As research translator for WashU Olin Business School, my job is to highlight professors’ research by “translating” their work into stories. Before coming to Olin, I was a communications specialist at WashU’s Brown School. My background is mostly in newspapers including as a journalist for Missouri Lawyers Media, the Atlanta Journal-Constitution, The Washington Post and the Sun-Sentinel in South Florida. Also, I am the reigning Olin Cornhole Champion.
In business, simple loyalty programs can strongly increase customer retention, Olin researchers have found. And when the US economy edges closer to normal following the global pandemic, such programs may be a method to help businesses get back on their feet.
The researchers studied a loyalty program at a chain of men’s hair salons, collecting data on more than 5,500 customers. Under the program, for every $100 a customer spends, he gets a $5-off coupon.
“This loyalty program did increase loyalty,” said Raphael Thomadsen, Olin professor of marketing. “In fact, the size of the effect is incredibly large given the simplicity of the program.”
The program increased the
lifetime value of the hair salons’ customers by 29%, with more than 80% of that
lift coming from increased customer retention, the researchers found.
The increased lift happened
despite the fact that coupon redemption was low, suggesting that psychological
factors rather than rational economic factors are driving the results.
“For example, the presence of the rewards program can make the customer feel emotionally connected to a particular firm, which leads to the customer visiting the firm more often,” the authors write in “Can Non-tiered Customer Loyalty Programs Be Profitable?”The paper is under minor revision at Marketing Science.
Coauthors of the paper include Olin’s Yulia Nevskaya, assistant professor of marketing, Arun Gopalakrishnan, of Rice University, and Zhenling Jiang, of Georgia State University. Both Gopalakrishnan and Jiang have Olin ties. Gopalakrishnan was an Olin assistant professor of marketing from 2015 to 2019. And, last year, Jiang received her PhD in marketing from Olin.
The researchers did not study the response to loyalty programs during the current economic crisis. But Thomadsen and Nevskaya agreed such programs could help businesses recover.
“It is often easier for companies to get in touch with their loyalty program members than with other clients,” Nevskya said. “That is another benefit of having a loyalty program. The right tone and message and being sensitive to likely shifting needs of consumers during and after the COVID-19 epidemic should definitely help.”
‘Even a simple program is likely to work well’
Loyalty programs are popular
at many businesses. Some programs, such as those for airlines and hotel chains,
are complex and include multiple tiers, and they’ve proven to be quite
successful. But a vast number of loyalty programs are set up in much simpler
ways, with no tiers.
Over time, managers and academics have questioned the efficacy of simple loyalty programs, finding they have little or no benefit, according to the paper. But previous studies contained a significant flaw, the authors say. Those measured the programs’ effectiveness by increased sales per customer visit or by increased visits. The flaw? They didn’t measure the programs’ impact on keeping customers.
The managerial implications of the findings are clear, Thomadsen said. Many businesses are not going to implement complex loyalty programs, either because of the scale of their businesses—think yogurt shops, pizza parlors, coffee houses—or because they philosophically oppose setting up a tiered system.
“Our research suggests that even a simple program is likely to work well,” he said. “Even if another business only gets half of the lift we get, a simple loyalty program will still add considerable value.”
Because of the worldwide havoc of the coronavirus, supply chains have become a crucial new focus of the global economy. Sergio Chayet, director of the Operations and Supply Chain Management MBA platform at Olin, foresees changes ahead in several areas including making workers safer and strategies to guard against future massive stresses on supply chains.
“Just like September 11 brought permanent
changes to airport and port security, it is likely this latest crisis will
bring permanent changes to operations and supply chain risk management as it
pertains to mitigating worker health risks and establishing contingency plans
to protect them.”
Would it be better for companies to produce from geographically diverse places or from one particular region?
“Having a geographically
diverse footprint and carrying excess capacity is always valuable as a real
option, since it allows firms to react to a wide variety of risks (social,
political, macroeconomic, etc.) by shifting production to the most convenient
location on short notice with changes to the global economy.
“But such excess capacity is
costly and must be justified by being exceeded with the real option’s value. A
complementary strategy, when feasible, is having flexible contracts with supply
chain partners. However, when several correlated risks happen in quick
succession, partners will be unable to honor those flexible terms.”
What lessons are we now learning about supply chains?
“Over the last couple
decades, driven by price and time competition, supply chains have evolved
toward becoming leaner and more responsive, resulting in lower production and
transportation costs. Reduced trade friction and international arbitrage
opportunities in the form of wages, total cost, exchange rate, access to talent
and raw materials, and other differences, has led to ever more global supply
chains. Containerization, larger vessels and ports, and warehousing innovations
have all contributed to lowering logistics and transportation costs.
“As a result, consumers have
had access to unprecedented levels of product variety at low prices.
“But lean supply chains are
more susceptible to disruption risk, and have to rely on excess capacity or
being nimble in integrating new partners into them.
“When the crisis started, all
eyes were on China, and organizations were evaluating contingency plans to
mitigate risks affecting that portion of their supply chains. In the midst of
companies evaluating those contingency and reactive measures, the crisis
started to become more severe in Europe and subsequently in America, rendering
many of those options obsolete.”
What’s an example of a situation that may not have been considered in the past?
“The demand shocks many
retailers have experienced for commodity products. Some understandable, such as
face masks, hand sanitizers and general purpose cleaners, and some less
understandable, such as toilet paper.
“The familiar bullwhip effect
in supply chains—driven by information and product lags, independent
decisions by channel partners, and low levels of demand variability—has
been overshadowed by unpredictable shocks to end-consumer demand.
“Take toilet paper: Because
it’s a commodity, manufacturers have little influence on market prices. To be
competitive they must control costs and usually rely on high levels of
automation, low levels of labor and high-capacity utilization, with plants
running 365/24/7. They can maintain high utilization only because of predicable
demand, with low uncertainty and no seasonality.
“Such an unpredictable spike in demand—likely driven by a vicious cycle of panic purchases and perhaps some speculators planning to make quick profits in secondary markets—quickly depleted most of the channel’s inventory. With no excess capacity, we can expect a lag until those products are back on the shelves, which will probably be followed by more panic purchases and secondary spikes. Eventually, with so much forward buying, those supply chains will experience excess inventory.
“Interestingly, once consumers started their lockdowns, their demand for these commodities increased to supplement what they had previously used from supply chains serving the commercial market. For example, in addition to their use at home, consumers used toilet paper at offices, schools, restaurants, malls, etc. This has further strained consumer supply chains and will further delay the time it takes for manufacturers, distributors, wholesalers and retailers to replenish inventory to the new necessary levels.
“Because in several industries supply chains that serve the consumer and commercial markets are different (For instance, commercial toilet paper roles don’t fit residential toilet roll holders.), lockdowns have also created both shortages in consumer supply chains and surpluses in commercial ones. But simply shifting one to the other isn’t feasible, at least in the short term.”
Will the coronavirus change the study of supply chains?
“In supply chain risk management, planners start by identifying and assessing possible risks, which are classified according to their probability and anticipated impact. These are called foreseeable risks, and are managed proactively. Relatively likely risks should be mitigated by measures designed to lower their probability or impact before they happen. Because of limited resources, less likely risks are best managed by contingency measures, which are planned ahead but only triggered after the risk happens. Remaining risks are called residual or ‘unknown unknowns’ and can only be managed reactively. The only proactive measures for those are setting aside time, resources and flexibility to be used once the risks are known.
“When major unknown unknown risks were modeled in the past, they were usually assumed to happen one at a time and independent of each other. COVID-19 turned out to be an unprecedented set of unknown unknowns all happening in rapid succession, including: A highly contagious pandemic, which quickly traveled across continents, sharp economic downturn globally, a large portion of the population under lockdown, etc.
“In the future a global
pandemic of this magnitude will not only be a foreseeable event, but also will
likely change how we model unknown unknowns. And depending on how likely
similar pandemics are expected to be in the future, a whole slew of mitigation
and contingency measures are likely to be considered.”
How long can supply chains withstand shock?
“When either demand or supply
are affected, predicting how long supply chains can withstand a shock depends
on the severity of the shock, the length of the disruption, and specific
factors to each industry.
“What’s interesting about the
current situation is that both supply and demand are being
affected simultaneously. An important new factor determining the resiliency of
each supply chain will be the relative changes in their supply and demand.
“A slowdown in economic
activity may end up making it easier to restart some producers, in particularly
those who will be able to operate with low overhead and be able to scale as
demand picks up.”
“The research examined perceptions of behavioral ‘nudges’ like defaults,” Williams said.
Many decisions come with one option chosen by default, she explained. Think about how many businesses automatically sign up employees to contribute to a retirement fund (versus having them actively opt in). Or when a website makes you uncheck a box if you don’t want to subscribe to emails from that business.
People are much more likely to choose the default option rather than move away from it, regardless of which option is the default.
“But there has long been a debate among policymakers about whether the use of defaults should be disclosed, and, if it is, whether they will become less effective at encouraging good choices,” Williams said.
The research found that even when the intention behind a default is disclosed, the default is still influential.
“This suggests that policymakers and businesses can be transparent about their use of defaults without making them any less effective,” she said.
‘Better marketing for a better world’
The inaugural recipients of the AMA-EBSCO Annual Award for Responsible Research in Marketing were announced in February at the American Marketing Association’s Winter Academic Conference in San Diego, California.
Williams’ coauthors were Mary Steffel, of Northeastern University,
and Ruth Pogacar, of Cincinnati
Gwendolyn Y. Doss, EMBA 55, received the Dave Barclay Affirmative Action Award at the 34th Annual Black Engineer of the Year Awards.
Doss is a software engineer manager at the Boeing Co. The award recognizes efforts to promote affirmative action and diversity management in education, job promotion, small-business development and community activities.
“Gwendolyn Doss is a gifted, but more importantly, a giving leader,” Boeing’s Rob Adkisson said, introducing her at the ceremony in February in Washington, DC.
St. Louis students can see Boeing from their bus stops, said Adkisson, vice president of SSM engineering and division chief engineer.
“What they don’t see is a pathway through our doors. Gwen shines a light
on that path, guiding the underserved and underrepresented in our community.
Throughout her 25-year Boeing career, Gwen has been a tireless advocate,
volunteer and coach. Her passionate and unwavering leadership has made our community and our industry
Courage and determination
Doss’ acceptance speech was brief. “My mother would always tell me how smart
I was, and I think that went to my head,” she said, making the audience laugh.
“I know it inspired me. Her affirmation gave me the courage and
determination to go beyond high school.”
And go she did. She holds a bachelor’s degree in computer science
from Grambling State University and a master’s in computer resources and
information management from Webster University.
Doss’ journey has been difficult and at times. In September 2016, she
lost her daughter, her only child, in a car accident.
“That broke my heart in ways I could never imagine,” Doss said at the awards ceremony. Her daughter, Marquia Lewis, aspired to become an engineer—and did. Doss started a nonprofit foundation in her daughter’s name to provide scholarships to students who want to pursue higher education. “It’s my heart’s desire to inspire future engineers,” Doss said.
In addition her foundation work, Doss volunteers with Delta Sigma Theta
Inc., the Society of Women, the National
Society of Black Engineers, Boeing Women in Leadership, the Boeing St. Louis
Leadership Association and Boeing Believers in Christ.
The $2 trillion plan to prop up the US economy is expected to pass the House of Representatives on March 27. It’s intended to respond to the coronavirus pandemic and provide direct payments and jobless benefits for individuals, money for states and a huge bailout fund for businesses. Olin experts weigh in on whether it is sufficient as the economy reels.
Other economic steps ‘would be better’
“While much of the country—including President Trump—is looking forward to when this coronavirus crisis will end, I think it is important for everyone to realize that the coronavirus crisis has not really begun yet in the United States.
“The $2T package is likely to be a first step, especially since the federal government does not seem willing to implement the type of nationwide shelter in place order that would be needed for us to quickly contain the outbreak. The longer this goes on, the harder it will be for companies to keep employing its workforce, and the more lost economic value there will be.
Are we able to keep spending this type of money every two to three months? I am unsure about that.
“I also hope that it is well run. If the money does not get spent right, we may end up losing the jobs we are trying to save.
“I would propose some other economic steps that I think would be better. I would suspend rent, mortgage and loan payments through the national emergency. (By suspending them, I wouldn’t change the amount of money paid back, but effectively the national emergency would become a time when loans and housing assets would temporarily earn a zero rate of return.) This has been done in parts of Europe, so it is a doable thing to do.
“I do think actions giving households in need cash is valuable, although people probably need less cash if they do not have to pay their rent or loans, allowing us to stretch out the federal spending to get more bang for their buck. We would also have to help make sure that businesses do not go out of business, but by taking away rent and borrowing costs, that should help a lot of businesses get through their time being shuttered.”
“China’s economy is slated to slow from 6.1% growth to 2.4% growth, rather than contract, so the estimate of a 24% contraction in the economy seems extreme—unless we don’t take containment seriously. If we can contain it, $2 trillion seems excessive—it’s 10% of GDP, and greater than revenue from income tax last year. Having said that, if we are asking businesses to close, then we need to compensate them and their employees for the closure.
we should behave like venture capitalists and authorize money weekly or
bi-weekly, rather than committing to a package for a program whose duration and
severity is completely unknown — but forecastable if we behave like China and
“It is ridiculous for this to be a stimulus bill.
“You can’t stimulate an economy when there is no way for people to spend money.
Anne Marie Knott
“As Phil Dybvig [Boatmen’s Bancshares Professor of Banking and Finance] says, this is a recipe for inflation. Accordingly, we shouldn’t be writing checks to everyone, we should only be writing checks to people who are furloughed due to business closures.”
Anne Marie Knott, Robert and Barbara Frick Professor of Business, Olin Business School
Will people spend or save?
“Consumers with stable jobs will likely treat the direct payments from this bill somewhat similarly to how they treat tax refunds. Consumers frequently spend a chunk of tax refunds, but notably, they actually save a higher percentage of their tax refunds than they do of their standard income. In this time of uncertainty, these consumers are likely to save an even greater chunk of the direct payments from this bill than they do of typical tax refunds.
“But of course, consumers without stable employment will use these direct payments as a financial lifeline. They will likely need to spend the funds to cover the costs of necessities.”
There is no net stimulus, although there is a transfer of resources from taxpayers to those who receive the checks. The same applies to business bailouts, low-interest loans, etc. It’s a fact the we have a problem at the moment, and many of us are going to feel the effects of that, whether it be directly through being ill, or less directly by having to work less or differently. Checks from the government will help some of those who feel those effects, but at the expense of others. There is no overall economic benefit, although there might be political advantages.
“The only way for the government to stimulate the economy is by doing something that creates new economic value, or reduces wasted value, not just rearranging the value we already have.
“This is why the government’s attention should be solely directed towards funding serious attempts to develop vaccines, streamlining approval processes, developing ways to protect health care workers, expanding short term hospital capacity, … That is, attack the problem instead of engaging in pointless and ineffective attempts to ‘do something.'”
Glenn MacDonald, John M. Olin Distinguished Professor of Economics and Strategy
As long as the health crisis is ongoing
don’t think any amount of stimulus payment will make households spend more as
long as the health crisis is ongoing. The same goes for business investment.
the other hand, the stimulus payments to households will enable them to not
fall behind on payment of fixed obligations and hence aid in quick recovery
once the health crisis passes. The extension of unemployment benefits will
achieve the same objective.
“As far as the payment to business goes, while the stimulus is unlikely to encourage business investment, it will avoid business failure and bankruptcy.
“As far as layoffs go, I am not sure if the stimulus has some special provision encouraging firms to avoid or minimize layoffs. Based on the experience in Germany during the great recession, the most effective provision is for the government to subsidize some part of employee wages. Stipulating conditions to business aid such as no layoffs may not work as that will only make firms reluctant to avail of government aid.”
Radhakrishnan Gopalan, professor of finance and academic director of the IIT-Bombay-Washington University Executive MBA Program
Pandemic Unemployment Insurance
“The most interesting part of this
bill for me is that it offers 26 weeks of unemployment payments to self-employed
workers and contract workers (e.g., Uber drivers), through a new program
called Pandemic Unemployment Insurance.
“Previously, unemployment payments
were only available to workers who received wages that are reported on a W-2. It
is not entirely clear yet how the government will determine which
self-employed workers and contract workers are eligible for these payments.
“I am very interested to see if unemployment assistance for self-employed workers and contract workers becomes a permanent feature of our social safety net.
“There has been a
growing discussion about how the emerging class of gig economy workers, like
Uber drivers, should be viewed from a legal perspective. Are they employees? Contractors?
previously fought hard to keep their drivers classified as contractors, as
this allows Uber to avoid paying certain benefits. But Uber lobbied hard for this new Pandemic Unemployment Assistance program
for their drivers.
“Now that the government
is using public funds to support Uber drivers (and hence making it more attractive
to be an Uber driver now and in the future), it seems reasonable to predict
that the government might ask Uber to, in turn, do more for its drivers.
Especially if unemployment insurance for gig workers becomes a permanent
feature of our social safety net.”
“The $75 billion industry-specific loans included in the stimulus package is welcome news for the intended industries: hotels, restaurants and airlines, as is the $17 billion for Boeing and defense-related companies. The loans will allow companies in those industries to meet their short-term obligations and cash flow needs, and prevent them from aggressively cutting capacity and laying off employees.
“Not only will it help the industries through the next few months of nearly stopped economy, it might also help ramp up resources in the early part of the recovery when the virus spread slows and people return to work. Companies in these industries will need working capital to bring up their capacity to support normal demand.
“However, I worry that the package does not go far enough to drive a fast recovery. While the stimulus package seems to reflect, always on the lower side, estimated impact in any one of the intended-to-protect sectors, it fails to understand the disaster propagation across sectors and the corporate-inertia behavior in slowing down or ramping up in the face of unprecedented uncertainty. When demand for airline services suddenly dropped 60% to 80%, the airlines were not able to immediately adjust capacity (i.e., number of flights). They are still carrying more aircraft contracts, employees and other supporting contract services than what will be needed to meet the projected demand for the next six to nine months, or even a year.
“Inertia in decisions is common in situations that are hard to forecast and requires high working capital needs not supported by revenue streams. This is where the stimulus plan loans will be most helpful.
“As airlines exhibit inertia in adjusting down capacity, they will exhibit similar inertia in slowly adjusting their capacity up. Their future planning will always be more pessimistic in their plans for planes and other supporting supply chain services.
“This will affect all suppliers to the airline industry but in particular our major plane manufacturer, Boeing. It will be affected not only in terms of delayed or canceled plane purchases this year, but less aggressive plane purchases in the next four to five years. Future corporate resilience on the part of the airlines will require not forgetting the ‘black swan’ event you experienced vividly.
“Finally, Boeing’s market value has already been hit hard by the pandemic crisis. On the commercial plane side, 737 MAX orders are already in question, and there will be canceled orders and fewer future orders by a hammered airline industry.
“The defense side will inevitably be hit, too, as the government puts its emergency resources into public health, health care management, fighting market stagnation and unemployment, and might be less inclined to accelerate defense programs or purchases of the current weapon systems.
“In a serious interconnected supplier system in the aerospace and defense industries, the pandemic disaster has just started and its magnitude might not be fully accounted in this cash flow maintenance and short-term continuity risk management package.”
Panos Kouvelis, director of the Boeing Center for Supply Chain Innovation, Olin Business School
WashU Senior News Director Sara Savat contributed to this report.
Varsity Tutors, founded by Olin
alumnus and CEO Chuck Cohn, launched free online classes Monday for students in
kindergarten through 12th grade.
“As schools closed this week in
response to COVID-19, the speed of change being forced upon the lives of
parents has many scrambling just to keep their kids occupied—hopefully with
something constructive,” Cohn said in a
letter on the company’s site announcing the launch of Virtual School Day.
“We believe parents shouldn’t have
to carry this burden alone,” Cohn said.
Cohn, BSBA ’08 and a 2017
Emerging Leader Honoree, started the company on WashU’s campus. It’s now the nation’s leading provider of one-on-one instruction and
headquartered in Clayton.
The platform includes math, reading,
writing, literature and science courses for every grade level, expert-guided
study hall sessions and age-appropriate enrichment units, such as “the science
of pandemics” for middle schoolers, the newspaper reported.
Cohn said Varsity Tutors won’t profit from the free classes, but he thinks the coronavirus crisis will make online learning more mainstream. “People being open to online learning is a good long-term trend, and that’s why we felt obligated to help right now.”