Customer Value Formation in Practice: A Practice-Theoretical Approach

This thesis introduces a practice-theoretical approach to understanding customer value formation to be used in the field of service marketing and management. In contrast to current studies trying to understand value formation by analysing customers as independent actors and thinkers, it is in this work suggested that customer value formation can be better understood by analysing how value is formed in the practices and contexts of the customers. The theoretical approach developed in this thesis is applied in an empirical study of family cruises. The theoretical analysis in this thesis results in a new approach for understanding customer value formation. Customer value is, according to this new approach, something that is formed in practice, meaning that value is formed in constellations of the customer and contextual elements like tools, physical spaces and contextually embedded images and know-how. This view is different from the current views that tend to see value as subjectively created, co-created, perceived or experienced by the customer. The new approach has implications on how we view customer value, but also on the methods and techniques we can use to understand customer value in empirical studies. It is also suggested that services could in fact be reconceptualised as practices. According to the stance presented in this thesis the empirical analysis of customer value should not focus on individual customers, but should instead take the contextual entity of practices as its unit of analysis. Therefore, ethnography is chosen as a method for exploring how customer value is formed in practice in the case of family cruises on a specific cruise vessel. The researcher has studied six families, as well as the context of the cruise vessel with various techniques including non-participant observation, participant observation and interviews in order to create an ethnographic understanding of the practices carried out on board. Twenty-one different practices are reported and discussed in order to provide necessary insight to customer value formation that can be used as input for service development.

Image Heritage - The Temporal Dimension in Consumers' Corporate Image Constructions

Images and brands have been topics of great interest in both academia and practice for a long time. The company’s image, which in this study is considered equivalent to the actual corporate brand, has become a strategic issue and one of the company’s most valuable assets. In contrast to mainstream corporate branding research focusing on consumerimages as steered and managed by the company, in the present study a genuine consumer-focus is taken. The question is asked: how do consumers perceive the company, and especially, how are their experiences of the company over time reflected in the corporate image? The findings indicate that consumers’ corporate images can be seen as being constructed through dynamic relational processes based on a multifaceted network of earlier images from multiple sources over time. The essential finding is that corporate images have a heritage. In the thesis, the concept of image heritage is introduced, which stands for the consumer’s earlier company-related experiences from multiple sources over time. In other words, consumers construct their images of the company based on earlier recalled images, perhaps dating back many years in time. Therefore, corporate images have roots - an image heritage – on which the images are constructed in the present. For companies, image heritage is a key for understanding consumers, and thereby also a key for consumer-focused branding strategies and activities. As image heritage is the consumer’s interpretation base and context for image constructions here and now, branding strategies and activities that meet this consumer-reality has a potential to become more effective. This thesis is positioned in the tradition of The Nordic School of Marketing Thought and introduces a relational dynamic perspective into branding through consumers’ image heritage. Anne Rindell is associated to CERS, the Center for Relationship Marketing and Service Management at the Swedish School of Economics and Business Administration.

Power and Distribution Network Structure in the People's Republic of China - The Case of an Inland City in Transition

The aim of the current study is to examine the influence of the channel external environment on power, and the effect of power on the distribution network structure within the People’s Republic of China. Throughout the study a dual research process was applied. The theory was constructed by elaborating the main theoretical premises of the study, the channel power theories, the political economy framework and the distribution network structure, but these marketing channel concepts were expanded with other perspectives from other disciplines. The main method applied was a survey conducted among 164 Chinese retailers, complemented by interviews, photographs, observations and census data from the field. This multi-method approach enabled not only to validate and triangulate the quantitative results, but to uncover serendipitous findings as well. The theoretical contribution of the current study to the theory of marketing channels power is the different view it takes on power. First, earlier power studies have taken the producer perspective, whereas the current study also includes a distributor perspective to the discussion. Second, many power studies have dealt with strongly dependent relationships, whereas the current study examines loosely dependent relationships. Power is dependent on unequal distribution of resources rather than based on high dependency. The benefit of this view is in realising that power resources and power strategies are separate concepts. The empirical material of the current study confirmed that at least some resources were significantly related to power strategies. The study showed that the dimension resources composed of technology, know-how and knowledge, managerial freedom and reputation was significantly related to non-coercive power. Third, the notion of different outcomes of power is a contribution of this study to the channels power theory even though not confirmed by the empirical results. Fourth, it was proposed that channel external environment other than the resources would also contribute to the channel power. These propositions were partially supported thus providing only partial contribution to the channel power theory. Finally, power was equally distributed among the different types of actors. The findings from the qualitative data suggest that different types of retailers can be classified according to the meaning the actors put into their business. Some are more business oriented, for others retailing is the only way to earn a living. The findings also suggest that in some actors both retailing and wholesaling functions emerge, and this has implications for the marketing channels structure.

The expiration day effect of indexoptions and index futures on the underlying shares

This paper studies the effect of the expiration day of index options and futures on the trading volume, variance and price of the underlying shares. The data consists of all trades for the underlying shares in the FOX-index for expiration days during the period October 1995 to the mid of yer 1999. The main results seem to support the findings of Kan 2001, i.e. no manipulation on a larger scale. However, some indication of manipulation could be found if certain characteristics are favorable. These characteristics include: a) a large quantity of outstanding futures or at/in the money options contracts, b) there exists shares with high index weight but fairly low trading volume. Lastly, there is some indication that manipulation might be more popular towards the end of the examined time period.

Executive Stock Options: Exercise Policy and Market Reaction

In this paper I investigate the exercise policy, and the market reaction to that, of the executive stock option holders in Finland. The empirical tests are conducted with aggregated firm level data from 34 firms and 41 stock option programs. I find some evidence of an inverse relation between the exercise intensity of the options holders and the future abnormal return of the company share price. This finding is supported by the view that information about future company prospect seems to be the only theoretical attribute that could delay the exercise of the options. Moreover, a high concentration of exercises in the beginning of the exercise window is predicted and the market is expected to react to deviations from this. The empirical findings however show that the market does not react homogenously to the information revealed by the late exercises.

The Impact of New Capital Requirements on the Portfolio Decisions of Finnish Pension Institutions

This paper examines the potential impact of new capital requirements on asset allocations of Finnish pension institutions. We describe the new requirements and consider portfolio construction to minimize regulatory capital, given the investor’s preferred level of expected return. Results identify portfolio transactions that enhance expected return without increasing capital needs. Regulation calls for portfolio diversification and prudence in management, but this paper shows that market participants can exploit inconsistencies in regulation. Possible future consequences include capital outflows from the pension system and an unintended decrease in pre-funding of old-age pensions.

With Good Reputation Size Does not Matter: Issue Frequency and the Determinants of Debt Maturity

This paper examines empirically the effect firm reputation has on the determinants of debt maturity. Utilising data from European primary bond market between 1999 and 2005, I find that the maturity choice of issuers with a higher reputation is less sensitive to macroeconomic conditions, market credit risk-premiums, prevailing firm credit quality and size of the debt issue. The annualised coupon payments are shown to be a significant factor in determining the debt maturity and reveal a monotonously increasing relationship between credit quality and debt maturity once controlled for. Finally, I show that issuers lacking a credit rating have an implied credit quality positioned between investment-grade and speculative-grade debt.

The Day of the Week Effect and Option Pricing - A Study of the German Option Market

The use of different time units in option pricing may lead to inconsistent estimates of time decay and spurious jumps in implied volatilities. Different time units in the pricing model leads to different implied volatilities although the option price itself is the same.The chosen time unit should make it necessary to adjust the volatility parameter only when there are some fundamental reasons for it and not due to wrong specifications of the model. This paper examined the effects of option pricing using different time hypotheses and empirically investigated which time frame the option markets in Germany employ over weekdays. The paper specifically tries to get a picture of how the market prices options. The results seem to verify that the German market behaves in a fashion that deviates from the most traditional time units in option pricing, calendar and trading days. The study also showed that the implied volatility of Thursdays was somewhat higher and thus differed from the pattern of other days of the week. Using a GARCH model to further investigate the effect showed that although a traditional tests, like the analysis of variance, indicated a negative return for Thursday during the same period as the implied volatilities used, this was not supported using a GARCH model.

An Empirical Comparison of Linear and Nonlinear Volatility Models for Nordic Stock Returns

This paper examines how volatility in financial markets can preferable be modeled. The examination investigates how good the models for the volatility, both linear and nonlinear, are in absorbing skewness and kurtosis. The examination is done on the Nordic stock markets, including Finland, Sweden, Norway and Denmark. Different linear and nonlinear models are applied, and the results indicates that a linear model can almost always be used for modeling the series under investigation, even though nonlinear models performs slightly better in some cases. These results indicate that the markets under study are exposed to asymmetric patterns only to a certain degree. Negative shocks generally have a more prominent effect on the markets, but these effects are not really strong. However, in terms of absorbing skewness and kurtosis, nonlinear models outperform linear ones.

Share Repurchases, Dividends, and Executive Options

This paper reports empirical results on the determinants of the authorization decision for share repurchases and dividends in Finland. We use a data set with precise data on share repurchases as well as characteristics for the option programs. Contrary to the U.S., we use a data set where 41% of the options are dividend protected, which allows us to separate between the "option funding" and "substitution / managerial wealth" hypothesis for the choice of the distribution method. We find that foreign ownership is the main determinant for share repurchases in Finland and attribute this relationship to tax factors. We also find evidence in support of both the signaling and agency cost hypotheses for cash distributions, especially in the case of share repurchases. Finally, we find a significant difference between companies with and without dividend protected options. When options are dividend protected, the relationship between dividend distributions and the scope of the options program turns to a significantly positive one instead of the negative one documented on U.S. data. This gives some support for the substitution / managerial wealth hypothesis as a determinant for the choice of the distribution method.

Unrealized expectations of jumps in volatility: An explanation to the low and time-varying predictive power of implied volatility

The low predictive power of implied volatility in forecasting the subsequently realized volatility is a well-documented empirical puzzle. As suggested by e.g. Feinstein (1989), Jackwerth and Rubinstein (1996), and Bates (1997), we test whether unrealized expectations of jumps in volatility could explain this phenomenon. Our findings show that expectations of infrequently occurring jumps in volatility are indeed priced in implied volatility. This has two important consequences. First, implied volatility is actually expected to exceed realized volatility over long periods of time only to be greatly less than realized volatility during infrequently occurring periods of very high volatility. Second, the slope coefficient in the classic forecasting regression of realized volatility on implied volatility is very sensitive to the discrepancy between ex ante expected and ex post realized jump frequencies. If the in-sample frequency of positive volatility jumps is lower than ex ante assessed by the market, the classic regression test tends to reject the hypothesis of informational efficiency even if markets are informationally effective.

The Negative News Threshold - an Explanation for Negative Skewness in Stock Returns

A vast literature documents negative skewness and excess kurtosis in stock return distributions on several markets. We approach the issue of negative skewness from a different angle than in previous studies by suggesting a model, which we denote the “negative news threshold” hypothesis, that builds on asymmetrically distributed information and symmetric market responses. Our empirical tests reveal that returns for days when non-scheduled news are disclosed are the source of negative skewness in stock returns. This finding lends solid support to our model and suggests that negative skewness in stock returns is induced by asymmetries in the news disclosure policies of firm management.

An Empirical Investigation of Value-at-Risk in Long and Short Trading Positions

This paper uses the Value-at-Risk approach to define the risk in both long and short trading positions. The investigation is done on some major market indices(Japanese, UK, German and US). The performance of models that takes into account skewness and fat-tails are compared to symmetric models in relation to both the specific model for estimating the variance, and the distribution of the variance estimate used as input in the VaR estimation. The results indicate that more flexible models not necessarily perform better in predicting the VaR forecast; the reason for this is most probably the complexity of these models. A general result is that different methods for estimating the variance are needed for different confidence levels of the VaR, and for the different indices. Also, different models are to be used for the left respectively the right tail of the distribution.

Short-Horizon Asymmetric Mean-Reversion and Overreactions: Evidence from the Nordic Stock Markets

This paper examines the asymmetric behavior of conditional mean and variance. Short-horizon mean-reversion behavior in mean is modeled with an asymmetric nonlinear autoregressive model, and the variance is modeled with an Exponential GARCH in Mean model. The results of the empirical investigation of the Nordic stock markets indicates that negative returns revert faster to positive returns when positive returns generally persist longer. Asymmetry in both mean and variance can be seen on all included markets and are fairly similar. Volatility rises following negative returns more than following positive returns which is an indication of overreactions. Negative returns lead to increased variance and positive returns leads even to decreased variance.

Intraday Seasonalities and Macroeconomic News Announcements

Using a data set consisting of three years of 5-minute intraday stock index returns for major European stock indices and U.S. macroeconomic surprises, the conditional mean and volatility behaviors in European market were investigated. The findings suggested that the opening of the U.S market significantly raised the level of volatility in Europe, and that all markets respond in an identical fashion. Furthermore, the U.S. macroeconomic surprises exerted an immediate and major impact on both European stock markets’ returns and volatilities. Thus, high frequency data appear to be critical for the identification of news that impacted the markets.