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 / Second Quarter 2000 / Issue 19(originally published by Booz & Company)


Recent Studies

Branding, privatization, productivity, capital controls, and management.

Branding to Junior
Deborah Roedder John, "Consumer Socialization of Children: A Retrospective Look at 25 Years of Research," Journal of Consumer Research, University of Chicago Press, December 1999. Click here.

Children are one of America's most lucrative markets. According to Texas A&M marketing professor James U. McNeal, American children age 4 to 12 purchase $24 billion each year, and influence parental purchases of $188 billion. But what's the best way to market to kids? Deborah Roedder John, a marketing professor at the University of Minnesota's Carlson School of Management, explores the three stages children go through in her summary of 25 years of research on how and why children buy.

In each stage, children learn more about purchasing and the meaning of brands:

1. Perceptual stage (age 3 to 7). Here children begin to learn about the market. They have some knowledge of product differences, but are more likely to differentiate products by size than by brand.

2. Analytical stage (age 8 to 11). This is the age when brand awareness begins. One study examined children's letters to Santa Claus, and found that 85 percent mentioned at least one brand name in their letter, and that half of the products in these letters were for specific brands.

3. Reflective stage (age 12 to 16). Adolescents in this stage are highly brand-sensitive, but tend to be skeptical of commercials. Rather than being swayed by advertisements, adolescents are more likely to buy products to gain status among their peers.

Much research still needs to be done. While researchers have extensively studied the influences of television commercials, little is known about the ways by which television programs and movies persuade young people to buy products. Nor are there any studies about whether manufacturers' giveaways (of backpacks or T-shirts, for example) persuade adolescents to switch brands. But 25 years of consumer socialization research, Ms. John concludes, have yielded an impressive set of findings.

Privatization Rights and Wrongs
Roman Frydman, Cheryl Gray, Marek Hessel, and Andrezj Rapacyznski, "When Does Privatization Work? The Impact of Private Ownership on Corporate Performance in the Transition Economies," Quarterly Journal of Economics, MIT Press Journals, November 1999. Click here. 

A decade after the fall of the Soviet Union, Eastern European economies are still struggling. One reason for their struggle, note New York University economist Roman Frydman and his associates, is the privatization of inefficient state-owned enterprises. Companies sold to outsiders — foreigners, and domestic banks and venture capitalists — did well. But companies sold to managers or other insiders foundered.

The authors surveyed 218 midsized manufacturers in the Czech Republic, Hungary, and Poland, including 128 privatized firms and 90 that were still state-owned. Mr. Frydman and his colleagues found that companies sold to outside owners raised their revenues on average by $9.7 million over three years and increased productivity per worker by $9,200. And foreign owners were far less likely to fire workers.

Companies sold to managers or other insiders (as was the case with 70 percent of Russian privatizations), however, did as badly as when they were state-owned. Inside-owned firms saw revenues rise by $680,000 over three years, and saw productivity per worker fall by $7,900. In part, that's because inside-owned firms increased their payrolls by 7.7 percent, compared to 1.5 percent among outside-owned firms. It would seem that some managers who buy companies, having risen to the top during the Communist era, find it hard to adapt to the demands of the market. Moreover, most of these managers did not have enough capital to buy without financial assistance, and the state loaned money with requirements that workers not be laid off and be given shares in the enterprise.

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