Professor Juanjuan Zhang
CAMBRIDGE, Mass., March 22, 2010 — When Paramount released “Star Trek” last year, it took a curious approach to its promotion. Rather than hype the movie, the studio relentlessly downplayed it. Executives compared it to “Batman Begins” and “Superman Returns,” claiming all three movies lacked big stars, and were based on old franchises that had been in decline.
What gives? Juanjuan Zhang, professor at MIT's Sloan School of Management, says that Paramount’s actions are a classic example of “demarketing,” an economic term that refers to deliberate demand-reducing activities. Movie studios supply gloomy box office projections, restaurants choose hard-to-ﬁnd locations, and retailers set inconvenient store hours, all with the seeming eﬀect of discouraging business. Demarketing not only saves firms money, but it can also increase the appeal of their products because they’re scarcer.
Demarketing has another benefit, too, according to new research* by Professor Zhang and Jeanine Miklós-Thal, a professor at the University of Rochester. Sellers use demarketing techniques to strategically manage buyers’ expectations and their perceptions of quality.
“Heavy marketing raises expectation of early sales, so a lukewarm buyer response despite a lot of promotion casts doubt over a product’s quality,” says Professor Zhang. “On the other hand, if a company chooses a more modest level of marketing—or various forms of demarketing—consumers might attribute slow sales to a lack of advertising. And strong sales in this case would be a very clear indicator of high quality.”
It certainly worked for Paramount. The box oﬃce forecast for Star Trek’s opening weekend was $65-70 million, so when the movie grossed $75.2 million, the media response was overwhelmingly positive. “Paramount was able to say the film ‘beat expectations,’’ says Professor Zhang. “That’s the phrase every company wants to be able to use.”
Professor Zhang’s ﬁndings shed new light on age-old marketing conundrums such as advertising schedules, targeting, and test market selection.
Consider the marketing issue that almost every company deals with: How should a firm with a ﬁxed ad budget for a given product allocate its spending over time? Basic marketing principles dictate that companies advertise heavily in the initial periods of a product’s life. But if consumers observe intense advertising efforts without commensurate sales, they are more likely to believe that the product is of inferior quality.
“If you market heavily early on, you lose the excuse that no one knows about your product if sales are mediocre,” explains Professor Zhang. “But if the company were to use a demarketing strategy with relatively light advertising in the early phase of a product’s life, long-run profits may be better as customers attribute the possible slow takeoﬀ to the conservative advertising strategy rather than inferior quality. It’s a tradeoff for firms; demarketing reduces current profits but helps build the brand image.”
Her research also indicates that companies’ targeting strategies deserve a careful examination. Conventional wisdom suggests targeting the segment that is likely to respond positively to the product. However, this strategy also raises customers’ expectation of the resulting market response. Take, for instance, Daimler’s Smart mini-car, which it markets to urbanites as the perfect new-age convenient city car. What happens if consumers subsequently fail to see Smart cars in urban traffic?
“The doubt over the car’s desirability might be more serious than if the company had, say, chosen to target rural drivers,” says Professor Zhang. “The worst case scenario in that instance is that the VP of marketing would be fired, but that car is still a cool car.”
Her research also has implications for how companies determine test markets for new products. Besides gathering market information, market testing also helps to generate early buzz for the product, which explains why firms may choose cities where the product is likely to succeed. However, if the product ﬂops in these favorable markets, the damage is done.
“If you choose markets where the product is likely to prevail, it puts a lot of pressure in those markets. Our research suggests companies go for a challenging test; if you don’t pass, it doesn’t say anything about your quality. But if people buy, it’s sending a very positive signal to the wider market.”
* A Model of Demarketing by Jeanine Miklós-Thal and Juanjuan Zhang (Working paper)