Based on research by Jing Zhou

• Employee creativity is a central — and often overlooked — component of an organization’s success.
• Employee frustration can be channeled into creative problem solving and can provide the impetus for imaginative change under the right leadership.
• Supervisors can foster creativity by giving employees more freedom and refraining from closely monitoring them.

The top brass isn’t always the source for innovative business solutions — in fact, it’s more often the rank and file. But while organizations like to tout the importance of employee creativity in their mission statements, in reality they often ignore it. Sometimes they actively sabotage it.

Consider the department store clerk who knows her customers by name and is familiar with her merchandise. By pairing outfits from the junior and children’s departments for her petite customers, or suggesting staples from the men’s section for a teenager starting his first office job, she can help customers get the look they want — and cultivate repeat business.

On the other hand, if managers reprimand her for stepping outside corporate conventions, she may shut down. She’ll do the bare minimum to avoid criticism. Ultimately, the whole company suffers, not just the employee.

Workers need to see from a fresh perspective in order to meld unrelated products, processes and materials into something new and better, according to Rice Business Professor Jing Zhou. Importantly, workplace creativity doesn’t necessarily mean doing a job in a way it has never been done before. More often, it’s a matter of mixing previously unrelated products or adapting methods used in one kind of task to do another.

In most previous research, scholars have focused on the personal factors that determine imagination and originality. But the pivotal question of employee creativity in workplaces has only been taken seriously in the past decade or so. Researchers now are working to catch up, investigating how to encourage creativity among employees — and why that’s often so hard to do.

There’s a fundamental paradox in this kind of research. On the one hand, organizations depend on standardized practices and routines to ensure efficient operations. On the other, these hidebound systems have the unintended consequence of stunting innovation among workers. The employees become bored and restless.

In a recent paper, Zhou shows that this frustration can actually be tapped as a resource. Handled properly, disgruntled employees can become creative problem solvers. If an organization’s leader is attuned enough to her employee’s dark mood, she can actually help direct that dissatisfaction towards solutions for improving the workplace.

Past research has shown that an unhappy employee tends to respond in several ways. He can quit. He can be loyal, but miserable. Or he can keep his job, but do it badly. Zhou suggests that there is one more alternative: he can turn that dissatisfaction into innovation.

Analyzing a sample of helicopter manufacturing employees, Zhou discovered that employees who reported the strongest negative moods also demonstrated the highest levels of creativity. The workers who were most aware of their own emotions were best able to channel their bad moods into creativity.

If they find themselves in companies that don’t encourage creativity, however, these same employees often simply opt out, expressing their unhappiness through slacking at work. This is a teachable moment for many companies, where supervisors need to recognize and gain skill in reacting to such situations. Especially during tough times, such as financial or organizational crises, employees need the flexibility to respond creatively. Hard times like these, however, are exactly when employers are more likely to crack down and discourage creative thought.

That’s simply self-defeating, Zhou argues. To foster creativity, a leader should instead empower employees by offering developmental feedback and giving them the freedom to deal with hardships in their own way. In fact, managers sometimes manage best by going away. A lack of close supervision, Zhou found, is an important ingredient in worker creativity. Employees who feel they’re being watched and controlled may be afraid to explore new ideas.

Developmental feedback also makes a difference. Giving specific input about performance along with personalized encouragement, Zhou found, helps build a culture of creativity.

Business leaders can empower employees’ creative endeavors in several ways. Managers can express confidence in workers’ abilities, emphasize the importance of their work, and involve them in decision making. Finally, they can reduce or remove the bureaucratic constraints that limit their ability to innovate. Even employees who seem risk-averse often move towards more creative behaviors when they develop real trust in a supervisor.

Still, while employee creativity is a key part of business success, many supervisors actively discourage it. Others simply fail to promote innovative thinking. Often, managers view the disruption of standard operating procedures as a threat. To be fair, it’s not always in the firm’s best interest to let all employees channel their inner Isadora Duncans. No one wants a switch operator in a nuclear power plant to direct her creative vision towards altering safety procedures.

Overall, though, employees benefit a company most when they face few bureaucratic hurdles to finding creative solutions to real workplace problems — and when their supervisors understand and encourage that impulse. It takes a nuanced understanding of where innovation and improvisation can help and where it’s less useful, such as in a nuclear power plant. After that, Zhou suggests, managers need to overcome their own anxieties about innovation and learn the value of spotting and encouraging creativity in others.

Jing Zhou is the Mary Gibbs Jones Professor of Management and Psychology in Organizational Behavior at the Jones Graduate School of Business of Rice University. 

To learn more see:

Anderson, N., Potocnik, K., & Zhou, J. (2014) Innovation and Creativity in Organizations: A State of the Science Review, Prospective Commentary and Guiding Framework. Journal of Management, 40(5), 1297-1333.

George, J. M., & Zhou, J. (2002). Understanding when bad moods foster creativity and good ones don’t: The role of context and clarity of feelings. Journal of Applied Psychology, 87(4), 687-697.

Gong, Y., Zhou, J., & Chang, S. (2013). Core Knowledge, Employee Creativity and Firm Performance: The Moderating Role of Riskiness Orientation, Firm Size and Realized Absorptive Capacity. Personnel Psychology, 66(2), 443–482.

Shin, S. J., &  Zhou, J. (2003). Transformational Leadership, Conservation and Creativity: Evidence from Korea. Academy of Management Journal, 46(6), 703-714.

Shin, S. J., & Zhou, J. (2007). When is Educational Specialization Heterogeneity Related to Creativity Research and Development Teams? Transformational Leadership as a Moderator. Journal of Applied Psychology, 92(6), 1709-1721. 

Zhou, J. (2003). When the Presence of Creative Co-Workers is Related to Creativity: The Role of Supervisor Close Monitoring, Developmental Feedback and Creative Personality. Journal of Applied Psychology, 88(3), 413-422.

Zhou, J., & George, J. (2003). Awakening Employee Creativity: The Role of Leader Emotional Intelligence. The Leadership Quarterly, 14, 545-568.

Zhou, J., & George, J. (2001). When Job Dissatisfaction Leads to Creativity: Encouraging the Expression of Voice. Academy of Management Journal, 44(4), 682-696.

By Peter Rodriguez

The momentum of a fantastic year at Rice Business accelerated through the spring and set us on course for an even better fall. Record-busting cohorts of students arrived in the heat of summer alongside preparations for a hybrid-online MBA program and investments all around the school. With the wind at our backs, I couldn’t wait to kick-off a new academic year.

The old caution about life and uncertainty played over and over in my mind during the relentless rains that weekend, “Wanna make God laugh? Tell him about your plans.” All that we lived and witnessed during the storm and after will likely be the story of the year for our city, our university, our school and our communities. The story, however, isn’t that the waters rose, that thousands of lives were upended or that Houston was devastated. The story is the reaction to the storm from the people in it and all who came to help.

Across the region, a few hundred yards meant the difference between families that were high and dry or waist-deep in flood waters, stranded on rooftops and upper floors. Within urban and suburban neighborhoods a few inches of elevation made the difference between safety and upheaval. Those hit hardest face a long road to recovery. Everybody else knows, it could have been them.

The hurricane brought loss and pain to tens of thousands, if not more, and set back many family’s finances for years. There is nothing good at all about Hurricane Harvey. And yet, because of the storm we had the opportunity to recall what matters most to us, and to recall that these are the same things for all of us. Because in a flood aid is inherently local, we have the opportunity to witness what it means to be a good neighbor, friend, colleague, stranger, Houstonian. We have the opportunity to fulfill a noble purpose in service of many we know and more that we don’t. We felt the power in knowing our time and energy bring mercy to those in need and that even the small things we do for each other matter greatly. We have the opportunity to live our values, not simply debate them.

If Harvey succeeded in teaching us an unwanted lesson about humility and our vulnerability to the most basic forces, it also allowed us to genuinely connect with our city and replenish our faith in each other. The ache to find a silver lining in the aftermath of destruction should not eclipse our understanding of how much has been lost and the emotional toll still being felt. But let these lessons continue to drive our heightened compassion and endure far longer than the recovery from this awful storm.

Reading about the remarkable generosity of everyone around us I came upon a short post on social media that seemed to capture a truth made plain by the moment. It seemed a touch maudlin, but, if anything, it understated the prevailing sentiments. It started, "Now more than ever, people need you to give all that you can. Unfortunately, you simply cannot give away what people need most. You can give away food, you can give away clothes, you can give away shelter and you can give away money. But, you can never give love away. It just keeps coming back."

With sincere thanks to all who gave generously, led selflessly and continue to inspire, I’m pleased to write the final Harvey sign-off.

Stay Safe, Stay Connected.

Peter

Peter Rodriguez is a Professor of Strategic Management and the Dean of the Jones Graduate School of Business at Rice University.

This letter first appeared in the fall issue of Rice Business Magazine.

Based on research by Douglas A. Schuler and Usha C.V. Haley

• Governments around the world promote the solar power industry with subsidies.
• Different countries have different schemes for subsidizing solar power, some more effective than others. Even within countries, not all solar strategies dovetail each other.
• The different approaches create a range of uncertainties in the market.

In the Spanish region of Aragon, known for livestock, barley and rye, a vast tapestry of solar panels shimmers on the sun-drenched landscape. The panels angle toward the sky in much the same way that sunflowers shift position in nearby fields.

But none of these photovoltaic arrays (the technical term for solar panels) would be there without government intervention. As with many other countries, Spain encourages solar power with subsidies. Around the world, such efforts to push photovoltaic power are more successful in some countries than in others.

To understand how policy shapes the solar power market, Rice Business professor Douglas A. Schuler and colleague Usha C. V. Haley, now at West Virginia University, created a global map of these relationships. In the process, they found a market replete with unintended consequences.

Take Spain’s pell-mell dive into solar energy. In 2007, the Spanish government set such a high rate for feed-in tariffs — payments to households or businesses that generated their own electricity — that it sparked a solar gold rush. When the government restricted the policies the following year, the solar market crashed.

Around the world, the researchers found, policies to promote solar production derive from a maze of strategies and pressures, including subsidies, feed-in tariffs, tax credits and other formulas. The greater the number of elements, of course, the more unpredictable the outcome.

In general, unsuccessful policies fail for two major reasons, the researchers found. First, it’s chancy trying to predict how government policy will change from one year to the next. And second, it’s even harder to guess how those changes will affect the market.

Some countries offer more certainty than others. Germany, for example, finely tuned its feed-in tariff to dovetail with the European Union’s 2020 goal of 20 percent renewable energy in electricity. Yet uncertainty clouded the German market as well. In 2010, budget constraints and competing interests pushed the country’s solar subsidies down by 9 percent for roof installations and 11 percent for ground-mounted installations.

Elsewhere on the map, China’s ambition for solar power is epic. Government targets for non-fossil fuel use call for 15 percent solar and other renewables by 2020. China also opted against paying private citizens for generating excess electricity, instead promoting solar production on the state level by choosing the lowest bidder. The resulting bids were so low that they effectively priced foreign firms out of the market.

U.S. solar policy, meanwhile, is dogged by inconsistency. States including California, Texas and New Jersey even have their own energy policies. This regulatory confusion is a key reason that Germany, Japan and China have now overtaken America as global leaders in solar production and deployment.

In the United States, as Shell Oil’s former President and CEO John Hofmeister puts it, “energy is politicized.” Just as China bolsters its solar market with production subsidies, the U.S. requires the Defense Department only to buy American. As a result, even the most carefully conceived market strategies can turn into a train wreck if they run into political opposition and regulatory uncertainty.

No matter the country, though, dynamics governing solar policy are byzantine. Consider what happened in Spain, when it belatedly scaled back on feed-in-tariffs.

As it happened, the new policy occurred at the same time that China decided to support the price of polysilicon, a key component of solar panels. As a result, Spanish panel production using polysilicon shot sky high, while demand tanked. Suddenly, Spanish solar panel makers were left with warehouses full of excess inventory. The stock of one of China’s biggest solar firms, Suntech, plunged by 90 percent, and others followed.

So the next time you spy a solar array in Aragon or Amarillo, see it as the fruit of a regulatory ecosystem that’s as delicate as the interplay of soil, sun and water. Those panels are there because of government action, and their fate sways and bends like sunflowers on a summer day.

Douglas A. Schuler is an associate professor of business and public policy at Jones Graduate School of Business at Rice University.

To learn more, please see: Haley, U. C. V. & Schuler, D. A. (2011). Government policy and firm strategy in the solar photovoltaic industry. California Management Review, 54(1), 17-38.

Based on research by Wagner Kamakura 

I was editor of Journal of Marketing Research (JMR) between 2000 and 2003, something I had never imagined even as a vague possibility. The first time the notion of editing this prestigious journal came to mind was in 1999, when I was contacted as one of the finalists for the job and asked to prepare a position statement describing my views of marketing as a discipline and the role of JMR in it.

Contrary to most marketing academics at that time, I did not (and still do not) view marketing as a “science.” (A scientist friend told me that you know you are a scientist from the journals you read; if these journals use a qualifier such as “Transportation,” “Political” or “Psychological” before the word “Science” in their titles, then you are not one. According to this friend, scientists read journals named, e.g., Cells, Nature or simply Science).

In the same way that engineering uses physics, math and so on to solve real and practical physical problems, I view marketing as a technology that relies on the social sciences to solve real and practical market and consumer-related problems. In other words, rather than viewing our discipline as a science, I consider it a scientific applied discipline, or “technology.”

This perspective seems to have prevailed among my predecessors in our field, but probably only among a minority in my generation of marketing PhDs. Many marketing Ph.D.s before my cohort were professionals who had a “real job” for a few years, attained an MBA when they realized they were morphing into managers and in the process fell in love with marketing, leading them to pursue a doctorate in the field. Some in my generation, including myself, also followed this path. I believe this evolution from professional to MBA and then marketing PhD (sometimes without the MBA in the middle) led to a bias in favor of “technology” rather than “science” and an emphasis on implementable solutions rather than elegant but sometimes impractical “theories.”

Soon after taking the position at JMR, in any case, I realized that editors are like traffic cops; at best, they can direct (and sometimes control) traffic flow, but drivers (authors) eventually will get to the destination (research topics) of their choice.

As a conscientious traffic controller, I was especially concerned with finding best reviewers for each submitted manuscript. After all, reviewers are the true experts in a manuscript’s subject and methods; they are in the best position to assess the rigor of the research and its contributions.

After working as editor at JMR and associate editor at other marketing journals I’ve come to see anonymous reviewers as the unsung heroes of any academic journal because they, along with authors, are the ones who really set the collective direction of the journal.

Many authors view the editor as the main barrier blocking their papers from publication when, in fact, reviewers are the ones who produce the expert opinions supporting the editor’s decision. Editors have a not-so-flexible quota of articles to publish in each issue. They want to make sure they select the best manuscripts to fill that quota because what gets published during their tenure becomes part of their legacy as editors. Many reviewers take a devil’s advocate view, seeking reasons to reject a manuscript; editors know that their job is to fill each and every issue of their journal with the best possible content.

This experience clarified my views on where I see our discipline heading — and what it needs to continue in the right direction. In my view, academic research in our field is becoming more closely linked to the basic disciplines it usually relies on and less concerned with real and practical marketing problems. My hunch (some might call it an untested “theory”) is that this has something to do with the way our scholars are educated and trained.

It is not uncommon nowadays for marketing doctoral students to come directly from an undergraduate program in psychology or economics without any prior education, training or experience in business or marketing. Another popular route is postdoctoral study immediately after earning a doctorate in the social sciences, also without any prior exposure to marketing.

Because this trend has been in place for more than a decade, authors now have a stronger “science” bias, centered on the basic disciplines they studied in their academic education. Consequently, reviewers and associate editors now tend to have more of a purist view of the basic disciplines. They are more familiar with elegant, stylized theories derived conceptually or mathematically and tested in a student lab; they tend to dislike the ugliness of the real marketplace and the ungainliness of real consumer/market data.

In light of this bias against what is derisively labeled as “empirical” and “applied” research, marketing academics unfortunately have fallen behind other, more pragmatic, disciplines such as computer science, data science and operations management, as well as industry practitioners on many important practical aspects of marketing, such as direct marketing, database marketing, supply chain management, search engine optimization, social network marketing and (shockingly!) marketing analytics, to name just a few.

My fear is that this trend will continue, with marketing scholars becoming more committed to the basic disciplines they come from and viewing marketing only as a field to apply and test theories developed elsewhere, leading to what one could call the “Balkanization of marketing.” The consequence of this Balkanization is that other fields, such as business analytics, are already taking over the more pragmatic (and profitable!) aspects of marketing while our “scientists” get distracted away from our discipline.

We must ensure that marketing does not break into isolated subfields of psychology, economics, statistics and so forth, the same way Yugoslavia broke into its many independent (and sometimes antagonistic) parts. To counter this possibility, I hope that JMR and similar publications will continue prioritizing articles that mix the rigor of academic research with true relevance to the realities of the marketplace.

Wagner A. Kamakura was the Jesse H. Jones Professor of Marketing at Jones Graduate School of Business at Rice University.

To learn more, please see: Kamakura, W. A. (2014). Reflections on my editorship of JMR and beyond. Journal of Marketing Research, 51(1), 131–132.

By Mary Lee Grant

At a small rural hospital in Aransas Pass, a shrimping and tourist town of about 7,000, some patients visited the emergency room twice a day, obtaining insulin and other medications they couldn’t afford to buy themselves. Nurses sometimes pooled their money to pay for patients’ cab fare home.

“It is that kind of place,” said Jen Deselms, a registered nurse who worked in the emergency room at Care Regional Hospital before Hurricane Harvey hit, forcing the facility to shut its doors indefinitely. “We look out for each other and for our community. Not having this hospital will be devastating for the entire area.”

All week, doctors and nurses labored to repair the hospital, which serves about 90,000 in three counties, mopping flooded floors and hammering two-by-fours to patch crumbling walls. In Aransas Pass and the neighboring beachfront towns decimated by Harvey’s first brutal landfall, a tale of two recoveries has emerged. Although these communities are often described as resort towns, tourism overlays a culture of rural poverty here. These are places where shrimpers who haven’t owned boats in years struggle to get by on disability checks. Folks who gave up on the cities cram into waterfront RV parks – many destroyed in the storm – venturing to the coast to flip hamburgers or wait tables in an effort to find their place in the sun and the sand.

According to Scott Sonenshein, a management professor at Rice Business who studies resilience and resourcefulness, Harvey could provide the chance for people and communities to remake themselves.

"It is a chance to start from scratch and do something new," said Sonenshein, author of Stretch: Unlock the Power of Less and Do More than You Ever Imagined. “Research shows that when people are faced with nearly insurmountable odds, they often find completely new and resourceful ways of approaching things and forge completely different paths. Communities can channel the sense of togetherness that comes out of disaster to build something better.”

But in the Coastal Bend, many schools have yet to open their doors and patients will now have to travel at least 20 miles across the Harbor Bridge to Corpus Christi to find medical care, difficult for many in an area with little public transportation.

In nearby Rockport, where retirees show their paintings of shrimp boats and pelicans in art galleries along picturesque Copano Bay and swish condos line the waterfront, virtually nothing remains unscathed. About 80 percent of the buildings in town were damaged, according to federal estimates.

But the path to recovery will vary, said Chuck Shamel, a retired counselor who serves on the executive board of the Good Samaritan, a non-profit that helps the needy with food, bills and transportation.

“The poor will stay and rebuild, because they have nowhere else to go and no way to get out,” he said. “The rich will be back in a few weeks, when the power goes on and the golf courses open.”

The 76 year old moved here to build his dream home with his wife, Betty, a 79-year-old retired teacher, on several wooded acres near the water. Although Harvey damaged their house, he expects insurance to pay most of the costs. He is more concerned with those who have less.

“We are a barbell community, with 20 percent on the upper end and 20 percent on the lower,” Shamel said.

Many moved to the coast hoping for a fresh start among the placid bays and sheltering oak trees, but the reality often is harsher. Jobs are scarce, salaries low and property is expensive.

Ida Jeter, 60, who works cleaning and cooking for nuns at a Catholic shrine, said she is living in her car. The shrine was damaged and many of the nuns are returning to their home base in Wisconsin, so Jeter doesn’t know if she will have a job.

“They kicked me out of my apartment because it was so damaged,” she said, bursting into tears. “I have nowhere to go.”

Unlike much of south and southeast Texas, the poverty here is concentrated in a largely white population. Rockport is about 67 percent white and 24 percent Hispanic, with a sprinkling of blacks and a small but thriving Vietnamese immigrant community originally drawn by the shrimping. Port Aransas is even whiter, with about 89 percent of the population white, 3 percent Hispanic and fewer than a half-percent black or Asian.

Unlike heavily Hispanic south Texas or the Houston area, with its large African-American and multi-hued immigrant population, this is Trump country. In Aransas County, about 74 percent of voters supported Trump. Boarded up windows at a business near Rockport marina are painted with the words, “Bet they blame Trump,” beside an American flag.

Dennis Finner, 50, said he wishes he had seen Trump when the president visited the area.

“I am glad Trump set his feet here,” Finner said. “I wish I had known so I could have seen him, because I like him. Is he doing a good job at helping? I have no idea. I don’t even have a TV anymore.”

For Finner, the self-reliance he so values is eluding him in the wake of Harvey. He doesn’t like depending on government or charity.

“There is nothing like working hard with your hands all your life only to have everything you worked for taken away in a few hours,” Finner said. “I ain’t never taken anything from the government – no handouts or nothing. And now there are people by the side of the road giving out free hamburgers and I’m eating them. It just hurts.”

For many residents, the devastation left in Harvey’s wake is testing a deeply held value of self-reliance. Bill Woods, who was almost killed in a motorcycle accident years ago, now lives with a painful limp, one eye permanently shut and a metal plate in his head. Yet Woods, 60, receives no disability payments.

“All the money I have, I make with my own hard work,” he said.

He mows lawns for a living, but wind blew apart the trailer he uses to haul his equipment. Harvey also tore apart the trailer where he lives, so he is staying with friends.

“At least the government is here,” he said. “I will have to wait and see if I can get a FEMA trailer to live in or some money to buy another trailer.”

Aransas County Sheriff Bill Mills said federal aid has been sufficient, but dealing with the multitude of agencies that have descended on the area to help in very specific ways has demanded great coordination.

“Each agency has one little area that they micromanage, which is good, because they have a lot of expertise in that area,” Mills said. “But we are overwhelmed. We have so much to deal with. The power isn’t even back on, almost every building has been damaged, people are homeless and we are arresting looters. Our schools have been closed indefinitely. Our teachers don’t have jobs. People are trying to clean up with this heat index and stress that is off the charts.”

In Port Aransas, a town of 4,000 that can swell to 70,000 on weekends, the city manager has estimated that every building in town was damaged. A group of friends sat in deck chairs in the parking lot of the Place Motel, whose manager had given them rooms for free after their lodgings were flooded. The men were shirtless in the hot muggy weather; the women wore shorts and, midriff tops with packs of cigarettes tucked into their bras. They were drinking tequila and Jack Daniels straight from bottles they found floating down the street when the liquor store flooded.

Timothy Yoke, 53, who lays tile for a living, rode the storm out, but his apartment was completely flooded. “Of course I will stay,” he said. “I love it here. I love the beach and the weather and the people. Where else would I go?”

In Port Aransas, about 11 percent of the population falls below the poverty line, but 17 percent of those under 18 live in poverty. About 80 percent of the island homes are owned by people from elsewhere, making the town a mix of prosperous out-of-towners and locals who largely depend on jobs serving tourists.

Many part-time residents also dock boats in Port Aransas. At Island Moorings Marina, crane operators worked to remove dozens of boats from the mud and sand.

Rochelle Rackham, 63, slept in her beached sailboat all night. The ocean-going catamaran had broken away from the docks as the storm surge hit and floated onto dry land.

“I have to sleep here because the boat is so valuable and I have thousands of dollars of electronic equipment on it,” said Rackham. “A man came around last night and tried to break in, but I pulled my .38 on him and he ran.”

Rackham, who has sailed solo as far as Turkey and Tunisia on her boat, said she is not sure she will stick with Port Aransas after the storm. “I think it would be simpler just to dock her in Cayman,” she said.

George Brown, a commercial real estate broker who owns an oceanfront RV park, said that even though he lives in San Antonio, Port Aransas is part of who he is. Most of the RVs in his park were destroyed, but he said he will rebuild.

“We used to come down here when I was a kid for the hurricanes,” he said. “Partly to check on our property, but also for the excitement. My parents would bring a generator and hook it up. And we would listen to the rain and wind. Hurricanes are part of living on the coast. I’m not leaving.”

Mary Lee Grant is a political scientist in Kingsville, Texas and a writer for Business Wisdom. A version of this story appeared in the Washington Post.

Based on research by Sharad Borle, Siddharth S. Singh and Dipak C. Jain 

• Contrary to what one might think, customers who stay with a firm longer may not spend more money than those who stay for less time.
• Determining a customer’s spending in a buying relationship will shape how managers commit marketing dollars.
• Longer spells between purchases are linked with greater risk of a customer leaving a firm.

Managers dream of keeping their customers faithful for years. Sooner or later, though, almost all consumers will go elsewhere. That’s why marketing experts scramble to predict how long a customer will stay with a company and how much money she’ll spend on it. In industry parlance, this variable is “customer lifetime value.”

The craving to know why customers stray has inspired a cottage industry in models calculating the “lifetime value” a customer brings to his or her partnership with a seller. Pinpointing when a customer starts doing business with a firm, each purchase she makes and when she quits buying all help marketers hone their efforts to keep her interested.

But customer devotion rarely runs smoothly. Higher spending, for one thing, does not necessarily correlate with longer customer relationship. Curiously, consumers who stay with a company briefly often spend more than those who stay loyal for years. So managers need to differentiate between the length of time a customer buys from them and her “lifetime value” — what she brings to that connection.

To improve companies’ predictive ability, Rice Business professor Sharad Borle and former Rice Business professor Siddharth S. Singh, along with colleague Dipak C. Jain, then of Northwestern University, created a model for predicting and testing customer lifetime value. They define this as the value a customer brings to a firm (generally measured as the revenues from her purchases), minus the firm’s costs to maintain the bond.

Past research on this topic has focused on two specific contexts: contractual and non-contractual. In a non-contractual situation, management doesn’t know exactly when customers quit buying a product, so the moment of a customer’s defection has to be inferred. Contractual situations, on the other hand, allow close monitoring of specific day-to-day factors. In contractual relationships such as automobile associations, membership-based retailers like Costco and membership-based buying relationships such as music and food clubs, managers know exactly when a relationship starts and ends, and every time a customer makes a purchase.

The researchers decided to look at elements of both contractual and non-contractual settings in their study, a scenario that had not been previously analyzed in any depth. First they looked at a membership-based direct marketing company that tracked the dates each customer joined and terminated membership. Then they examined how well different models worked in predicting customer lifetime value.

Their model predicted customers’ likelihood of ending the membership as well as their spending patterns. With this information in hand, the scholars could estimate the lifetime value of each customer every time she made a purchase.

The model proved better at predicting customer lifetime value and in targeting valuable customers than the other models to which they compared it. They also discovered that a customer’s purchase timing, purchase amount and risk of defecting are intertwined, which validated their joint-modeling approach.

To reach their conclusions, the researchers studied two random samples of data, both drawn from the population of all customers who joined a company in one particular year in the late 1990s. These data offered information about all purchases by these customers from the first day of membership to the time the consumers moved on to other pastures.

The first part of the data showed 1,000 past customers and 7,108 purchases. It traced the buying habits of these customers over their entire lifetime with the firm. The second part, consisting of another 500 past customers (a validation sample), was selected for predictive testing and to illustrate the model in action. It looked at the times between purchase, purchase amounts and the total membership lifetime of each customer.

How did loyalty correlate to spending? Not very strongly. A customer who waited longer between purchases was more likely to end her membership, yet a customer who waited longer between purchases also was likely to spend more. There was little difference between the amount of time men and women waited to buy – but when they did make a purchase, women spent less. Men and women were equally likely to end their membership with the firm.

Gauging customer value, clearly, is no simple thing. But good models that predict how and when customers spend remove some of the guesswork. It’s crucial data for any business that needs to know when customers are thinking of bolting — and how to woo them back.

Sharad Borle is an associate professor of marketing at Jones Graduate School of Business at Rice University. 

To learn more, please see: Sing, S. S., Borle, S., & Jain, D. C. (2008). Customer lifetime value measurement. Management Science, 54(1), 100-112.

Based on research by Robert A. Westbrook, Bich N. Dang, William C. Black, Maria C. Rodriguez-Barradas and Thomas P. Giordano

• HIV now can be managed with antiviral drugs. But there are new obstacles to treating it.
• HIV patients don’t always seek regular medical care or properly taking their medicine.
• When patients are satisfied with their care, however, they’re more likely to comply with treatment plans.

Would you recommend your doctor to a friend? How do you feel about your medical care? The answers, it turns out, may predict how well you heal.

In 1987, six years after the first reported case of AIDS, the Federal Drug Administration approved a pioneering antiviral cocktail to treat the disease. Since then, medical advances have made it possible to keep HIV from becoming AIDS. Yet of the nearly 1 million people in the United States who are HIV positive, only a quarter actually achieve what clinicians call HIV “suppression,” that is, glancingly low levels of HIV in their systems.

For those who came of age during HIV’s darkest days, the issue is confounding. Now that there’s a way to manage this once-deadly disease, why do so few people use it?

In 2013, Robert A. Westbrook, a professor at the Rice Business school, joined Bich N. Dang and Thomas P. Giordano, clinicians and instructors at Baylor College of Medicine, to tackle two of the biggest challenges in HIV patient compliance. Current mainstream treatment, they knew, stresses keeping HIV-infected patients in a physician’s care and getting them to correctly follow highly active antiretroviral therapy, or HAART.

But both goals are surprisingly hard to achieve. Of those HIV-diagnosed patients who are linked to care, many don’t stay: Only 60 percent of HIV-positive patients seek routine clinical care. Getting patients to adhere to their antiretroviral therapy is also a conundrum: Just 55 percent of those with HAART actually take their meds as prescribed.

If clinicians and policymakers want to improve outcomes, Westbrook and his colleagues argued, caregivers will have to attack these two problem areas. Previous market research offers a clue about how to do it. In general, the studies show, patient satisfaction correlates to patient retention and medication adherence. Perhaps, the team hypothesized, patient satisfaction could influence HIV treatment as well.

To find out, the researchers analyzed survey data from almost 500 patients at two different clinics. The subjects were mostly minority and low-income patients — the population most affected by HIV, and most prone to adherence problems and worse outcomes. Their satisfaction as patients was measured by their willingness to recommend the clinic and their overall feelings about the care they got there in the 12 months before the survey.

The findings were striking. Patient satisfaction did indeed correlate with retention and adherence to HAART. This, in turn, improved HIV suppression. Based on these results, the scholars concluded that any treatment designed to improve HIV suppression also needs to factor in the patients’ experience. Caregivers can be trained in patient-centered communication. Providers can ask patients about their treatment goals and preferences — and they can ask, more frequently, if the patients have any questions. Clinics can arrange for patients to get their ongoing care with the same clinician.

Bolstered by this research, the researchers suggested that not only HIV clinics but all healthcare providers who care about better outcomes should work to promote patient satisfaction. Helping patients feel cared for, it turns out, actually helps them to heal.

Robert A. Westbrook is the William Alexander Kirkland Professor of Business at Jones Graduate School of Business at Rice University.

To learn more, please see: Dang, B. N., Westbrook, R. A., Black, W. C., Rodriguez-Barradas, M. C., & Giordano, T. P. (2013). Examining the link between patient satisfaction and adherence to HIV care: A structural equation model. PLOS ONE, 8(1).

Based on research by Utpal Dholakia, Katherine E. Loveland and Naomi Mandel 

• Longtime homeowners who stand to make a profit ask for higher selling prices on their houses than longtime homeowners in a losing position.
• Longtime owners hold out for a higher price even when a lower bid represents financial gain.
• Conversely, short-time homeowners in a profitable position ask for lower prices than owners who are selling at a loss. The reason: The short-timers are less emotionally invested in the home.

Buying a house is the biggest investment most people make in their lives. Unlike other financial transactions, though, this investment becomes emotionally laden over time, gathering not only monetary but also much harder-to-measure personal value. Your perfect neighbor who drives your kids to soccer and yells over the fence that hamburgers are served may, to a new buyer, be a loudmouthed nuisance with an overgrown lawn.

Such variables inevitably skew buyer and seller perceptions. They also throw a wrench into theories on how investors can be expected to act. Long-time homeowners, it seems, are a separate breed of investor. Their quirks can have national ramifications.

From 2006 to 2011, falling home values throughout the United States affected millions of households, in some cases plummeting 40 percent from the peak. Yet even as prices declined, a 12-month supply of homes remained for sale, twice that of a healthy market. Many homeowners continued to set unreasonably high prices given current conditions, leading to a glut of 6.2 million homes.

Using these puzzling statistics as a launching point, Rice Business Professor Utpal M. Dholakia, Katherine E. Loveland of Xavier University and Naomi Mandel of Arizona State University studied how the experience and duration of homeownership affects sellers’ initial asking prices and their willingness to change them.

Using laboratory simulations and real-life case studies in four U.S. cities, the researchers reached identical outcomes. Longtime owners, they found, asked for higher prices when they stood to profit. Short-term owners asked for lower prices when they were in the so-called “gains domain,” and higher prices when they were in a losing position.

These results contradict Prospect Theory, a foundational tenet of behavioral economics. According to the theory, if an individual is presented with two equal choices, one a loss and the other a gain, the individual will always pick financial gain.

Dholakia and his colleagues took a different approach, linking loss or gain to the experience of ownership itself. By doing so, they acknowledged that people with a positive experience with an object, in this case a home, already feel they are in the “gain domain,” before they begin negotiating.

To reach their conclusions, the researchers trawled through house listings in Phoenix, Minneapolis, Philadelphia and Wilmington, excluding any that had been owned for less than a year as well as bank-owned homes and those in foreclosure or on short sale. Rather than comparing asking prices, they calculated the price premium for a home as a percentage of the home’s market value. In cases of longtime ownership, they found, homeowners in the gains domain asked for a significantly higher adjusted price premium than homeowners whose places had lost value and whose sale was going to bring a financial loss. It was a stark reversal of Prospect Theory.

For the longtime owners, the researchers reasoned, the home was no longer just a marketable commodity. It had become a physical vessel of their most cherished experiences. Prospective buyers saw square footage and comparable pricing. Prospective sellers saw more. “THIS house is special,” their asking prices announced.

Curiously, long-term homeowners in the gains domain asked for a higher premium-to-market value even when asking for a lower price would’ve still brought a profit. Was this greed? Likely not, the researchers showed. The long-time homeowners just valued their homes in ways that buyers couldn’t share.

Understanding how such emotional and financial reference points interact with length of homeownership can help real estate professionals and policymakers identify which homeowners are likely to price more aggressively than market conditions warrant. It could also lend some self-awareness to sellers themselves.

A financial gain is easy to measure. But how do you price 10 years of weekends on the couch savoring kids, dogs, and a glass of Malbec? No external reference point, Dholakia and his colleagues concluded, can put a price on those moments. It may be the true definition of home: the one place the invisible hand of the market does not touch.

Utpal M. Dholakia is the George R. Brown Professor of Marketing at the Jones Graduate School of Business at Rice University.

To learn more, please see: Loveland, K. E., Mandel, N., & Dholakia, U. M. (2014). Understanding homeowners’ pricing decisions: An investigation of the role of ownership duration and financial and emotional reference points. Customer Needs and Solutions, 1(3), 225-240.

By Mike Snyder

Excerpted from “New Katy Buc-ee's has gas pumps as far as the eye can see,” originally published in the Houston Chronicle.

The familiar face towered over Interstate 10, but the beaver's goofy grin was obscured by a "Coming Soon" sign. A few days remained before the new Buc-ee's in Katy would throw open its doors to customers eager to buy gasoline and snacks after availing themselves of the famously clean, spacious bathrooms.

I drove out to the popular retailer's newest outpost over the weekend because I was intrigued by reports that it would have 100 gas pumps. The places where I buy gasoline have, at most, a dozen pumps, and I couldn't imagine what 100 gas pumps in one spot would look like (or why so many would be necessary; more on that later).

The entrances were barricaded with orange barrels, so I parked across the street and walked onto the vast property. From where I stood on the eastern edge of the parking lot, a long row of pumps stretched westward as far as I could see. It took 10 minutes to walk to the end and back.

As it turns out, the Katy Buc-ee's has 120 pumps, not counting a few devoted exclusively to diesel. I wondered if Buc-ee's executives had imagined that 120 motorists would decide to fill their tanks at the same time and place. The question revealed my ignorance of this particular niche in the realm of business strategy.

"It is clear that 'big' is their value proposition, and 120 fueling stations is a compelling way to convey it, turning the store into a shopping and stopping destination," said Utpal Dholakia, the George R. Brown Professor of Marketing at Rice University's graduate business school. "I think this sort of positioning works really well in Texas given their long history (since 1982) and beloved brand status."

Read the full story in the Houston Chronicle.

Based on research by Utpal Dholakia, Scott W. Davis and Kelly L. Haws

• A lack of self-control in one area, such as overeating, doesn’t necessarily correspond to a lack of self-control in other areas, such as overspending.
• To understand why people make bad choices, researchers need to look at specific activities rather than broad concepts such as “self-control.”
• Public policy researchers armed with precise data have a better shot at creating behavioral interventions that work.

Is indulging in a lavish dessert you shouldn’t eat the same problem as buying an expensive bag you shouldn’t buy? Past research has tended to treat all forms of potentially harmful self-indulgent behavior, from smoking to procrastinating, as shades of the same overarching issue: a lack of self-control. Lumping these behaviors together leads to the conclusion that self-control is a universal trait — something you either have or you don’t. But recent Rice research suggests that not all overindulgences are alike. Some people are stoic in the face of a Kate Spade sale but unable to resist a tempting tiramisu, and vice versa.

Rice Business professor Utpal M. Dholakia and former postdoctoral fellow Scott W. Davis collaborated with Vanderbilt University associate professor of marketing Kelly L. Haws on a study that found no evidence that people fail — or succeed — equally in all aspects of self-control. An accurate measure of self-control in eating, the team found, might not apply equally to other domains such as spending and saving. Correctly understanding the nature of self-control is crucially important for researchers, since curbing social problems such as obesity and consumer debt are of vital concern for the people they affect and the societies they undermine.

A great deal of time and money has gone into studying self-control — and its absence. But in the past, researchers have taken a one-size-fits-all approach to measuring self-control. They’ve used something called the general self-control scale, which assumes that all forms of self-control tap into the same reservoir and that, therefore, low self-control in one domain will predict similarly low self-control in others. So, for example, a compulsive buyer should also be a bing eater.

Research using this broad concept of self-control has shaped public policy. But Davis, Dholakia and Haws argue that to get more accurate, and more useful, findings, researchers need to refine their measurement tools to apply specifically to the object of their study. To gauge the potential effectiveness of a tax on sugary drinks in lowering soda consumption, for example, researchers should measure self-control in the face of fizzy, bad-for-you beverages, and not extrapolate from unhealthy habits in other areas.

Dholakia and his colleagues based their conclusions on five studies that measured self-control in shopping and eating, comparing them to levels of general self-control. They concluded that “domain-specific” measures were better at predicting behavior than general measures. People who demonstrated low levels of self-control in eating, for example, could be expected to binge eat in the future, regardless of their general self-control level.

In one study, participants were told they were testing a new eating and exercise smartphone app. They were asked to add a Snickers bar to the list of foods they planned to eat that day. For some participants, the app produced a picture of a Snickers bar and its nutritional information; for others, the app produced a picture of feet walking and the comment, “You must walk 65 minutes to burn off that Snickers bar.” Then they were asked to rate the likelihood that they would actually eat the Snickers bar.

For people with high “eating self-control,” the likelihood of indulging in the candy bar stayed roughly the same across both scenarios. But for people with low eating self-control, the likelihood of eating the Snickers was significantly higher when they were given the nutritional information instead of the exercise equivalent. “Our findings … raise the possibility that providing nutritional information may actually enhance the appeal of the Snickers bar, leading to greater desire that those lower in self-control are less equipped to handle,” the authors wrote.

These findings could help design interventions to prevent people from overeating. Current policies designed to curb sugar consumption rarely have the intended effect — and that failure, the authors suggest, could stem from a lack of understanding about what causes people to choose short-term pleasure over long-term health. The research stopped short of investigating how to actually stop people from eating too much sugar (or spending too much, gambling too much, smoking too much, etc.), but Dholakia’s team concluded that asking more targeted questions was a fundamental step in the right direction. The takeaway? Call a Kate Spade bag a Kate Spade bag, not a cupcake. Overindulging in one doesn’t mean you’ll overindulge in the other.

Utpal M. Dholakia is the George R. Brown Professor of Marketing at Jones Graduate School of Business at Rice University.

To learn more, please see: Haws, K. L., Davis, S. W., & Dholakia, U. M. (2016). Control over what? Individual differences in general versus eating and spending self-control. Journal of Public Policy and Marketing, 35(1), 37-57.