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Businesses beware: A price increase for carryout or delivery food means an increase in negative reviews—and a downturn in restaurant reputation, if not demand.

And it’s notable that in these COVID-19 pandemic times, an exponential amount of business is being conducted via carryout or delivery.

A pair of business researchers, from Washington University in St. Louis and Harvard University, studied the relationship between price and reputation by looking at online orders through Yelp’s Transaction Platform from its 2013 inception until January 2019, and then the resulting reviews. What they found: Ratings are price-adjusted rather than objective reviews of quality.

Their study showed an effect that is both statistically and economically significant: A price increase of just 1% leads to a decrease of 3%-5% in the average rating — a negative relationship between pricing decisions and reputation. “This effect becomes increasingly important when considering the average price change is about 3-9%,” they write. Their research is forthcoming in Management Science.

Reshef

“Traditional intuition suggests a positive relation between prices and reputation, usually in the form of a price premium for reputable businesses,” said Oren Reshef, assistant professor of strategy at Olin. “Less attention, however, has been given to the direct impact of price increases on reputation for a focal firm. We find a negative relation when examining different price levels for the same business.”

The researchers used item-level data on all food orders placed via the Yelp Transactions Platform. There, they could detect changes in ratings in response to price changes. They keenly focused on narrow time bands around price changes—just days before and after restaurants updated their menu prices.

To provide further robustness to their findings, they analyzed instances where certain platforms are quicker than others to update the price. Thus, they focus on short time spans in which the same item is sold at different prices, one at the old price and one at the new price.

A new business creed

If nothing else, the study signals a new business creed: Be careful about raising prices, because, in addition to the direct negative effect on sales, down the line it will decrease reputation and, as a result, future business.

“Our results amplify the negative effect of price on sales: higher prices reduce demand today and demand in the long-run due to adverse effect on reputation,” Reshef said. “This is especially prominent in online markets, where consumers rarely know the prevailing prices and the time the review was given. This creates an additional incentive to maintain low prices and perhaps even set lower initial prices in order to establish good reputation.”

Their results hold more generally in the Yelp Star Rating, suggesting that ratings are a function of both quality and price — the cheapest restaurants achieve an average rating of 3.4 while the most expensive on average rate 3.6, less than a quarter standard deviation, despite the fact the latter group is four times as pricey. The researchers interpret this to mean that ratings are price adjusted — or at least adjusted for the expected quality at whatever price.

“The results inform us about the value of rating mechanism and how to interpret them,” Reshef said. “Online rating may not be capturing ‘objective’ quality, but rather the net value or surplus that the service or product generates. We believe that, in order to offer better platforms, managers should take this into account when designing reputation mechanism and recommendation systems on their platforms.”

The authors further attempt to disentangle other mechanisms that might impact consumers’ rating behavior. They discovered the effect is greater for first-time restaurant consumers — suggesting that diners initially respond to prices, which set their expectations for the quality of food they’ve never tasted or ordered before. This also shows that the results are not driven by repeat customers using lower ratings as a punishment for raised prices.

This price-reputation relationship translates to so many other consumer areas, what with the proliferation of Amazon, Airbnb, Taobao in Asia, grocery- and food-delivery services that grew during the pandemic, and more.

And, sorry, they cannot speak to price reductions—mainly because they were so seldom seen in the businesses they studied.




Clockwise from top left: Anne Marie Knott, Anjan Thakor, Dennis Zhang, Andrew Knight.

Give everyone in your startup organization a voice, but not necessarily a vote. Watch the companies with a high “research and development quotient.” Discover purpose and foster a purpose-driven workforce. Learn how to mitigate racism in the sharing economy.

These snippets of wisdom were among the guidance four Olin Business School faculty members offered at a Century Club event on January 24. The TED talk-styled event drew a standing-room only audience to Emerson Auditorium as the four professors shared ideas about “making business better” drawn from their research. (Missed it? Watch the recorded live stream of the event.)

Olin visitors, alumni and students heard from Andrew Knight, professor of organizational behavior; Anne Marie Knott, Robert and Barbara Frick Professor of Business; Anjan Thakor, John E. Simon Professor of Finance; and Dennis Zhang, assistant professor of operations and manufacturing management. Dean Mark Taylor described the slate of speakers as “an A-team of talent” in the Olin faculty.

Andrew Knight: “Effective Leadership for Startup Teams”

Knight threw the audience a curveball as he described a hard-driving, entrepreneurial, often abrasive, black-turtleneck-wearing, innovative executive. No, he wasn’t talking about Steve Jobs. He was talking about Elizabeth Holmes, now disgraced founder and former CEO of defunct blood-testing firm Theranos.

“This grandiose leadership style is not necessarily an ingredient for building a successful startup company,” Knight noted, citing his and other research in the field. “Your first act of leadership is building a team.”

“Entrepreneurs develop strong feelings of psychological ownership over their companies,” he said. “When we have ownership over something, we’re motivated to invest in it.”

But Knight contrasted psychological ownership over a firm with collective ownership: “If you don’t have a ‘we,’ you can’t have an ‘ours.'” The key, however, is for startup leaders to understand how to balance systematic “help-seeking” with the need to offer explicit and effective guidance on where the contributions from other team members are needed—and where they’re not.

“The most effective leaders are ambidextrous,” he said. “On the one hand, they give people a voice, but a voice is not a vote.”

Anne Marie Knott: “How Innovation Really Works”

Knott offered a startling slide: Let a $1,000 investment in the market ride from the early 1970s until today and the value will have risen to nearly $80,000. But roll that same investment year-over-year into companies with a high “RQ”—a measure of the return on R&D investments—and you’d have returned almost 10 times as much.

Her deep dive into the value firms place on R&D spending came as she looked at Nobel-prize winning research on the primary reasons for growth in the economy—traditionally increases in the labor pool, the quality of labor and the availability of capital.

“When you think of Nobel theories, you think they’re remote, they have nothing to do with me,” Knott told the audience. “I want to convince you that you play a role in this.”

In fact, one of the greatest predictors of corporate growth is RQ, a creation borne of her research and featured last year in a Harvard Business Review cover story.

“Where does growth come from? Historically, economists believe it came from growth in the labor force, growth in the quality of labor and capital. But those three things only account for 37 percent of growth,” she said. “The role of knowledge is to make you more productive with any level of capital and labor. And where does knowledge come from? It comes from R&D.”

Knott tracked GDP growth along with R&D spending and found a corresponding rise in both in the 1950s, while she found a decline in R&D spending in the 1980s that never picked up. The conventional wisdom says R&D has just gotten harder.

“I’ve developed a more optimistic explanation. My explanation is that companies have gotten worse at R&D,” she said. “That may not sound more optimistic, but you want me to be right.”

Anjan Thakor, “Creating a Purpose-Driven Organization”

“The first question I get when I talk about higher purpose is ‘what do you mean?'” Thakor told the audience. One of his best definitions came simply from the story of an employee at The Inn at Little Washington in Virginia.

Short version: A relatively low-level employee took the initiative to drive eight hours on behalf of hotel guests who had left their clothes at home. For the longer story, check out Thakor’s piece on Live Mint.

“When we talk about higher purpose, it’s really a pro-social contribution,” Thakor said, summing up his research and a recent HBR cover story. “It’s the intersection of purpose with your business decisions. It’s deeply connected with your business. It’s about who you are and where you came from, but most importantly, where you’re going.”

Businesses have risen from ruins because of their ability to recognize and capitalize on purpose, Thakor said. They have excelled and grown. But they don’t do it at the expense of making a buck—a point that aligns well with Olin’s brand promise: We create values-based, data-driven leaders who are prepared to change the world, for good.

“Pursuing a higher purpose cannot be a charity,” Thakor said. “It’s key that whatever higher purpose you come up with, it has to be authentic—and it’s discovered. It’s not invented.”

Dennis Zhang, “Discrimination in the Sharing Economy”

Lyft. Uber. AirBnB. They’re market leaders in the sharing economy and almost everyone has heard of them, even if they haven’t used them. And as Zhang pointed out, most everyone has heard that they’ve been plagued by charges of discrimination and racism—charges virtually unheard until around 2016.

Since then, Zhang and his research partners have looked at the reasons and, through their study, found solutions. The basics are derived from earlier research that says discrimination is more likely to happen when we don’t know enough about the individuals we are working with. The more we know, the less we discriminate.

“People discriminate not because they’re inherently racists, but because they do not have enough information about each other,” Zhang said. “They base decisions on group averages. So what’s the solution? To provide more information about individual (AirBnB) guests.”

Indeed, he found in an experiment with AirBnB, using newly created (and fictitious profiles), hosts tended to accept significantly fewer accommodation requests from people with African American-sounding names—28.7 percent versus 47.8 percent for requests from potential guests with “white” names.

However, add a single positive review from another host and the difference virtually vanishes. “When we have a positive review, things change,” he said. “Acceptance rates dramatically increase and stabilize around 58 percent.”

Pictured above: clockwise from top left: Anne Marie Knott, Anjan Thakor, Dennis Zhang, Andrew Knight.


Imagine you and your significant other finally carved out some time for a vacation getaway. You did your research—booked flights, picked a few promising restaurants, dug up your favorite fanny pack—and now it’s time to find a place to stay.

You’ve heard a lot about Airbnb, so you decide to give it a try. After some deliberation, you’ve both agreed on a place within walking distance of all the local attractions, so you send a request to the owner.

But after a couple hours, you get a message from Airbnb saying that your request has been denied without explanation. For a significant number of Airbnb users, this scenario is all too real.

Dennis Zhang

Dennis Zhang

In the Boeing Center for Supply Chain Innovation’s latest video, Dennis Zhang, Olin assistant professor of operations and manufacturing management, discusses the topic of racial discrimination on peer-to-peer platforms.

According to Zhang, Airbnb requests made by accounts with distinctly African American names were 19 percent less likely to be accepted compared to other accounts. However, if those accounts have additional review data (i.e., at least one positive or negative review), all accounts are equally likely to be accepted.

Zhang believes that people require a bit more information to nudge them in a non-discriminatory direction. He thinks that if Airbnb offered more information within the platform, it would reduce the likelihood of discrimination by those looking to rent out their space.

Zhang goes on to mention that platforms conducting business via peer-to-peer transactions face a higher likelihood of discrimination. He says that discovering how discrimination happens on those platforms is a critical step to ensuring equal consumer treatment. Zhang’s research emphasizes the importance of information, and hopes it will be effective in the fight against discrimination.

[RELATED: Airbnb nondiscrimination policy may backfire]




As an alumna of Olin’s Executive MBA program, I was invited to attend this year’s 13th annual St. Louis Business Journal’s Women’s Conference on January 26. Although I had heard of Rent the Runway, I didn’t know anything about it until Jennifer Hyman, founder and CEO, gave the luncheon keynote.

Founded nine years ago with friend and fellow Harvard classmate Jennifer Fleiss, Hyman’s company has raised $190 million in venture capital funding. RTR earned $100 million in revenue in 2016. Its Series E round of $60 million that year was among the largest ever for a woman-run company.

Hyman’s message epitomizes why I love going to this conference. She talked about her idea, why it works, how it has grown, and emphasized that if she can do it, anyone can. This conference highlights successful women who want to share their stories and help other women achieve their goals.

The overall business case for RTR is compelling. In an economy where we rent everything from cars (Uber) to bedrooms (Airbnb), renting clothing makes sense. RTR grew from the concept that for special occasions in particular, women are willing to spend more than they can afford on designer clothes they won’t wear more than once.

By offering rentals of special outfits at a fraction of the cost, RTR makes high-ticket items accessible to a wider audience. The company has expanded the concept beyond special occasions to everyday fashion.

Hyman’s experience and advice applies to anyone in business, but especially to entrepreneurs. Here are the tips that caught my attention:

If she can do it, you can do it

A self-deprecating and funny Hyman explained the very basic actions she took to start her business. Hyman conceived of her idea when her younger sister bought a dress for a special event that cost more than her rent. Hyman and Fleiss brainstormed, which led to the $190 million question: “What if we could rent dresses?”

From there, they pursued an in-person, five-minute meeting with the most influential fashion icon they could think of—Diane von Furstenberg—and cold-emailed her by trying different combinations of her initials and name, until one of the attempted addresses made it through.

You don’t have to have it 100 percent figured out

Hyman and Fleiss did not have their business model worked out when they met with von Furstenberg. “We didn’t know what we were doing when we walked into her office,” Hyman said. “We just threw on von Furstenberg dresses and did it.”

They came up with the name “Rent the Runway” on the spot and pitched the idea. “I think entrepreneurs sometimes make the mistake of being secretive about their ideas, trying to get it all worked out before talking to people about it,” Hyman said.

Instead, Hyman and Fleiss could form their business plan based on conversations they had with the people they talked to about it.

If the answer is no, ask why

“By the way, she hated the idea,” Hyman said. von Furstenberg initially resisted the premise that renting clothes could be profitable, but the conversation continued. By asking questions about the resistance von Furstenberg had, Hyman learned that the von Furstenberg brand appealed mostly to women in their 50s and 60s, but that their marketing targeted a younger demographic.

The five-minute meeting extended to two hours. Hyman said the other designers with whom RTR now has great working relationships were also resistant at first. By keeping the lines of communication open, Hyman continued pursuing the conversations.

People at the top don’t always have the best ideas

At the end of their two-hour meeting with von Furstenberg, Hyman and Fleiss asked for the names of two or three other industry people they could talk to. “It’s the people on the front lines who know the most about the business,” Hyman said. Talking to von Furstenberg was a foot in the door, but great ideas can be mined among lower-level people.

Never stop dreaming bigger

With success in special occasion rentals, RTR could have continued to grow. Hyman kept pushing, however, for expanding the reach of the “Cinderella moment.”

“Women grow up believing that the only day they will feel like Cinderella is on their wedding day,” Hyman said. Believing this didn’t need to be the case, she came up with a subscription concept that would allow women to rent and exchange items for a monthly fee.

Your alma mater can be your calling card

It’s interesting to consider why von Furstenberg took the meeting with Fleiss and Hyman.  As Hyman tells it, their email to her was a one liner: “We are two Harvard business students with an idea and could we have five minutes of your time?”

Whatever her reasons, you can’t underestimate the impact of their academic credentials. In my experience, in St. Louis, a reference to Washington University can and does have a significant impact.

I’m in an older demographic than RTR’s target market—20-somethings who value wearing and being photographed regularly in a wide variety of high-end clothes.

I also wear plus sizes, which, though available on the website, are not offered in great numbers. If Hyman is thinking about this additional area of growth—older, larger women seeking Cinderella moments—I look forward to becoming a subscriber.




The Executive MBA International Residency is often the student favorite of the program’s four required residencies. In between once-in-a-lifetime visits to historic sites in Shanghai and Beijing, EMBA students meet with program alumni and business leaders, exploring China’s unique economy, markets, and global leadership.

EMBA 49 recently returned from the International Management Residency—and if these photos from EMBA Student Services Manager Cory Barron is any indication, it was an exciting experience.

Monday: Facing strategic challenges

After a day of sightseeing at The Great Wall and Forbidden City, students buckled down for business on Monday. They kicked off the residency with site visits to Nestlé’s R&D Center and Xiaozhu.com, the Chinese Airbnb.

After a tour of Nestlé’s R&D Center, Stanford Lin, Vice President & Head of Strategy and Business Development for Nestlé-China, presented EMBA 49 with a strategy challenge. Teams were asked to develop a product to address complex strategic challenges while navigating global, regional, and industry considerations—within a 30-minute time frame.

Terrell Jones presents his thoughts on the team’s marketing strategy, while team members Mehul Gandhi and Matt Reasor listen. 

Melinda Chu explains her team’s product concept under the scrutiny of Nestlé’s Stanford Lin, VP & Head of Strategy & Business Development, and Roberto Reniero, Head of R&D, Nestlé China.

 

Next on the agenda was Xiaozhu.com. Founded in 2012, the Chinese version of Airbnb has expanded to branches in 13 cities all over the country, with house sources covering more than 130 domestic cities.

Students learned about the difficulties Xiaozhu initially faced in establishing a sharing culture in China. However, Xiaozhu.com CEO Kelvin Chen says the company is now adding 1,500 new listings per day.

Xiaozhu translates to Piglet. Piglet is a sign of a happy home.

Panlan Shi shows EMBA 49 the floor of coders building Xiaozhu. 

 

Tuesday: Taking in Shanghai

EMBA 49 took Tuesday to travel (via high-speed train) from Beijing to Shanghai for the rest of the week’s activities. After arriving in Shanghai, the group took in Shanghai’s skyline on a dinner cruise of the Huangpu River.

Jared Ogden passes the time crocheting while speeding south on the train. He says he learned the skill while trapped by a storm in Alaska, where he had plenty of time to learn a new skill. 

A closer look at Jared’s quality craftsmanship.

 

EMBA 49 cruising on the Huangpu River, which separates the new, glitzy Shanghai Financial District from the older, European architecture of the Bund area.

 

Wednesday: Exploring consumer preferences & entrepreneurship

With a few site visits under their belt, EMBA 49 was ready to delve deeper into China’s economy. Speakers from Weber Shandwick, McKinsey & Co., Sigmatex, and AmCham covered a myriad of topics, from China’s entrepreneurial digital revolution to Chinese consumers and the regional economy.

Later, students put their negotiations skills to the test with a visit to the Shanghai Fabric Market.

Darren Burns, President of Weber Shandwick–China, describes how his company’s PR and advertising campaigns are reaching the middle-class Chinese consumer online. Using live streaming is a critical part of their strategy for their Western clients trying to join the conversation in China.

Mehul Gandhi looks pleased when his negotiations calculate to an agreeable price at the Shanghai Fabric Market.

John Ortegon negotiates a better price on a new scarf while at the fabric market.

 

Thursday: Site visit to ZTE Corp. & business panel

EMBA 49 kicked off Thursday with a site visit to ZTE Corp.’s R&D Center. ZTE is the global leader in telecommunications and information technology, achieving an annual revenue of more than $15.3 billion in 2016.

Since 2010, ZTE has been ranked among the world’s Top 3 for patent applications under the Patent Cooperation Treaty, so it seemed a natural starting point for Executive MBAs to learn more about corporate innovation.

EMBA received a warm welcome from the staff at the ZTE R&D Center.

EMBA 49 looking sharp in their ZTE lab coats.

The cohort was then treated to a panel discussion featuring leaders from Novus Intl., Dun and Bradstreet, and Qingdao ADR Axles China Manufacturing Co.—two of whom are alumni (Chiara Radrizzani and Jesse Huang, both EMBA Shanghai Class 14 graduates).

At Thursday afternoon’s executive round table, Flemming Mahs, Managing Director of Asia Pacific, Novus Intl.; Huang Jiexi, Privacy and Compliance Director for Asia, Dun and Bradstreet; and Chiara Radrizzani, Asia Pacific CEO, ADR Group, share with EMBA 49 the cultural intricacies of doing business in China. 

 

Friday and Saturday: Field Studies & Fudan University

EMBA teams spent Friday working on their marketing research projects, breaking out into groups for health care and consumer field study.

The students also got a taste of life as an Executive MBA-Shanghai student, sitting in on a class with Finance Prof. Todd Milbourn and exploring the campus at Fudan University, Olin’s global partner in the Executive MBA-Shanghai degree program.

Friday’s sunrise in Shanghai.


Learn more about the curriculum and residency opportunities in Olin’s Executive MBA program.

Guest blogger: Cory Barron, Student Services Manager, EMBA team