Prof. Duncan Simester

October 2001, MIT Sloan faculty/staff page

Next time you see something priced at $49, or find yourself tempted to buy a catalog item next to a “sale” logo, or casually put an expensive dinner bill on your credit card, think of Duncan Simester.

Simester, associate professor of management science, researches marketing cues — what triggers purchases and why.

He's found $9 endings and “sale” logos, both inexpensive cues to employ, are effective at increasing sales — but only if used sparingly. Customers equipped with credit cards, he's found, are likely to spend more.

Simester is part of a dynamic team of MIT Sloan marketing professors who study and help define marketing practices for businesses around the globe.

A New Zealand native with a PhD in management from Sloan, Simester also studies market research over the Internet and the organization of firms.

He's a central player in MIT Sloan's groundbreaking Virtual Customer Initiative, which uses new algorithms to develop efficient on-line market research methods.

Incentive scheme that worked

Simester's study of Continental Airlines' turnaround in the mid-1990s is among his most significant research.

Like other airlines, Continental faces an uncertain future after the tragic events of Sept. 11, but the mid-1990s turnaround was improbable and proved a fruitful research subject for Simester.

At the end of 1994, two executives emerged with a plan to rescue the struggling airline. Faced with a few weeks of funds, they secured an infusion of cash from Boeing, a major Continental vendor, and implemented organizational changes.

One of those changes was a $65 per month incentive for each employee if Continental was in the top five of the federal Department of Transportation on-time rankings. Almost immediately the firm improved.

Skeptical of the incentive scheme, Simester and his colleagues set out to isolate its effect.

They determined the incentive was in fact a major reason for the turnaround. Employees, they found, had begun monitoring each other, and that mutual monitoring reduced sick days, a longstanding problem, and improved performance.

“The paper [on Continental Airlines] was really an example of an incentive scheme that from an economic sense is important — these big firm-wide incentive schemes,” says Simester. “People use them, we don't think they should work, and here was clear evidence that they did work and an explanation why.”

Research and MBA students

The Continental study was also an example of how MBA students can be part of faculty research. A professor at the University of Chicago at the time, Simester says an MBA student was his pivotal contact with Continental.

Research is fundamental to a professor's work at MIT Sloan, and Simester urges MBA students to gain as much exposure to that research as possible — whether through the optional MBA thesis, as a support player in a research team, or even as a subject.

Opportunities to participate in research abound.

An MBA student recently worked with Simester on a market research project for Polaroid, for example. Also, last spring he and his colleagues presented results of their Virtual Customer Initiative to a gathering of MBA students.

MBA students, meanwhile, proved apt subjects for Simester's credit card research.

He and colleagues auctioned off Boston Celtics tickets to MBA students. Half the students paid cash; the other half used credit cards. The credit card purchases ended up on average about $65, while the average cash purchase was about $28.

In this case the students not only facilitated his research. They also proved his point.

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MIT Sloan students are immersed in an atmosphere that challenges outdated assumptions and looks for innovative solutions to new and old problems.