OZGE TURUT EDUCATION RESEARCH

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1 OZGE TURUT Morgan Hall 162 Boston, MA Home: (857) Office: (617) Fax: (617) EDUCATION, Boston, MA Doctor of Business Administration Concentration in Marketing, 2006 (expected) Carnegie Mellon University, GSIA, Pittsburgh, PA MBA, May 1999 Bogazici University, Istanbul, Turkey B.Sc. in Electrical and Electronics Engineering, July 1997 RESEARCH Dissertation (paper attached) When Should a Firm Go Radical? Signaling Market Potential Through Innovation Strategy Dissertation Committee: Elie Ofek, Rajiv Lal, George Baker, David Godes Unlike the market potential for incremental innovations, the market potential for radical innovations is typically highly uncertain. In this dissertation I model an incumbent firm s decision to pursue radical or incremental innovation when facing a rival entrant. Each firm receives a private signal regarding the market potential for radical innovation (high or low), and the reliability of these signals can differ across firms. The analysis shows that when the entrant's signal is relatively unreliable, the incumbent will pursue incremental innovation even though it receives a high private signal; it does so to avoid validating the high market potential for radical innovation to the entrant. However, when the incumbent's signal is relatively unreliable, the incumbent will pursue radical innovation even when it receives a low private signal; this reduces the incentives of the entrant to invest in radical innovation because of the fear of having to share the future market. The framework is extended to incorporate the possibility that firms' actions are not observed but they need to decide whether to pre-announce their innovation strategies. A firm will pre-announce that it is pursuing radical innovation only if its signal quality is lower than the rival's. However, when a firm is quite certain about its market potential assessment, it prefers to conceal its new product plans. Research Under Review (paper attached) To Innovate or Imitate? R&D Decisions and The Role of Market Research, with Elie Ofek, being revised for second round review, Journal of Marketing Research A firm contemplating market entry can direct R&D resources to the imitation of currently available products or to innovation with the hopes of unseating the erstwhile incumbent. In response, the incumbent firm can pursue innovation efforts. We develop a model to analyze the conditions for the entrant to select

2 an innovation vs. imitation strategy. We first show that, depending on the entrant's choice of product development strategy, firms' R&D levels exhibit strikingly different patterns as a function of profit levels. This results in a nonlinear (inverted-u) relationship between the likelihood of sustained incumbent dominance and increasing profit levels. We also allow for the possibility that aside from technology development uncertainty firms are uncertain about the commercial rewards to new product introductions. We show that the decision to conduct market research is closely intertwined with the innovation vs. imitation dilemma. We characterize equilibria where the type of entry strategy pursued allows the incumbent to free-ride on the entrant's market research efforts, and other equilibria where the entrant selects a particular product development strategy to manipulate incumbent beliefs. There also exist conditions under which the incumbent is induced to undertake market research to affect the entrant's R&D decisions. The analysis sheds important light on the evolution trajectory of many high-tech markets and offers valuable guidance for managing the R&D-Marketing interface. Other Work In Progress Did The Internet Kill The Retail Travel Agency? with Rajiv Lal (Analysis completed; Manuscript in preparation; Target journal: Marketing Science) Before the Internet emerged as an alternative channel for selling airline tickets, airlines paid a flat commission to retail travel agents for each ticket sold. These commissions constituted over 50% of retail travel agents revenues and were the only revenue source from ticket sales. Retail travel agents did not charge service fees. By 1995 airlines started using the Internet heavily as a cheaper alternative distribution channel and began paying travel agents smaller override commissions (a bonus paid by the airline when the agency achieved a certain sales quota) instead of flat commissions. These changes have had two dramatic effects on retail travel agencies. First, agents started charging their customers a service fee. Second, while some travel agents sales volumes increased, other agents experienced a significant decline in sales (with some agencies exiting the business). We investigate the Internet s effect on retail travel agencies using a game-theoretic duopoly model with heterogeneous consumers (a leisure segment and a corporate segment). We first examine the pre-internet case, and show that it is profitable for the agents not to charge any service fee. Our results also reveal that the two agents will endogenously provide different levels of service quality. Interestingly, as the commission rate increases, the gap between the agents service qualities increases. However, in the post-internet era our analysis reveals that both agents do charge service fees. Furthermore, they provide a lower quality of service to the leisure segment; the leisure segment is thus worse off post-internet than pre-internet. By contrast, the corporate segment receives higher service quality post-internet. In effect, the agents are able to price discriminate between the customer segments by using service fees. Somewhat counter-intuitively, we show that if the price of the airline ticket is high enough, then the corporate segment is better off post-internet than pre-internet. Lastly, we find that while sales and profits of the agent that provides low service quality decrease in the Internet era, the sales and profits of the agent that provides higher quality of service can actually increase with the advent of the Internet. The intuition behind this result is that the high service quality agent can become a monopoly in the corporate segment. Bricks and Clicks: Managing In-Store Product Assortment and Online Returns, with Elie Ofek and Miklos Sarvary (Analysis ongoing) By operating an online arm in addition to physical stores, retailers are able to appeal to customers that value the conveniences of online shopping. However, online shopping increases the likelihood of mismatch due to the inability to physically inspect products. Returning mismatched merchandise is a costly process for firms and consumers. Retailers operating dual channels ( Bricks and Clicks ) need to decide how much in-store product assortment should be provided, to attract customers to the stores, and how costly to make product returns, which allays the risks of buying online. In this paper, we study this multi-channel problem and the implications for pricing strategy. We compare our findings to the benchmark case of physical stores only. 2

3 RESEARCH INTERESTS Innovation Strategies under Market Uncertainty Marketing-R&D interface Asymmetric Information Models Impact of the Internet on Retail Channel Competition TEACHING INTERESTS Marketing Strategy High-Tech Marketing New Product Management Internet Marketing and E-commerce CONFERENCE PRESENTATIONS To Innovate or Imitate? R&D Decisions and the Role of Market Research, Marketing Science Conference, Maryland, June 2003 To Innovate or Imitate? R&D Decisions and the Role of Market Research, EURO/INFORMS, Istanbul, Turkey, July 2003 To Innovate or Imitate? R&D Decisions and the Role of Market Research, LBS Trans-Atlantic Doctoral Conference, London, England, May 2004 Did The Internet Kill The Retail Travel Agency? Marketing Science Conference, Rotterdam, Netherlands, June 2004 When Should a Firm Go Radical? Signaling Market Potential Through Innovation Strategy, Marketing Science Conference, Atlanta, June 2005 ACADEMIC HONORS AND AWARDS Full scholarship at, AMA-Sheth Doctoral Consortium Fellow, 2004 Full MBA scholarship at Carnegie Mellon by the Turkish Education Foundation, Dean s List, Bogazici University PROFESSIONAL EXPERIENCE Senior Strategic Marketing Engineer, Lattice Semiconductor Corporation, San Jose, CA, June July

4 Marketing Engineer, Cypress Semiconductor Corporation, San Jose, CA, June 1999 June 2000 SELECTED GRADUATE COURSEWORK Economic Theory Micro Economic Theory I, Drew Fudenberg and Jerry Green, Harvard University Micro Economic Theory II, Laurent Calvet and Michael Schwarz, Harvard University Advanced Game Theory, Drew Fudenberg, Harvard University Contract Theory, Oliver Hart, Harvard University Industrial Organization, Glenn Ellison, MIT Passed Microeconomics Ph.D. general exam of Harvard University (2002) Econometrics Probability and Statistics for Economists, Samuel Thompson, Harvard University Applied Econometrics I, Jinyang Hohn, Harvard University Applied Econometrics II, Dale Jorgenson, Harvard University Analysis of Cross Sectional and Panel Data, Marcelo Moreira, Harvard University Marketing and Organizations Marketing Management, Rohit Deshpande, HBS Marketing Models, Rajiv Lal, HBS Consumer Behavior, John Gourville, HBS Knowledge Frontiers, Jerry Zaltman, HBS Seminar on Empirical Modeling in Marketing, Pradeep Chintagunta, HBS Seminar on Choice Models, Sunil Gupta, HBS Management and Markets, Jay Lorsch, Paul Lawrence, George Baker, Josh Lerner, HBS 4

5 REFERENCES Rajiv Lal Elie Ofek Stanley Roth, Sr. Professor of Retailing Associate Professor of Bus. Admin. Morgan Hall 161 Morgan Hall 195 Boston, MA Boston, MA Phone: (617) Phone: (617) Fax: (617) Fax: (617) George Baker David B. Godes Herman C. Krannert Professor of Bus. Admin. Associate Professor of Bus. Admin. Baker Library 283 Morgan Hall 165 Boston, MA Boston, MA Phone: (617) Phone: (617) Fax: (617) Fax: (617) Miklos Sarvary Associate Professor of Marketing INSEAD Boulevard de Constance, 77305, Fontainebleau, France Phone: Fax : /01 5