De Liu, Xianjun Geng, & Andrew B. Whinston
Executive Summary
A consumer contest is a sales promotion technique that requires participants to apply certain skills as they compete for prizes or awards. For example, some wireless carriers promote their mobile phone–based trivia games by offering monthly prizes to top-performing players. Consumer contests are widely used in promoting mobile and online games and Web sites, as well as traditional goods, such as nutritional products for bodybuilding. Consumer contests differ from chance-based promotions (e.g., sweepstakes, games of chance) in that (1) skills play a significant role in consumer contests and (2) winners in consumer contests are determined by rank order of performance rather than by random draws. This research uses game-theoretical analysis to provide insights into design issues in consumer contests, including prize structure, segmentation, and handicapping. First, to maximize total revenue, marketers should use winner-take-all designs for consumer contests with skill distributions of increasing hazard rate. When the increasing hazard rate is violated (e.g., if consumers clearly stratify in skills levels), marketers may be better off offering multiple prizes. A winner-take-all design is more favorable in large contests because low-skilled contestants and the distribution of their skills matter less to the marketers' total revenue. If the objective is instead to maximize the number of participants, many small prizes are often better. Second, in general, increasing contestant population is beneficial to marketers, but the marginal benefit of adding contestants is diminished because of the negative effect on other contestants' motivation to compete. Third, consumers are more motivated to compete when the skill dispersion is smaller. This implies that reducing skill dispersion, while maintaining skill-level differentiation, enhances competitiveness and, thus, revenues of consumer contests. Several measures may help marketers reduce skill dispersion. Marketers may segment consumers according to skill levels (e.g., professionals and amateurs) so that skill dispersion is smaller within each segment. Marketers may also exclude consumers with exceptionally high or low skills. Such measures, when properly applied, can outweigh the negative impact of fewer contestants (per contest) on revenue. A third measure is to adopt tasks and performance evaluation schemes that give lower weights to skills, which essentially handicaps high-skilled contestants.
Biography
De Liu is Assistant Professor in Information Systems at the University of Kentucky. He received his Bachelor of Engineering and Master of Economics and Management from Tsinghua University, Beijing, and his PhD in Information Systems from the University of Texas at Austin. His research interests include consumer contests, keyword advertising auctions, and the interaction of information technology and social networks. His recent work on keyword advertising auctions, "Designing Online Auctions with Past Performance Information," appeared in Decision Support Systems.
Xianjun Geng is Assistant Professor in Information Systems at the University of Washington. He received his Bachelor of Engineering, Bachelor of Economics, and Master of Engineering from Tsinghua University, Beijing, and his PhD in Information Systems from the University of Texas at Austin. His research interests include the economics of e-business, strategic information distortion and trust, and new information technology and systems. His recent work has appeared or is forthcoming in academic journals, including Journal of Marketing, Marketing Science, Management Science, MIS Quarterly, and Journal of Management Information Systems. At University of Washington, he has won Lex N. Gamble Family Award for Excellence in the Field of E-Commerce (2005) for his research and Undergraduate Instructor of the Quarter (fall 2005) for his teaching.
Andrew B. Whinston is Hugh Cullen Chair Professor in the Information, Risk, and Operations Management Department in the McCombs School of Business at the University of Texas at Austin. He is also the director at the Center for Research in Electronic Commerce. His recent research has appeared or is forthcoming in Journal of Marketing, Marketing Science, Management Science, and Journal of Economic Theory. In total, he has published more than 300 articles in the major economic and management journals and has authored 25 books. In 2005, he received the Leo Award from the Association for Information Systems for his long-term research contribution to the information system field. He cofounded several companies, including Combinatorics and Micro Data Base System and served as a director of Code Toys, an online multiplayer game company.
Journal of Marketing, Vol. 71, No. 4, October 2007
View Table of Contents