Strategic Customer Research Articles

Reselling or agency model under markdown pricing policy in the presence of strategic customers

This paper establishes a game‐theoretic model to investigate the effect of strategic customers on the business model choice between the reselling and the agency models under a markdown pricing policy. We find that the supplier always prefers the agency model whereas the retailer's preference depends on the commission rate, the proportion of strategic customers, and the supplier's inventory level. Results also reveal that regardless of the business model, the proportion of strategic customers, the patience level of strategic customers, and the supplier's inventory level are three driving forces in the markdown pricing policy. Finally, different from the conventional wisdom that suggests the centralized decisions always outperform the decentralized decisions, we find that the decentralized decisions under the agency model can achieve the same performance as the centralized decisions when the supplier has a relatively small inventory level. Surprisingly, when the supplier has a relatively large inventory level, the agency model outperforms the centralized model since the former leads to lower prices and stimulates more demand.

Hidden city travel and its impact on airfare: The case with competing airlines

Hidden city pricing is an anomaly in airline pricing where a direct flight from A to B is more expensive than a multi-leg flight from A to B and B to C. In this case, customers wanting to travel from A to B may consider purchasing the connecting flight from A to C, deplane in B, and throw away the second leg of the itinerary. This practice is called hidden city ticketing. We study the cause and the impact of hidden city ticketing. The airline industry has perceived this practice harmful to profitability and has taken measures to discourage such practice. We build a stylized model where two airlines compete on a hub-and-spoke airline network and use a game theoretic approach to study airline and consumer decisions. We find that hidden city pricing can arise when an airline lowers the price of its indirect flight to compete with the competitor’s direct flight on the same route. We also find that strategic customers who seek hidden city traveling opportunity can attenuate competition by limiting the airlines’ ability to lower their price for connecting flights. Thus, when customers in the market start practicing hidden city ticketing, airlines face less competition and may be able to charge higher prices. Our results provide future-looking perspective on what may happen to the equilibrium airfare if customers start practicing hidden city ticketing.

Individual and social customers’ joining strategies in a two-stage service system when discount is offered to users of smartphone application

The use of smartphone applications (APP) for the purchase of services, such as food, flights or household goods, is becoming an increasingly common practice. This practice generates two- phase service systems composed of (i) an ordering phase operated by several servers (under a dynamic vacation policy), and (ii) a following preparation phase. Upon arrival, strategic customers can either join an observable first-stage queue and then continue to a partially unobservable second-stage queue, or balk never to return. In contrast, APP users register their order in advance, skip the first phase and join directly the second-stage queue. Each server stationed at the first service stage takes a ‘vacation’ when a server-dependent queue size drops below a given value. An individual strategic customer is concerned only with his/her net utility, while a social customer is concerned with the overall social welfare. Each type of customers follows a threshold-joining policy. However, contrary to Naor's seminal model, we show that under such a scenario, the social joining threshold is not always smaller than the individual one, and that several equilibrium thresholds may exist. We analyze the profit optimization problem of the service system's manager when a price discount is offered to potential APP users and show that it may increase manager's profit, reduce customers’ sojourn times, reduce the first-stage queue size, and reduce the number of servers required to operate the first-stage queue. Numerical examples are presented.

Strategic target customers of food and beverage offerings in full-service hotels: Outside-hotel customers

A strategic focus by full-service hotels to attract outside-hotel (i.e., non-hotel) customers significantly improves their operating performance in both the food and beverage (F&B) department and the rooms department. In these aspects, a full-service hotel’s unique gastronomic resources should be considered important attributes for attracting niche gourmet tourists and developing a strategic competitive advantage. Targeting outside-hotel customers can also be beneficial for generating additional cash flow and improving gastronomic brand awareness. Therefore, most full-service hotels should substantially redefine their F&B offerings and target customers, as focusing heavily on in-house guests is not an effective business strategy but rather a waste of costly resources. Full-service hotels should proactively expand their F&B offerings to local residents and compete with independent local F&B premises in various business aspects.

The value of reneging for strategic customers in queueing systems with server vacations/failures

Customer strategic behavior regarding the join-or-balk dilemma in queueing systems with server vacations/failures has been studied intensively in the recent literature. The standard assumption in these studies is that joining customers are not allowed to renege later. In the present paper we relax this assumption and quantify the value of reneging for strategic customers who face a queueing system with server vacations/failures. To focus on the reneging feature, we study the customer strategic behavior in the simplest such system, that is in the M/M/1 queue with a server alternating between on and off periods. We show that the possibility of reneging has substantial effect on the equilibrium social welfare and throughput. In particular, as the reward from service varies in a given system, it becomes beneficial to activate or deactivate the option of reneging to ensure a higher welfare. Moreover, we show that the effect of the reneging option is particularly significant in the case where the original system with non-strategic customers is unstable.

Queueing Systems with Rationally Inattentive Customers

Problem definition: Classical models of queueing systems with rational and strategic customers assume queues to be either fully visible or invisible, while service parameters are known with certainty. In practice, however, people only have “partial information” on the service environment, in the sense that they are not able to fully discern prevalent uncertainties. This is because assessing possible delays and rewards is costly, as it requires time, attention, and cognitive capacity, which are all limited. On the other hand, people are also adaptive and endogenously respond to information frictions. Methodology: We develop an equilibrium model for a single-server queueing system with customers having limited attention. Following the theory of rational inattention, we assume that customers optimize their learning strategies by deciding the type and amount of information to acquire and act accordingly while internalizing the associated costs. Results: We establish the existence and uniqueness of a customer equilibrium when customers allocate their attention to learn uncertain queue lengths and delineate the impact of service characteristics. We provide a complete spectrum of the impact of information costs on throughput and show numerically that throughput might be nonmonotone. This is also reflected in social welfare if the firm’s profit margin is high enough, although customer welfare always suffers from information costs. Managerial implications: We identify service settings where service firms and social planners should be most cautious for customers’ limited attention and translate our results to advisable strategies for information provision and service design. For example, we recommend firms to avoid partial hindrance of queue-length information when a low-demand service is not highly valued by customers. For a popular service that customers value reasonably highly, however, partial hindrance of information is particularly advisable. Academic/practical relevance: We propose a microfounded framework for strategic customer behavior in queues that links beliefs, rewards, and information costs. It offers a holistic perspective on the impact of information prevalence (and information frictions) on operational performance and can be extended to analyze richer customer behavior and complex queue structures, rendering it a valuable tool for service design. Supplemental Material: The online appendix is available at https://doi.org/10.1287/msom.2021.1032 .

Introduction to the Special Issue: “The age of digital internationalization—Strategic capabilities, cultural distance and customer value”

This article develops a more fine-grained understanding of the relevant interfaces between firm digitalization and internationalization. Based on the close observation of the peculiarities of the digital age and its effects on the application of the extant international business theories and approaches, as well as the content of the papers contained in this issue, we take the view of “digital internationalization”. We provide an original definition for digital internationalization and introduce a digital internationalization interpretive framework encompassing its three key constituents (i.e., strategic capabilities, cultural distance and customer value) and the unifying mechanism (i.e., generativity rule) to achieve firms’ digital internationalization. This framework bears, in our understanding, a bouquet of implications helpful not only to scholars and researchers, but also to managers, entrepreneurs, consultants and investors operating in profit and non-profit organizations.

Impact of loyalty program investment on firm performance: Seasonal products with strategic customers

Customer loyalty programs are often used by retailers as an important marketing tool. As an essential element of loyalty programs (LPs), the reward amount invested by the retailer is often linked to retailer's profit and customer behavior. We consider a retailer who sells a type of product in two periods to strategic customers. The retailer makes inventory ordering and loyalty program investment decisions. Customers decide whether to purchase immediately (in period 1) to receive the product and reward, or to wait for a markdown discount but face the risk of stockout. We have focused on three main questions: (1) How does the loyalty reward investment decision impact strategic customers’ behavior? (2) What are the optimal decisions and profits for the retailer when investing in a loyalty program? (3) What are the factors influencing the reward investment decision? We find that investing in the loyalty program induces more customers to make an early purchase, leading to a higher inventory ordering decision and more profit for the retailer. The benefits from reward investments are significantly affected by the product's cost and customers’ valuation of the product. Our results shed light on the reward investment decision of LPs. For products with high profit margins and market-determined prices (valuation approximates price), the retailer should invest in a loyalty program to achieve better profits.

Customer segmentation to identify key customers based on RFM model by using data mining techniques

The main goal of this research is to identify key or strategic customers using the RFM model. In this part after determining the amount of RFM (recency, frequency, and monetary) in, registered transactions of one store in Iran (Refah Chain Store) at a time about seven months from 23 September 2017 to 20 April 2018 (71161 transactions as final inputs were used), the weight of each variable according to the fuzzy analytic hierarchy process was determined. At the next stage customers using the K-means and Two-step’s algorithms were clustered and K-means the method according to the Silhouette index was the better algorithm of this letter. According to the results, customers were segmented into three parts and customer lifetime value was calculated and for identifying key or strategic customer segmentation, the clustering process was repeated and priorities of all clusters were indicated. Results of data analysis are below: Segment 3: customers of this segment were 3425 members and 11.5% of all company customers were the most loyal customers those are identified as golden customer's segment and all of the variables were higher than average of all data. This research identified the valuable customers for the shop, and it gives them a chance to choose goal customers and invest in them, but it doesn’t mean that the shop doesn’t pay attention to the other customers, and they limited their effort to satisfy their profitable customers but it means that they allocated a suitable budget for performing the relationship programs with customers

New fuzzy RFMD model. A method to identify new customer profiles due to an increase in online activity. Case study of a retail business

Gaining customer loyalty has become one of the main objectives of all companies. Retailers, especially the online ones, have the advantage of knowing their customers’ historical purchase data, which provides them with an understanding of the customers’ buying patterns. A widely-used tool in strategic marketing and customer loyalty is segmentation based on the traditional Recency, Frequency and Monetary (RFM) model. Subsequently, the fuzzy RFM model proved to be an improvement on the traditional RFM model. There has been a change in the retail customer profile, with the growth of a new cluster, the “One-Shot Customer”, new customers that buy from a retailer just once and never come back. In response to this change, the fuzzy RFM model has been modified to include a new dimension capturing Length or Duration. This study presents the new fuzzy RFMD model (Recency, Frequency, Monetary and Duration model), which can be used to better identify that new, large group of customers. The paper also provides a case study based on an e-commerce clothing retailer. Its customer database was segmented using the k-means algorithm and the Isolation Forest algorithm was applied to identify and correctly treat possible anomalies. The Customer Lifetime Value and the weights for the RFMD attributes were calculated by applying the Analytic Hierarchy Process (AHP) model. Results reveal the improvement that the weighted fuzzy RFMD model offers to retailers, enabling them to detect the One-Shot Customers and thus optimize their strategic marketing plans.

Demand Postponement with Strategic Service Customers

We study capacity decisions in a service environment with seasonal arrival rates and strategic customers. Due to seasonality, the firm uses a postponement strategy where compensation is given to the peak-time customers who cannot be served in the peak time and agree to delay service. We extend the analysis of demand postponement to the case with strategic customers, i.e., off-peak customers who may pretend to be peak-time customers purely to receive the postponement discount. Focusing on the capacity and discount decisions for the service provider, we develop a game-theoretic model to study when the service provider should consider using a postponement strategy in the presence of strategic customers. At the first stage, the service provider decides on the capacity level and discount. At the second stage, strategic customers decide whether to show up in the peak time. We find that strategic customers exhibit a “follow-the-crowd” type of behavior. Unsurprisingly, we find that the presence of strategic customers does not benefit the service provider. More interestingly, we find that the presence of strategic customers may benefit the peak-time customers, unlike the inventory literature with strategic (arrival-timing) customers, in which the supplier’s response is usually detrimental to non-strategic customers. In the presence of strategic customers, the supplier needs to offer a lower discount or build more capacity than without strategic customers. If the supplier does not have control over the discount value, she might need to build excess capacity to prevent the strategic customers from showing up in the peak time.

SUPPLY CHAIN MANAGEMENT, COMPETITIVE ADVANTAGE AND ORGANIZATIONAL PERFORMANCE IN THE NIGERIAN MANUFACTURING SECTOR

In this study, we examined the impact of supply chain management practices (SCMP): strategic supplier partnership, customer relationship, level of information shared, and information quality on competitive advantage and organizational performance in the Nigerian manufacturing sector. In so doing, this study was set out to find out if these practices generate conditions that promote higher or lesser competitive advantage and organizational performance. The survey research design was adopted because the characteristics of the respondents were fully captured in other to make important decisions. A total number of 122 were found usable out of 146 copies of questionnaire circulated. The structural equation modelling (SEM) was the estimation technique employed to measure the relationships among the various variables/constructs using AMOS 22.0. It was found out that the four predictors (strategic supplier partnership, customer relationship, level of information shared, information quality) of SCMP had significant impact on organizational performance. The study also revealed that of the four independent variables, three (strategic supplier partnership, customer relationship, and level of information shared) had significant impact on competitive advantage, while information quality had no significant impact on competitive advantage. In response to our research questions, we concluded that the four constructs or predictors generate conditions that promote higher competitive advantage and organizational performance in the Nigerian manufacturing sector. The study recommended that manufacturing organizations should share quality, timely and accurate information to ensure their product offerings can be altered to meet customers while offering competitive prices. The study further recommended that organizations should assist its suppliers to improve product quality; regularly relate with clients to set dependability, receptiveness, and other standards; notify trading partners early when changing needs arises; and have fast product development.

Assessment of the quality of independent nursing practice in Indonesia based on total quality management indicators.

The quality of management has become a problem and significant issue of the late decade in Indonesia's professional nursing practice. By implementing total quality management (TQM), the organization would identify a health organization system's performance to improve patient satisfaction and patient safety for independent nursing practice services. This study aimed to assess the quality of independent nursing practice in Indonesia based on TQM indicators. This study employed a sequential explanatory mixed methods design. Participants were 105 Chief Executive Officers (CEOs) of independent nursing practices who answered a TQM survey using The Malcolm Baldrige Criteria for Performance Excellence (MBCfPE). The quantitative responses were analyzed using SmartPLS version 3.0. For qualitative data, selected six participants from total respondents were interviewed to explore the participants' understanding of TQM. All the responses were transcribed and uploaded using NVIVO ver. 11 for thematic analysis. Leadership positively influenced strategic planning, customer attention, assessment analysis, and information management (focusing on personnel process management and efficiency) (p <0.001). In addition, process management indicated a positive influence on performance results (p <0.001). Interview transcriptions concentrated on the following themes that emerged, such as quality focus, service focus, human resource focus, performance result, leadership, service system design, strategic planning, and information system. TQM with the adaptation of MBCfPE criteria improves the organization's performance and serves as a strategic component in assessing and implementing sustainability change. The findings of this study can be used by CEOs of independent nursing practices for continuous improvement. In addition, the results serve as a basis for the ministry of health for accreditation to ensure the high quality of health care services.

Egan’s Irish Whiskey: a story of heritage and renewal

Learning outcomes The learning outcomes of this paper is as follows: to give faculty the opportunity to illustrate the strategist’s and marketer’s toolbox, namely, tools and frameworks such as the McKinsey 7S model. Porter’s generic marketing strategies. Strengths, weaknesses, opportunities and threats analysis. Political, economic, social and cultural, technological, environment and legal – external macro analysis. The case is intended for use in MBA and Executive education courses in strategy, marketing and leadership. The case offers relevant experiences and instructive lessons in formulating and implementing business strategies. The case highlights the importance of contextual leadership intelligence and competence in enabling entrepreneurial business activities. The case gives students the opportunity to apply a strategic framework to marketing communications, competitive analysis and branding with a new brand and a new name in a first world economy. The case helps students understand that: successful companies are a success because of their people and leadership, proactive thinking and constantly looking for new opportunities will make you a leader in the market, up-to-date competitor and market analysis are paramount in making the winning decision, staying true to one’s business philosophy and company values build a reputable organization, the importance of creating partnerships and healthy relationships with the distribution channel, the concept of competitive advantage, the concept of differentiation, focus and cost leadership and the concept of value and understanding customer needs. Case overview/synopsis The Egan’s Whiskey case offers students a unique opportunity to discover the important, yet grass-root, strategic decisions made by a high-quality alcohol product in a very competitive, well-known brand dominated the market, the USA. The case focuses specifically on issues related to strategic choices and implementation, brand, reputation, leadership, strategic marketing decision-making, customer/retail relationships, customer value and the importance of good marketing intelligence. There are some good examples of out-of-the-box thinking. History reveals that companies with the strongest brands, most proactive leadership, innovative marketing ideas, superb marketing intelligence and deepest relationships with their consumers are the pillars of success. The very assets that define these leading companies provide benchmarks for upcoming organizations. Being complacent and having poor leadership and vision in an ever-demanding customer-driven and competitive environment is a recipe for failure. Organizations and their leadership teams need to start thinking systematically, proactively and strategically about their place in competitive markets and take quick actions to mitigate risks and miss opportunities before they become reality. This case reveals the importance of understanding your strategic landscape, your market, your competitors, your customers, quick thinking and actions and having a rolling strategic plan, which is adaptable. Complexity academic level The case is intended for use in MBA and Executive education courses in strategy, marketing and leadership. Supplementary materials Teaching Notes are available for educators only. Subject code CSS 11: Strategy.

Virtual reality marketing and customer advocacy: Transforming experiences from story-telling to story-doing

Marketing managers strive to build branded experiences that both excite and engage their customers in novel ways in order to enhance attitudes and encourage positive behaviors towards their brands. As it offers immersive and interactive encounters, Virtual Reality (VR) technology is a promising tool for managers to create these experiences, evidenced by increasing and successful VR marketing applications. Yet, the literature offers little guidance on how VR experiences can be strategically designed to create favorable customer perceptions, attitudes, and behaviors. Based on five semi-structured focus groups of 27 VR consumers, this article constructs a framework that deconstructs VR branded experiences into both narrative and social interactions to optimize strategic customer outcomes. An experimental study validates the findings after which practical recommendations to maximize the success of VR branding campaigns and a future research agenda for VR marketing is provided.

Examining the impact of strategic supplier partnership, customer relationship and supply chain responsiveness on operational performance: the moderating effect of demand uncertainty

PurposeThe purpose of this paper is to examine the impact of strategic supplier partnership and customer relationship on supply chain responsiveness and then to analyse the influence of supply chain responsiveness on operational performance in the manufacturing industry in India. In addition to that, this study also investigates the moderating effects of demand uncertainty on the relationship between strategic supplier partnership–supply chain responsiveness and customer relationship–supply chain responsiveness.Design/methodology/approachA structured self-administered questionnaire was developed to collect data from manufacturing companies in India. This study performed the structural equation modelling and moderated regression for testing the hypotheses after ensuring the validity and reliability of identified constructs.FindingsStrategic supplier partnership and customer relationship positively influence supply chain responsiveness, and supply chain responsiveness also positively impacts operational performance. In addition to that, demand uncertainty negatively moderates the relationship between strategic supplier partnership and supply chain responsiveness. However, demand uncertainty does not significantly affect the relationship between customer relationship and supply chain responsiveness.Originality/valueStrategic supplier partnership and customer relationship are firstly investigated as antecedents of supply chain responsiveness. To the best of the author’s knowledge, this study is one of the first to examine the moderating effect of demand uncertainty on the relationship between supply chain practices (strategic supplier partnership and customer relationship) and supply chain responsiveness.

Modeling the diffusion of generation products in the presence of heterogeneous strategic customers for determining optimal marketing-mix strategies

It is well-known that customers’ strategic behaviors can influence the diffusion of new products and, consequently, firms' profit. Thus, firms should consider the strategic behaviors of customers for making their marketing decisions. In this paper, we proposed a new diffusion model for generation products by considering heterogeneous strategic customers and two key marketing variables of pricing and advertising. It was shown that optimal pricing trajectory is a concave curve and there is a threshold for the optimal advertising trajectory. When customers are strategic, firms’ optimal response is to decrease the advertising expenditure and price. We found that the advertising expenditure increases with increasing the discount rate, number of population size, and effectiveness of advertising. Also, firms should reduce the advertising expenditure when the impact of word-of-mouth advertising is high. Among other findings, it was shown that discount rate has a negative effect on the price. Further, higher advertising effectiveness could lead to higher price.

Money-back guarantee in the presence of strategic customer behavior

Anticipating future clearance markdowns, customers can choose purchase timing to maximize their expected utility. Taking into account such strategic consumer behavior, this paper conducts an analytical research for the optimal design of the money-back guarantee (MBG). Our work found that the degree of strategic consumer behavior can have crucial effects on the optimization of MBG. Specifically, offering an MBG in both the regular and clearance sale periods is optimal for the seller when the customers are highly strategic; otherwise, providing an MBG is optimal only during the regular selling period. In addition, customers can benefit from MBG. In particular, offering an MBG only during the regular selling period generates the highest surplus for consumers when they are comparatively highly strategic; otherwise, offering an MBG during both the regular and clearance sale periods is preferable. Furthermore, an MBG can achieve Pareto improvement for the seller and consumers only in the regular selling period with moderately strategic customers. Compared to extant literature, the fundamental contributions of this paper are (1) the revelation that the degree of strategic customer behavior is a critical factor when designing an MBG, and (2) the development of an analytical characterization of the optimization of an MBG in response to different degrees of strategic customer behavior. Our work well substantializes the result that an MBG policy can be an effective tool for addressing strategic customer behavior.

Inventory management and customers` satisfaction in the public health sector in Delta State, Nigeria: marketing analysis

This study investigates the effects of inventory management on customers` satisfaction with lead time as a moderator variable in government-owned hospitals in Delta State, Nigeria. It aims to contribute to the extant literature on inventory management and customer satisfaction in developing countries, focusing on Delta State in Nigeria. Two hundred and sixty-five (265) questionnaires were distributed, comprising one hundred and five to measure inventory management variables administered among Medical Doctors, Nurses, Pharmacists, and Medical Laboratory Scientist. Similarly, one hundred and sixty questionnaires designed to measure customer satisfaction were administered to Patients. The study adopts multiple regression and structural equation modeling to analyze the data. Also, studying the impact of inventory management on customers` satisfaction some marketing analysis approaches were used. The obtained results support the appropriateness of the model as lead time possesses the qualities of a moderator between strategic supplier partnership, lean inventory, and information technology that are proxies of inventory management and customer satisfaction. Besides, the results record a positive and statistically significant relationship between strategic supplier partnership, lean inventory, and customer satisfaction at a 5 percent level of significance, respectively.In addition, lead time has a positive and statistically significant relationship with customer satisfaction. Impliedly, this study concludes that inventory management proxies and lead time drive customer satisfaction. Thus, the government is recommended to focus on the lead time to avert the dearth of basic inventories in the hospitals.

Mobile technology adoption among hotels: Managerial issues and opportunities

Mobile technology in hotels is to provide innovative service solutions for both employees and customers, yet underexplored, and managerial and operational issues remain. This study aims at identifying those issues involved in adopting and implementing mobile technologies by a thematic analysis of focus group interviews of luxury hotel managers and executives. Eighteen managerial issues surfaced, leading to a mobile technology management framework consisting of six themes: strategic goal, customer management, operations management, process design, provider management, and infrastructure management. This mobile technology management framework provides guidelines for the successful adoption and implementation of mobile technologies in hotels. Implications are discussed with future research issues at the end.