Trailer I

In the second part of this book, we argue that brands offer new, compelling ways of thinking about managing organizations. We argued in Chapter 2 that brands are often understood as new management tools or corporate catalysts that restructure organizations. While we do not always share the optimism of some of our colleagues that brands will make organizations more effective, we want to explore the implications and unintended consequences for management practice and theory.

This chapter draws on the notion of identity and argues that brands are identities-in-action that allow stability to be maintained while simultaneously enabling change. Chapter 5, ‘Culture’, takes as its point of departure the idea that brands are enacted in the behaviour of organizational members. The brand becomes the ‘way we do things around here’; in short, an organization's culture and its brand become intrinsically related to each other. Finally, Chapter 6 explores the way external, open-source communities crystallize around brands and co-create new ideas, services and products. In this view, the brand becomes the medium that connects internal cultures and external communities.

Identity, culture and innovation are but three concepts that are transformed through branding. Whether these transformations create more effective or fairer organizations I cannot say a priori from the comfort of my office chair, but it seems tempting for many writers to understand brands as the latest tool slotting neatly into the manager's repertoire, improving efficiency and effectiveness. Brands could have ambiguous effects on management practice, however.

Trailer II

Thus far, we have focused on how brands transform management and organizations. Our pitch was that a brand perspective would offer a new conceptual map for thinking about key organizational phenomena, including identity and change, internal and external engagement, and innovation. We're also inclined to believe that such a new map might serve well as a springboard for organizational action.

In this third and final part of the book, we shift the focus from management, organization and production to something that has become second nature to us: consuming. In a nutshell, we'll argue that brands have brought about a new way of living life: the ubiquitous, pervasive yet little analysed notion of lifestyle encapsulates brands' power to quite literally stylize life. Brands, we shall see, provide the raw material that we use to build our individual lifestyles.

The troika of politics, ethics and aesthetics offers itself as a promising analytical framework within which to dissect the notion of lifestyle. Since we will at least partly fly above the clouds, we'll need reliable conceptual instruments to guide our flight. The concept of politics (Chapter 7) directs our attention towards a (short) genealogy of lifestyle, and analyses its power effects. Chapter 8 raises the issue of the ethicality of brands, and investigates whether brands are part of the problem, or the solution, for living a good life.

Playing with LEGO

In 1998, LEGO released a new product called LEGO Mindstorm. The heart of it was a yellow microchip that made all sorts of movements and behaviours possible. The product became an instant hit – within three months, 80,000 sets had changed hands. There was just one small problem: the buyers were not children but adults. And that was despite the fact that LEGO marketed the product to children, not adults. Worse, these adults did not consume the product as the LEGO Masterminds had anticipated. Within weeks, hackers from all over the world had cracked the code of the new toy and created all sorts of new applications: Mindstorm users built everything from soda machines to blackjack dealers. The new programs spread quickly over the World Wide Web and were far more sophisticated than the ones LEGO had developed. More than forty guide books advised on how to get maximum fun out of your 727-part LEGO Mindstorm set.

Yun Mi Antorini, back then Senior Director of Global Brand Strategy at the LEGO Group, recalls how that storm took LEGO by surprise. The people who bought and changed the product did not appear in LEGO's marketing plan at all. Consumers were meant to consume, not produce their own versions. They were not meant to challenge LEGO's in-house product developers. LEGO was confused. It did nothing for a year. Then it decided to listen and try to understand what those users were actually doing with the LEGO brand.

Introduction

Today researchers use experimental auctions to examine incentive and contextual questions that arise in eliciting values through stated preferences methods. The initial work developing the experimental valuation method was pioneered decades ago by researchers interested in estimating the demand for public goods, e.g., Bohm (1972), Bennett (1983), Knetsch and Sinden (1984), and Cummings et al. (1986). Most experimental auctions follow a process similar to that described by physicist James Conant (1951; p. 56): “[a]bout three centuries ago the trial-and-error experimentation of the artisan was wedded to the deductive method of reasoning of the mathematician; the progeny of this union have returned after many generations to assist the ‘sooty empiric’ in his labors.” By combining pattern recognition with theoretical insight, the “sooty empiric” uses experimental auctions to help clarify how incentives and context affect how people state their preferences for real and hypothetical goods and services.

This book has assimilated the current state of knowledge on the use of experimental auctions to elicit values for goods. Our goal is to provide a resource to practitioners interesting in designing and using experimental auctions in applied economic, psychology, and marketing research. We have covered the basics on value and auction theory to provide the analytical background for the experiments. We then addressed specific issues related to design and implementation of experimental auctions. In many cases, we offered specific advice.

Introduction

We now present nine case studies to illustrate experimental auctions at work in practical applications. This chapter presents case studies showing how we have used experimental auction methods to estimate the value of new or non-market goods and how those values are used in welfare analysis and to estimate the success of new products. These case studies are grouped into three broad categories: informing policy, marketing, and valuing controversial goods. In the policy case studies, we consider experimental auctions designed to address a grading system for beef tenderness, behavior toward food safety, and the acceptable tolerance levels for genetically modified food. For the marketing case studies, we present auctions designed to evaluate the market share for branded beef products, value characteristics of pork, and value financial records. The last set of case studies focus on controversial goods, where we estimated demand for genetically modified food, the impact of information on preferences for irradiated foods, and the demand for products of ambiguous quality like fresh meat produced with growth hormones.

Informing Policy I: beef tenderness grading system

Since the 1900s, the United States federal government has set and maintained grades and standards for many agricultural products. In theory, grades and standards improve market efficiency by reducing problems associated with information asymmetry, that is, consumers and producers know the type/quality of the goods they are buying and selling. Federal grading of agricultural products was authorized by the US Congress through the Agricultural Marketing Act of 1946.

Introduction

Results from experimental auctions frequently generate as many questions as answers about bidding behavior and auction design. Creating an auction that balances experimental control and real-world context can raise fundamental questions about how experience with a good and the market affects bidding, whether preferences are fixed or fungible with different market interaction, how incentive structures can affect bidding behavior, and how hypothetical payments affect bidding behavior. This chapter reports on some of our own work to explore questions of auction design; queries triggered by attempts to value new food products and other basic goods. We focus on eight case studies related to auction design: preference learning, auction institution and the willingness to pay/willingness to accept gap, second price auction tournaments, fixed or fungible preference, gift exchange, calibration of real and hypothetical bidding, and bidding behavior in consequential auctions.

Preference learning

Evidence from experimental auctions suggests the average person will pay a price premium for many new products. But some observers have pointed out that this premium frequently exceeds expectations of what they think people would actually pay in a real retail market. In the case of food safety, for instance, the average person was willing to pay a one-time $0.70 per meal price premium to reduce the health risk from food-borne pathogens – a premium that some observers familiar with the market for safer food believe to be unduly high (Hayes et al., 1995).

Introduction

Auctions have been used for centuries as a price-discovery mechanism (Lucking-Reiley, 2000). The theoretical study of auctions, however, is a relatively recent phenomenon. Starting with the pioneering work of William Vickrey in 1961, economists have developed a rich literature devoted to auction theory which is astounding in its results such as the revenue equivalence theorem and in its growing complexity. In addition to inventing and studying the properties of alternative auction mechanisms, theorists have addressed issues related to how bidding behavior is affected by numbers of bidders, information, value uncertainty, risk preferences, violations of expected utility theory, value interdependence, asymmetry, and multiple-unit demand. Good reference books and papers include: Klemperer (1999, 2004), Krishna (2002), Milgrom (2004), and McAfee and McMillan (1987). Such texts focus primarily on developing and espousing particular theoretical properties of auctions, with attention devoted to designing auctions for generating maximum possible revenue or efficiency (e.g., the ability of an auction to allocate units to the person or people with the highest value(s) for the auctioned good(s)). Students of experimental auctions should not by-pass this literature as it is important to understand such topics as revenue equivalence and efficiency.

Our book purposefully restricts the theoretical treatment of auctions to the question of incentive compatibility. An auction is said to be incentive compatible when it induces each bidder to submit a bid that sincerely reflects his or her value for the good.

Introduction

In this chapter, we address some broad issues worth considering before starting off on the path of choosing specific auction parameters. Perhaps the most important initial step in any project is to define the study objectives. What are the goals of the analysis? What are the testable hypotheses? Who is the intended audience? Answering these questions will necessarily dictate many of the resulting design choices. A study that aims to test a particular behavioral or economic theory might require a significantly different design than one that aims to estimate the welfare effects of a new technology or to inform new product design. For example, a common complaint of experimental studies is that students are frequently used as subjects. The veracity of this criticism, however, depends on the nature and type of study. A theory is a generalization that should hold for everyone, including students. As stated by Noussair, Plott, and Riezman (1995, p. 462):