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Five Questions with a Professor: Donald Ngwe

  1.     Why did you choose pricing strategy in retail as a research agenda?Retail is a fascinating venue in which to study pricing strategy and consumer behavior. It forms a large part of the economy, and is evolving at a rapid pace. It offers a rich set of dimensions for a researcher to consider: consumer choice, pricing, product policy, and inventory management.  Open questions in these areas are of vital importance to managers. I first became interested in retail while working on a research project about outlet stores in graduate school. I wanted to quantify the value of using outlet stores as a tool for price discrimination. Price discrimination often gets a bad rap, but what many people don’t realize is that in most cases, everyone is better off for its existence. Yes, it enables firms to extract more value from consumers—but in doing so, it also all

  1. What trends do you think will change the way we shop?I think that an important trend is toward letting each consumer shop in whichever way they prefer. There might have been a time when retailers were eager to encourage activity to move online from offline, either with the goal of reducing costs or to avoid getting left behind. But the reality is that moving online can have large drawbacks: fulfillment costs are high, and price comparisons are easier. What’s more, many product categories simply require physical inspection before a shopper will purchase with confidence. The result, as we have seen, is that many pure online sellers have opened physical stores, or have offered free and easy returns. There’s a lot of heterogeneity in the way consumers prefer to shop between product categories, but there might be even wider variation within a category. Take grocery shopping as an example. Many of us are grateful for the ability to order groceries through services like Instacart. But many more people have neither the need nor desire to pay for delivery. The challenge for firms is to offer comparable experiences, given acceptable cost structures, to consumers regardless of their preferred channel. So the way I see it, the most interesting developments will occur in how firms meet existing customer expectations rather than in changing them.

  2.     How has your research affected your own shopping behavior?In the worst ways. My research has given me more ways to rationalize bad behavior. Initially I thought doing research on retail would make me more skeptical of retailer strategies or at least more discerning—i.e. make me a smarter shopper. But that has hardly been the case. Now I buy more stuff and probably overpay for most of it. “I’m too lazy to comparison shop” has become “my time is not well spent searching.” I’ve become more likely to buy from new online brands “for research purposes.” It’s a slippery slope. But maybe this is all a result of a higher appreciation for the work retailers do. Yeah, that’s it!

  3.     What findings have been most surprising to you?I’ve been most surprised by aspects of how shoppers interact with online stores. To be more specific: shoppers are lazy! In a project with Thales Teixeira, a colleague in the Marketing Unit, we lightly concealed discounted offers on a retail website, making them harder to

  1. What are you excited about doing over your next few years at HBS?I’m very excited about doing more research on retailing and finding ways to bring my findings into the MBA curriculum. We know a lot about what works well where physical retail is concerned, but not as much about online retail. My sense is that there is actually quite a bit that online retailers can learn from the offline side. The trick is in identifying online analogs of established retailing strategies. Bonus question – Section A reached its own conclusions about your workout routine. What is your real workout plan? All there is to say about my workout plan is that I have a membership at a gym in Central Square, where I make it so infrequently that it comes up to about $30/visit. See what I mean about overpaying?

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