Three Essays on Causal Inference for Marketing Applications




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In my dissertation consisting of three research projects, I focus on solving problems which deal with reliably estimating the impact of a change in policy in quasi-experimental setup. I utilize cutting edge methods in econometrics and machine learning to quantify causal effects of policy changes, understand the mechanism behind the effect and most importantly highlight the implications for the managers and policy makers. My first research paper, “A Study of the Effects of Legalization of Recreational Marijuana on Sales of Cigarettes” attempts to establish a causal link between the legalization of recreational marijuana and the sales of cigarettes in retail stores. Recreational marijuana legalization (RML) has been on the rise in the recent years and many arguments have been put forth to support or counter this move. We explore the possibility of RML impacting cigarette consumption. This is important for understanding the impact on health care expenditures related to smoking, which is about $330 billion in the US. Our results show that in states that have passed RML, there is a 7% increase in cigarette sales. This is an important finding since it reverses a decline in cigarette sales in recent years. Therefore, we conclude that states should exercise caution while considering legalization of recreational use of marijuana. My second project, “Effects of Social Media Fights and New Product Launches in the Fast Food Industry” examines the effects of engaging in ‘Twitter feuds’ with competition during new product launches. We propose a viable mechanism that explains how seemingly harmless banter of social media could have unforeseen impact on a firm’s business. Through empirical evidence from recent incidents, we show that Twitter activity has a spillover into traditional media which leads to surge in online search. Online search activity is followed by the offline sales as documented in literature as well as evidenced from our unique foot traffic data. Next, we document the long-term effects of this menu innovation in causal framework, well beyond the initial frenzy, with a novel synthetic difference-in-differences (SDID) method proposed by Arkhangelsky et al. (2021). Results show that the launch led to a 30% increase in store visits up to six months after the launch. Overall, these findings underscore the importance of savvy social media presence especially during a product launch- which could be driver for peaked interest leading to impact on overall business. The flip side for competitors is that initiating seemingly harmless banter, unlike in the offline setting, could end up providing free publicity to one’s rivals. Overall, we highlight the enormous potential of social media to affect business and advise caution to brand managers before engaging in any activity. My third project “A study of wear out and heterogeneous effects of unlimited shipping program on customer engagement in the online retail industry” we study effects of a variation of free shipping promotion in the online retail industry. Free shipping promotions have become popular among online retailers. Most online shoppers expect deliveries without additional costs and cite it as a primary concern while shopping online. Many online retailers across industries have implemented long term free shipping programs on all purchases with fixed annual fees. In this paper, we analyze benefits associated with such programs for the retailers and also shed light on the potential pitfalls, using data from a leading online retailer in the UK. Our results indicate that that there is a significant decay in customer spending after initial days and the effects wear out completely short way through the promotion period. Moreover, changes in purchase behavior (significantly lower basket size after enrolling for free shipping) could hurt the retailer. Thus, online retailers should be cautious when offering long term free shipping promotion. In the next part of the paper, we use pre-promotion engagement as a moderating factor to capture heterogeneous effects of free shipping programs across customers, using Honest Causal Forests approach. Our results show that free shipping promotions work better (higher revenues, smaller drop in basket size) for customers with relatively lower engagement with the retailer in the prepromotion period. Online retailers could use these findings to devise their targeting strategy for free shipping promotions.



Business Administration, Marketing