Donald K. Ngwe - Faculty & Research - Harvard Business School
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Donald K. Ngwe

Assistant Professor of Business Administration


Donald Ngwe is an assistant professor in the Marketing Unit. He teaches the Marketing course in the MBA required curriculum.

Professor Ngwe directs his research at measuring consumer responses to online and offline retailing strategies and predicting the performance of pricing and product assortment decisions, particularly in the fashion and apparel industries. His current work concerns market segmentation through outlet stores, the effectiveness of discount price labeling, the impact on shopping baskets of free shipping policies, and online price discrimination.

Professor Ngwe earned his PhD in economics at Columbia University, together with an MPhil and MA, also in economics. He holds a bachelor’s degree in economics and a diploma in mathematics from the University of the Philippines.

Journal Articles
  1. Why Outlet Stores Exist: Averting Cannibalization in Product Line Extensions

    Donald Ngwe

    Outlet stores are a large and growing component of many firms' retailing strategies, particularly in the fashion industry. Outlet stores offer attractive prices in locations far from central shopping districts. The main perspectives on why outlet stores exist can be broadly classified into inventory management, geographic segmentation, and price discrimination through consumer self-selection. I evaluate these perspectives in the context of a major fashion goods firm using newly available and highly granular data. Model-free evidence suggests that inventory management and geographic segmentation are not the main drivers for outlet store use. Consumers who shop at outlet stores also do not differ significantly from those who shop at regular stores in terms of income. I use a structural demand model to show that consumers are segmented according to their sensitivity to travel distance and taste for product newness. I then develop a supply model to predict product development responses to changes in store locations. Through policy simulations, I discover that the firm uses outlet stores to serve lower-value consumers who self-select by traveling to outlet stores from central shopping districts. The firm sells older, less desirable merchandise through outlet stores to prevent cannibalization of regular store revenues by means of exploiting the positive correlation between consumers' travel sensitivity and taste for new products. I find that the rate of new product introduction in regular stores would fall by 16% if outlet stores were closed down, while variable profits would decline by 23%. These results imply that the existence of outlet stores may enable firms to improve quality in their regular channels, thus counteracting brand dilution effects.

    Keywords: fashion; industrial organization; outlet stores; price discrimination; retail; price; product marketing; Fashion Industry; Retail industry; channel management; Luxury; Product Marketing; Price; Retail Industry; Fashion Industry;

    Citation:

    Ngwe, Donald. "Why Outlet Stores Exist: Averting Cannibalization in Product Line Extensions." Marketing Science 36, no. 4 (July–August 2017): 523–541.  View Details
Working Papers
  1. The Impact of Increasing Search Frictions on Online Shopping Behavior: Evidence From a Field Experiment

    Donald Ngwe and Thales S. Teixeira

    Online retail accounts for a rapidly growing proportion of revenues in many industries. While online retail broadens firms’ access to consumers, operating margins are often lower in online stores than in physical stores. There are well-recognized reasons for this discrepancy: prices are easy to compare online, discount coupons and codes have high uptake, and sellers often bear the cost of shipping products to buyers. In addition to these factors, online selling precludes many methods of price discrimination exercised in offline environments. Most online stores are designed for low friction shopping, with few barriers to finding and purchasing discounted products. We propose that deliberately increasing search frictions by adding obstacles to locating discounted items can improve online retailers’ margins by inducing consumers to self-select into “paying with money” (low discount) or “paying with effort” (high discount). In a series of field experiments conducted with an online fashion and apparel retailer, we show that making it harder for consumers to find highly discounted products reduces the average discount of items purchased while not diminishing the conversion rate or the average selling price. Using information from historical transaction data about each existing consumer, we demonstrate that price-sensitive shoppers are more likely to exert effort in order to locate heavily discounted items. Our results show that adding search frictions can be used as a self-selecting price discrimination tool to match high discounts with price-sensitive consumers and full-priced offerings with price-insensitive consumers.

    Keywords: e-commerce; online retail; effor; search costs; price discrimination; Marketing; Consumer Behavior; Price; Fashion Industry; Retail Industry; Southeast Asia; Philippines;

    Citation:

    Ngwe, Donald, and Thales S. Teixeira. "The Impact of Increasing Search Frictions on Online Shopping Behavior: Evidence From a Field Experiment." Working Paper, July 2017.  View Details
  2. Fake Discounts Drive Real Revenues in Retail

    Donald Ngwe

    Prices in a wide variety of contexts are often presented in three parts: an original or suggested list price, a discount off that price, and the final selling price. Limited empirical evidence is available that speaks to the relative impact of each component on purchase behavior, even as theories abound. Measuring these impacts is of critical importance to sellers, consumers, and to regulators who are keen on enforcing deceptive advertising guidelines against "fictitious pricing," or the practice of quoting list prices that do not truthfully reflect prior selling prices. This paper uses a large retail transactions data set that features wide variations in these pricing components within a relatively homogeneous product space. The data set has the unique feature of containing sales records wherein a subset of products have verifiably fictitious list prices and discounts, allowing for measurement of their impact on purchase incidence in actual retail settings. I outline the broad theories that address fictitious pricing, list their corresponding predictions, and examine their relevance empirically. I find that fake list prices have a strong influence on purchase outcomes, with a 1-dollar increase in the list price having the same positive effect on purchase likelihood as a 77-cent decrease in the actual selling price. This effect is largely invariant to consumers' experience with the brand, as inferred from their prior purchases. In addition, I find evidence for the dependence of this effect on store-level reference points such as the lowest offered discount within the store. These results have important implications for how managers should set each pricing component to maximize profits, as well as for how regulators should assess the welfare effects of allowing firms to post fake list prices.

    Keywords: pricing; discounts; Sales; retail; Marketing; Price; Misleading and Fraudulent Advertising; Sales; Measurement and Metrics; Retail Industry;

    Citation:

    Ngwe, Donald. "Fake Discounts Drive Real Revenues in Retail." Working Paper, October 2017.  View Details
Cases and Teaching Materials
  1. Zalora Philippines: From Growth to Profitability

    Donald Ngwe and Thales Teixeira

    In May 2015 Paulo Campos, co-founder and CEO of Zalora Philippines, found himself at a crucial turning point in his young company’s development. In just three years, Zalora had come from entering the Philippine fashion retail industry as an unknown quantity to becoming a household name across the Southeast Asian archipelago. Campos and his team had achieved much in this time: launching one of the first online retailers in the country, building a logistics network from scratch, acquiring customers at an astonishing pace, and signing up major brands to offer on Zalora.com.ph. But now his investors were ready for him to shift gears and focus on turning a profit within the next two years. Zalora Philippines was part of Zalora Group, a Singapore-headquartered online fashion retailer that operated across Southeast Asia. Zalora Group, in turn, was part of a global entity called Global Fashion Group (GFG), which owned online fashion retailers and brands in emerging markets across the world. In addition to Zalora in Southeast Asia, GFG owned Dafiti in South America, Namshi in the Middle East, Jabong in South Asia, Lamoda in Eastern Europe, and The Iconic in Australia. GFG’s principal investors were Kinnevik, a Swedish investment company, and Rocket Internet.

    Keywords: Online Technology; Business Subsidiaries; Business Growth and Maturation; Fashion Industry; Retail Industry; Sweden; Southeast Asia; Philippines;

    Citation:

    Ngwe, Donald, and Thales Teixeira. "Zalora Philippines: From Growth to Profitability." Harvard Business School Case 517-009, September 2016. (Revised September 2017.)  View Details
  2. Planters Nuts (B): The Power of the Peanut

    Robert J. Dolan and Donald K. Ngwe

    This case picks up from the events in Planters Nuts and describes how the new management team for Planters turned the brand around in 2013 by implementing a new brand positioning accompanied by a multimillion dollar marketing campaign.

    Keywords: Product Positioning; Marketing; Transformation; Food and Beverage Industry;

    Citation:

    Dolan, Robert J., and Donald K. Ngwe. "Planters Nuts (B): The Power of the Peanut." Harvard Business School Supplement 516-012, August 2015. (Revised March 2017.)  View Details
  3. Planters Nuts

    Robert J. Dolan and Donald K. Ngwe

    In 2012 Planters had about $1 billion in U.S. annual revenues, but had experienced declining unit sales and household penetration over the past six years. The snack nuts category was growing overall, but household spending was shifting away from peanuts, cashews, and mixed nuts—Planters' core business—to almonds and pistachios. A new brand management team for Planters had to develop a plan to reinvigorate the still largest brand in the category, and specifically to decide whether to focus on rebuilding its traditional product categories or on attempting to capitalize on the newer nut categories. Central to this process were questions of segmentation, targeting, and positioning.

    Keywords: Product Marketing; Product Positioning; Marketing Strategy; Food and Beverage Industry;

    Citation:

    Dolan, Robert J., and Donald K. Ngwe. "Planters Nuts." Harvard Business School Case 516-004, August 2015. (Revised March 2017.)  View Details