Spring 2011 Seminars

Center for Complexity in Business Seminar Speaker

Friday, March 18 ~ 1:30 p.m.1505 Van Munching Hall

Damon RagusaPresident and CEOThinkVine

Complexity in Practice: Utilizing an Agent-based Modeling Framework to Defragment the Media Landscape

Abstract:  Over the past 10 years, agent-based models have merely scratched the service to becoming an accepted technique in approaching and solving business problems. With some early success in the areas of distribution and supply chain optimization, agent-based models have yet to catch on as they have within other areas of scientific inquiry. By every defensible definition, consumer markets are complex adaptive systems. So why haven’t techniques from the complexity sciences become more pervasive within the marketing sciences? Where do opportunities lie to advance new approaches? ThinkVine CEO, Damon Ragusa, will answer these questions as well as describe the success ThinkVine is having in applying an agent-based modeling framework to help companies manage the increasingly fragmented media world.ThinkVine has been implementing approaches such as neural networks, genetic algorithms and agent-based modeling systems for the past 10 years into the marketing sciences. Damon will share experiences from his 20+ year career in marketing science and describe how ThinkVine has developed an innovative approach to look at marketing optimization problems, how it has managed to sell a new approach into top companies against well entrenched competitors and where it believes agent-based systems will go into the future of marketing analytics.

Department of Marketing Seminar Speaker

Friday, March 18 ~ 10:30 a.m.1335 Van Munching Hall

Preyas DesaiSpencer R. Hassell Professor of Business AdministrationFuqua School of BusinessDuke University

The Strategic Role of Exchange Programs

Abstract:  Over the last several years, a relatively new form of promotion is being adopted by retailers: the exchange program. In these programs, consumers turn in an old item and get store credit or a gift card toward another purchase in the store. To analyze the impact of exchange programs in a competitive setting, we assume that two firms first decide its policy on whether or not to offer an exchange program. If a firm does not offer an exchange program, it simply chooses a retail price for the new good. On the other hand, if it offers an exchange program, it chooses not only the retail price for the new good but also the price compensation for the exchange. In terms of consumers, based on their valuations of the old and new goods, there are two types of consumers: low valuation and high valuation. Each consumer has an old good that can potentially be used in an exchange program. Based on the prices, consumers decide whether to purchase and, if it is offered, whether to participate in the exchange program. In deciding whether to participate in the exchange program, consumers evaluate the costs and benefits of turning in the old product and getting a new one. For the new product, consumers consider the quality and the price. On the other hand, consistent with behavioral decision theory, we assume that consumers view their old product as a part of their endowment. As a result, consumers incur a loss that is equivalent to their mental book value when they turn in their old product. Furthermore, even though consumers are compensated for their old product, loss aversion suggests that, holding dollar amounts constant, consumers feel a greater pain from relinquishing their good than the benefit of receiving payment for the exchange. We find that whether the retailers offer an exchange program depends on the proportion of low valuation consumers in the market and their valuations of the old and new goods. The equilibrium outcome can be both offering or not offering exchange, neither offering exchange as a Prisoners' Dilemma, and coordination equilibria.