Customer Welfare Research Articles

Value creation through knowledge management in franchising: a multi-level conceptual framework

Purpose– The purpose of this paper is to present an integrative systems model of knowledge management (KM) across the franchisor-franchisee-customer triad. The conceptual development of this paper focuses on the areas of knowledge development, knowledge transfer and knowledge use within the context of dyadic monitoring, and key relational outcomes (partner congruence, relationship quality, perceived conflict, opportunism), and performance results (franchisor, franchisee and customer welfare).Design/methodology/approach– This paper critically reviews the relevant literatures in order to address three conceptual goals exemplified by the following research questions. How does knowledge development and organizational learning effectively facilitate knowledge transfer and knowledge usage in franchise systems? What role does monitoring play in the relationship between the knowledge management processes and the welfare of franchisors and franchisees? How does the process of knowledge management (development, synthesis, transfer, usage) influence franchisor, franchisee and customer welfare?Findings– An extensive review of the literature results in ten key research propositions being offered and these are graphically presented in the conceptual model in Figure 1. This model represents a multi-level perspective of KM which provides a solid platform for future empirical studies and further academic discussion.Originality/value– This paper makes two key contributions. First, through adopting an integrative KM perspective it draws attention to many (as yet) unanswered questions concerning the franchise relationship. Second, it re-positions KM research beyond consideration at a singular (firm, employee, supplier or customer) level by focusing on intra-firm and firm-customer linkages in the value creation process.

Joint decision on pricing and advertising for competing retailers under emergency purchasing

This paper investigates an inventory decision problem under the pricing and advertising dependent stochastic demand, and considers a joint decision on pricing and advertising for competing retailers who operate short-life-cycle products under emergency purchasing. The results indicate that the retailer always prefers to advertise whether under a single or dual channel system. However, both the optimal prices and stocks increase, whereas customer welfare decreases.

An investigation about joint life policy's premium using Copula; The Case study of an insurance company in Iran

A copula is a function that links univariate marginal's to their full multivariate distribution. Copulas were introduced in 1959 in the context of probabilistic metric spaces. Copula models are becoming increasingly popular for modeling dependencies between random variables. The ranges of their recent applications include such fields as analysis of extremes in financial assets and returns, failure of paired organs in health science, and human mortality in insurance. Our contribution in this paper is to introduce joint life insurance as it is not offered by Iranian insurance companies. We are going to show importance and usefulness of this policy for both insurer and insured. For this reason, we use copula in order to calculate joint life insurance premiums by applying appropriate actuarial formulas using MATLAB and SPSS software. Based on our findings, a joint life insurance premium is lower than the sum of two policies which is bought separately. This means that insurers can charge lower premiums which enable them to increase their market share. On the other hand, lower premiums can increase customer's welfare.

Assessing the Impact of Gasoline Sales-Below-Cost Laws on Retail Price and Market Structure: Implications for Consumer Welfare

The effectiveness of gasoline-specific sales-below-cost (SBC) laws designed to limit firms' predatory behavior is yet to be determined. To provide policy makers with conceptual and empirical insights into this issue, the authors propose and empirically test a simultaneous equations model grounded in the structure–conduct–performance framework that assesses the direct and indirect impacts that SBC laws have on market structure (number of sellers) and on the wholesale and retail prices of gasoline. Unlike other SBC studies, which are more cross-sectional in nature and focus on a limited number of areas, the authors use monthly gasoline wholesale and retail prices from 1983 to 2010 for all 50 states. This approach is advantageous because it includes the opportunity to assess the long-term impact of SBC laws and transitional effects as states enact or repeal SBC legislation. The results suggest that SBC laws reduce retail prices directly and indirectly by increasing the number of sellers, thus improving customer welfare.

Optimal Multi-Period Pricing with Service Guarantees

We consider the multi-period pricing problem of a service firm facing time-varying capacity levels. Customers are assumed to be fully strategic with respect to their purchasing decisions, and heterogeneous with respect to their valuations, and arrival-departure periods. The firm's objective is to set a sequence of prices that maximizes its revenue while guaranteeing service to all paying customers. Although the corresponding optimization problem is non-convex, we provide a polynomial-time algorithm that computes the optimal sequence of prices. We show that due to the presence of strategic customers, available service capacity at a time period may bind the price offered at another time period. Consequently, when customers are more patient for service, the firm offers higher prices. This leads to the underutilization of capacity, lower revenues, and reduced customer welfare. Variants of the pricing algorithm we propose can be used in more general settings, such as a robust optimization formulation of the pricing problem.

Assessing the Impact of Gasoline Sales-Below-Cost Laws on Retail Price and Market Structure: Implications for Consumer Welfare

The effectiveness of gasoline-specific sales-below-cost (SBC) laws designed to limit firms' predatory behavior is yet to be determined. To provide policy makers with conceptual and empirical insights into this issue, the authors propose and empirically test a simultaneous equations model grounded in the structure–conduct–performance framework that assesses the direct and indirect impacts that SBC laws have on market structure (number of sellers) and on the wholesale and retail prices of gasoline. Unlike other SBC studies, which are more cross-sectional in nature and focus on a limited number of areas, the authors use monthly gasoline wholesale and retail prices from 1983 to 2010 for all 50 states. This approach is advantageous because it includes the opportunity to assess the long-term impact of SBC laws and transitional effects as states enact or repeal SBC legislation. The results suggest that SBC laws reduce retail prices directly and indirectly by increasing the number of sellers, thus improving customer welfare.

The Effect of Rain on the Decision to Visit a Theme Park

Using the data obtained from a theme park, this study assesses the effect of rain on the behavior of theme-park visitors. The study proposes a new method for identifying the effects of weather by modeling theme-park consumer behavior based on a two-stage decision-making process. In the first stage, potential visitors make a decision to visit in advance based on weather forecasts; in the second stage, the visitors determine which pass to purchase based on the actual on-site weather conditions. The empirical results suggest that people visit the park less when it rains, but the likelihood of their visiting depends on the exposure to weather forecasts. Specifically, a rainy day on which rain was forecast brings significantly fewer visitors than a day on which no rain was forecast. However, the reduction in the number of visitors increases the likelihood that a visitor will purchase the more expensive unlimited day pass; smaller crowds make an unlimited day pass more appealing to those visitors who choose to attend. Based on these findings, this article illustrates how to develop more attractive tickets or pricing schemes. Importantly, rough weather can be a great opportunity for theme parks to identify and exploit the inherent preferences of visitors in order to enhance customer welfare and park profits.

Estimating the marginal cost of quality improvements: The case of the UK electricity distribution companies

The main aim of this paper is to develop an econometric approach to the estimation of marginal costs of improving quality of service. Estimating marginal costs of quality can help energy regulators to design more effective incentive mechanisms for network utilities to achieve optimal quality levels and reduce welfare losses due to sub-optimal quality. We implement this methodology by way of applying it to the case of the UK electricity distribution networks. The proposed method allows us to measure the welfare effect of the observed quality improvements in the UK between 1995 and 2003. Our results suggest that the regulatory incentives to reduce service interruptions have not been strong enough to achieve economically efficient levels of service quality. We, find that the incentives to encourage utilities to reduce network energy losses have led to to performance improvement. We estimate that the observed improvements in quality during the period of the study only represented about 20% of the potential customer welfare gains, hence leaving considerable scope for further economically efficient improvements in service quality.

Managing Utility Cashflow Instability Under Conservation‐based Rates

Increasingly limited or unreliable water supplies, higher costs, and greater conservation awareness have induced many water customers to permanently reduce their water demands. In some water utilities, stagnant economic growth has compounded these effects to further reduce consumption. Despite the drains on utility revenues from reduced sales, utility rate‐setting bodies are often hesitant to raise rates out of concern for the financial welfare of utility customers, who are also faced with financial challenges. Too often the result is a cutback in capital spending that provides relief limited only to next year's budget.

Agoricus

This article is written as a dialogue with the central question, “What constitutes the essence of a ‘good’ businessperson?” Written in the form of a Platonic dialogue, this is an imaginary exchange between Socrates and Agoricus, the fictitious son of a well-respected businessperson of Athens at a time of unethical business practice. Various qualities are entertained in terms of defining a successful and good businessperson, including producing quality products at low prices, effective sales techniques, creativity and innovation, respectful treatment of the customer, business “know-how” (e.g. accounting), contributing to the community welfare, as well as being honest and trustworthy. Eventually the discussion winds its way to a kind of care and concern for customer welfare and satisfaction, leaving the initial question partially answered, while raising another question related to the proper way of teaching business. Connections to classical and contemporary business readings are made throughout the dialogue by the use of footnotes. This only adopts the format of a Platonic dialogue for purposes of exploring the question. However, the dialogue does not claim to represent the ideas or position that Socrates or Plato might take on the question at hand.

Customer equilibrium and optimal strategies in Markovian queues in series

We consider series of M/M/m queues with strategic customer behavior. Customers arrive to the first queue and decide whether to enter the system or balk and, if they enter, up to which queue to proceed before departing. Each customer makes an independent decision, with the objective of maximizing her total net benefit, which is equal to the value of service minus a cost due to expected delay. We formulate the customer decision as a game and identify the unique symmetric Nash equilibrium strategy, which is expressed in a backward recursive form. We also analyze the problem of maximizing the total customer welfare and establish the relationship between the equilibrium and the welfare maximizing strategies.

Management Insights

Management Insights

White response to potentially discriminatory actions in a services setting

Discrimination in the marketplace is a significant problem for many blacks and for service providers. However, recent research suggests that some whites may respond similarly to blacks when they witness what they perceive to be a discriminatory act in a service encounter. Using an experimental design methodology, this research investigates the extent to which this occurs. The degree to which an observing customer values the other customer's welfare and feels empathy has been found to explain differences in service failure perceptions among white study participants. White participants high in empathy for blacks were found to react similarly to blacks relative to the inherent negativity of the service failure. This suggests that a service failure involving black customers that hints of discrimination has a greater overall impact on the long-term success of the service firm than originally envisioned. © 2011 Wiley Periodicals, Inc.

Selecting distribution channel strategies for non‐profit organizations

PurposeThe purpose of this paper is to better understand the selection of a distribution channel strategy for a non‐profit organization selling products or services to its end customers.Design/methodology/approachTwo channel strategies are generally considered: an integrated channel where the non‐profit organization sells its products or services using its own selling departments or branches; and a decentralized channel where the non‐profit organization sells through a for‐profit retailer. The fundamental question is: how should a non‐profit organization select its distribution channel strategy under certain market conditions?FindingsIt was found that selecting a decentralized channel strategy results in an optimal retail price that is higher than that under an integrated channel strategy, which results in lower customer welfare under the decentralized channel. It was also found that a decentralized channel behaves as an integrated fully for‐profit channel. Thus, whether a non‐profit organization should choose an integrated or a decentralized channel when facing competition from an integrated or a decentralized fully for‐profit channel depends on its cost structure and the level of substitutability of the products or services offered by the two channels.Practical implicationsWhen competing with an integrated fully for‐profit channel, the non‐profit organization is better off using an integrated channel under strong competition or a decentralized channel under weak competition. When competing with a decentralized fully for‐profit channel, the selection is more complicated. It was found that a decentralized channel is the best choice if the price competition factor, where threshold value depends on the cost structure, is large.Originality/valueNon‐profit organizations have a clear (perhaps increasing) need for distribution centers or retailers in order to reach people who need their products or services. Moreover, it has been reported that the interactions between for‐profit and non‐profit sectors continue to grow, thus increasing the forms of community involvement available to reach people. It is thus clear that additional research is needed to better understand the selection of a distribution channel strategy for a non‐profit organization selling products or services to its end customers, and also the related managerial implications.

‘Consumer’ versus ‘Customer’: The Devil in the Detail

According to the European Commission, the objective of EU competition rules is enhancing ‘consumer welfare’. In EU competition law, however, ‘consumer’ means ‘customer’ and encompasses intermediate customers as well as final consumers. Under Article 102TFEU, harming intermediate ‘customers’ is generally presumed to harm ‘consumers’ and where intermediate customers are not competitors of the dominant undertaking, there is no requisite to assess the effects of conduct on users further downstream. Using advances in economics of vertical restraints and, in particular, non‐linear pricing, this article shows that there are instances where the effect on ‘customer welfare’ does not coincide with the effect on ‘consumer welfare’ and the presumption can potentially lead to decisional errors. Thus, if the law is to serve the interests of ‘consumers’, the Commission should reconsider this presumption and its interpretation of the ‘consumer’ in ‘consumer welfare’; otherwise, it remains questionable whose interests EU competition law serves.

온라인 사용후기 내용분석을 통한 디지털 제품에 대한 구매자의 평가와 감성체험 분석

This study intends to provide foundational data for enhancing the welfare of customers purchasing digital products through analyzing the notes from written on-line reviews. The data used for the analysis are 6,342 on-line reviews for cell phones and digital cameras released from November, 2007 until April, 2008, which was posted on Naver Knowledge Shopping from November, 2007 until June, 2008. Through the on-line reviews, this article analyzed the evaluations on the digital products' hardware, software, design, service, price, and other criteria and the customers' emotional experience in the process of purchase, use, and possession. According to the results of the analysis, negative evaluation and emotional experience were originated from the company's information provision methods and purchase process. In addition, insufficient information searches in the process of online purchases, consumers' low right consciousness, and impolite on-line reviews were also problematic. Customers' evaluations and emotional experiences on digital products were conducted in a complex way. Based on that, this research makes suggestions in the company's marketing, customer education, and theoretical aspect.

Reducing the level of switching costs in mobile communications: The case of Mobile Number Portability

Switching costs are one of the most important economic forces that affect market competition in mobile communications. Both theoretical and empirical studies have shown that switching costs reduce market competition leading to higher prices, lower product and service quality, and lower customer welfare. Given their negative consequences, national regulatory authorities have designed policies aimed at reducing switching costs and fostering competition. One of the most important of these, in the mobile communications industry, is mobile number portability (MNP). The aim of this paper is to investigate the effect of MNP on switching costs in mobile phone services. First, a hierarchical Bayes model is proposed to measure switching costs at the customer level and to investigate the impact of MNP on them. Second, this study examines the drivers of MNP adoption by customers using a binary logit specification. The results reveal that this regulatory policy has significantly reduced the cost of switching and that MNP adoption partially depends on customer-related variables.

Shaping professional identity for sustainability. Evidence in Finnish public catering

Catering for sustainability is often presented as a legitimate perspective for caterers to promote more equitable economic development locally and across distances through food procurement, integrated with environmental protection and concern for the welfare of customers and staff. Caterers are thus seen as agents responsible for sustainable food systems within their reach. This paper explores how public caterers use their position and productive intelligence in promoting a sustainable food system within the power field of their contextual networks. This article crystallises this ‘agency for sustainability’ as professional identity for sustainability, the shaping of which is analysed in Finnish public catering. The paper identifies eased and positive, troubled and critical as well as delimited and distancing approaches for sustainability, with respective views and efforts for sustainable food systems. The shaping of professional identity for sustainability could serve as co-operative platform for future contextual developments towards more sustainable food systems. Such progress could result in better alignment with political guidelines for sustainability and caterers’ satisfaction due to their heightened professional position reaching beyond ‘kitchen walls’ to construct everyday sustainability.

Might randomization in queue discipline be useful when waiting cost is a concave function of waiting time?

This paper suggests that introducing randomization in queue discipline might be welfare enhancing in certain queues for which the cost of waiting is a concave function of waiting time. Concavity can make increased variability in waiting times good not bad for aggregate customer welfare. Such concavity may occur if the costs of waiting asymptotically approach some maximum or if the customer incurs a fixed cost if there is any wait at all. As examples, cost might asymptotically approach a maximum for patients seeking organ transplants who will not live beyond a certain threshold time, and fixed costs could pertain for knowledge workers seeking a piece of information that is required to proceed with their current task, so any delay creates a “set up charge” associated with switching tasks.

Patent Holders' Contractual Restrictions on Downstream Purchasers in the United States and European Union through Quanta Prism

The Quanta judgement clarifies the US patent exhaustion doctrine on the basis of an authorized sale by the patent holder. It also contributes to the prism of patent‐antitrust‐contract laws to scrutinize contractual restrictions better on downstream purchasers. There are two main steps in the process of applying this prism. The first step is to determine the patent exhaustion issue. The second step is to evaluate such contractual restrictions through either the intersection of patent and antitrust laws or the intersection of contract and antitrust laws, or both intersections in some special cases. The correctness of determining both whether patent exhaustion is triggered and how antitrust law intervenes as a second filter plays a very important role in applying the Quanta‐inspired prism. Through this prism, some Federal Circuit's decisions are re‐visited, and the European Union perspective is analyzed in comparison with the US perspective. This article concludes that patent holders' contractual restrictions on downstream purchasers will be properly scrutinized under the prism of patent‐antitrust‐contract laws if promoting innovation and competition on the market as well as protecting customer welfare are respected.