decisions of loan servicers, focusing on their decision to foreclose a delinquent loan. Conditional on a loan becoming seriously delinquent, we find a significantly lower foreclosure rate associated with bank-held loans when compared to similar securitized loans: across various specifications and origination vintages, the foreclosure rate of delinquent bankheld loans is 3% to 7% lower in absolute terms (13% to 32% in relative terms).

We present a broad-based, consumer-centric view of innovation — referred to as "perceived firm innovativeness" (PFI). PFI is conceptualized as the consumer's perception of an enduring firm capability that results in novel, creative, and impactful ideas and solutions. We develop and validate a PFI scale and show that PFI impacts consumer loyalty via two processing routes: a functional-cognitive route and an affective-experiential route.

On a visit to any major U.S. department store, consumers can observe vendor shops (typically for cosmetics, apparel, apparel accessories, electronics, and toys), each selling a particular brand exclusively and designed to reflect the image of that brand. For these vendor shops, also called boutiques or "stores within a store," retailers rent out retail space to the respective manufacturers and give them complete autonomy over retail-level decisions, such as pricing and in-store service.

This article studies optimal mortgage design in a continuous-time setting with volatile and privately observable income, costly foreclosure, and a stochastic market interest rate. We show that the features of the optimal mortgage are consistent with an option adjustable-rate mortgage (option ARM). Under the optimal contract, the borrower is given discretion of how much to repay until his balance reaches a certain limit. The default rates and interest rate payment on the mortgage correlate positively with the market interest rate.

In this paper we describe the challenges of Bayesian computation in Finance. We show that empirical asset pricing leads to a nonlinear non-Gaussian state space model for the evolutions of asset returns and derivative prices. Bayesian methods extract latent state variables and estimate parameters by calculating the posterior distributions of interest. We describe the use of direct estimation methods such as Markov chain Monte Carlo (MCMC) and sequential Monte Carlo (SMC) methods based on particle filtering (PF).

Discussion of different marketing strategies to employ during difficult times.  (Reprinted from "Marketing in Difficult Times," Effective Executive, July, 2009, pp. 11-18.)