The series "Inventing the Edge" explores the research of 10 celebrated professors and its impact on business knowledge.
Charles Jordan 1911 TU’12 Professor of Marketing
It takes some academics years to find their individual approach to research. Not Kusum Ailawadi. From her very first paper, “Retail Power: Monster or Mouse,” she has assumed the perspective of the skeptic. At the time, the common refrain from practitioners and academics was that retailers wielded enormous power over manufacturers, and could bend purchase terms to their whim. Ailawadi and her Ph.D. thesis advisor, Paul Farris, argued that plenty of forces constrained retailers’ power, and they supported their viewpoint with trends in 20 years of margins, costs, and financial returns.
“I thrive on putting conventional wisdom to the empirical test,” Ailawadi says. “If it’s true, great. If not, then it’s important we know that.”
The revenue premium a brand generates compared with that of a private label product is a simple, objective, and managerially useful product-market measure of brand equity.
The method has proven fruitful. Not only has Ailawadi published dozens of highly-cited papers, she has won or been the finalist for many awards for her contributions to the theory and practice of marketing, and for long-term impact on the field.
After shining a light on retail power, Ailawadi trained her gaze on each of the forces that constrain it, starting with promotions. The de-facto belief was that promotions were a necessary evil for manufacturers. In a paper co-written with her Tuck colleague Scott Neslin, Ailawadi quantified the extent to which promotions cause consumers to stockpile products at home and consume them faster. To arrive at that conclusion, they built a model based on purchase data alone that allowed them to establish the chain of causation from promotion to stockpiling to consumption—an influential model that many scholars have used and built upon. She has since written several other papers quantifying how effective promotions are for manufacturers and for retailers.
Ailawadi is also one of the foremost marketing experts on private labels—think Walmart’s Equate, or Nature’s Place from Hannaford’s. Just as observers decried the power of retailers, they also declared brand names dead in the face of a private label onslaught. Ailawadi fact-checked it and documented the limits of private labels. While retailers generally earn higher percent margins on private labels than on brand names, their dollar margins on private labels are often lower. “Ultimately, it’s revenue and profit dollars that matter,” she says, “not percentages.”
Ailawadi is most widely cited for her work on the tug between national brands and private labels, and more generally on brand equity. As a concept, brand equity is important, since it gets at the power of a brand to influence consumer response. But it is hard to measure because it relies on comparing a brand’s actual performance to that of an identical product without the brand name. Ailawadi’s work on private labels gave her an idea for a way around this. Along with her co-authors, she proposed a measure for brand equity called “revenue premium,” which combines the extra market share and price premium a brand garners over similar private labels. “It’s a simple but defensible measure,” Ailawadi says, “that gave scholars looking to incorporate brand equity in their models a practical solution.” Her most recent work on brand equity examines how well measures based in the hearts and minds of consumers translate into sales-based measures in the marketplace. She is proud that this research has been honored for its contributions to both marketing theory and marketing practice.
Kusum Ailawadi, Donald Lehmann, and Scott Neslin. “Revenue Premium as an Outcome Measure of Brand Equity.” Journal of Marketing vol. 67, no. 4, 2003, pp. 1-17.