Gila E. Fruchter

Selling with “Satisfaction Guaranteed”

Satisfaction Guaranteed is defined as a selling policy assuring that no consumer is worse off after purchase. The authors show that for a wide spectrum of guarantee policies, the most profitable policy is a Satisfaction Guaranteed policy. Setting a price equal to the willingness to pay of satisfied customers, but generously compensating dissatisfied customers for all costs involved, this policy can be a “creative device” to capture back-added economic value created for consumers through the guarantee. Comparing this policy with a no-guarantee policy, a Satisfaction Guaranteed policy comes with a higher price in a monopoly market and in a competitive market. Conditions under which selling with a Satisfaction Guaranteed policy is more profitable than selling without it are derived. Although this policy seems to be an attractive offer to consumers, the authors show that because of its high price, it may not. Easy-to-satisfy consumers are better off without the Satisfaction Guaranteed policy.

Transactions vs. Relationships: What Should the Company Emphasize?

The relevance of transactional and relational marketing variables in relational exchanges is now well established in the marketing literature. However, the knowledge about their relative effectiveness and their optimal mix over time remains very sparse. An analytical model is proposed to help determine optimal decision rules for transactional and relational marketing efforts. Some of the main results are as follows: (a) If the seller benefits from the interaction between the transactional marketing effort and buyer’s commitment, then the seller’s optimal decision rules change over time and depend on the level of the partners’commitment. (b) Otherwise, the seller’s optimal decision rules for the two types of marketing are constant over time. (c) The seller should allocate more resources to relational marketing at the beginning of a relational exchange and, later on, should allocate more resources to transactional marketing.

The Nonpreemptive Priority Map/G/ 1 Queue

This paper considers the nonpreemptive priority queue with MAP (Markovian Arrival Process) arrivals. Since MAP is weakly dense in the class of stationary point processes, it is a fairly general arrival process. Service times of customers of each priority class are independent and identically distributed according to a general distribution function that may differ among priority classes. Using both the generating function technique and the matrix analytic method, we derive various formulas for the marginal queue length distribution of each class. Further, we provide the delay cycle analysis of the waiting time distribution of each class and characterize its Laplace-Stieltjes transform.

Dynamic Targeted Promotions A Customer Retention and Acquisition Perspective

This research analyzes the strategic use of targeted promotions for customer retention and acquisition in a dynamic and competitive environment. The normative analysis shows that a firm’s optimal targeting strategies, both offensive and defensive, depend on its actual market share, the relevant redemption rate of its targeted promotions, customer profitability, and the effectiveness of its targeted promotions. These strategies have the attractive feature of being an adaptive control rule. A firm can operationalize these strategies by adjusting its planned promotional incentives on the basis of the observed differences between actual and planned market shares and between actual and planned redemption rates. In the long run, a focus on customer retention is not an optimal strategy for all firms.

Oligopoly advertising strategies with market expansion

This study extends the literature of dynamic advertising competition by allowing oligopoly competition and market expansion that results from advertising. We find how advertising actions affect market development and how, conversely, market development influences advertising policies over time. Modelling the competition by a differential game, we solve for both time-variant closed-loop and time-invariant feedback Nash equilibrium strategies. The time-variant closed-loop strategy depends on a firms own sales rates and the time-invariant feedback strategy depends on the growth of the market. We discuss the marketing implications of the results. Copyright

Managing Relational Exchanges

The authors propose an analytic model that deals with both behavioral considerations between exchange partners and the determination of relational marketing efforts over time. On the basis of the behavioral marketing literature, they consider three main factors that drive the levels of relational commitments between two exchange partners: the trust/distrust component, the opportunism component, and the relational marketing effort of the seller. Incorporating these factors in a well-known model used in appliedmathematics for “love dynamics,” the authors claim that the issue of managing relational exchanges is an optimal control problem. Their analysis shows that the seller’s optimal policy for determining relational marketing effort over time is either time-invariant or time-variant, depending on whether or not the exchange partners are conservative and the structural and contextual environment of the relationship remains unchanged over time.

Optimal Membership Fee and Usage Price Over Time for a Network Service

This article examines the pricing decision of a provider of network services in the face of a growing market of customer bases that join the network and then have a demand for the service. The authors find the optimal pricing policy consisting of an ongoing membership fee and a usage price that maximizes the sum of discounted profits. Consistent with empirical observations, the authors assume that the average usage demand declines with the number of customers. The authors find that the optimal policy consists of a penetration strategy for the membership fee, low at the beginning, increasing with network size, and a skimming strategy for the usage price, starting high and declining later. The intuition behind the results is that if early adopters are heavy users, it is better to increase network size through a low membership fee and have a high usage price for the heavy users initially.

Conditions on the boundary of the zero set and application to stabilization of systems with uncertainty

Abstract We describe an analytic method for finding the location of the zero set of a vector-valued function which depends on m real variables and n complex parameters. We apply the method to robust stabilization of multivariable linear feedback systems. We find exact measures of the extent of permissible perturbations in the plant and/or the compensator that maintain feedback stability.

Matching Product Attributes To Celebrities Who Reinforce the Brand: An Innovative Algorithmic Selection Model

ABSTRACT Recent studies have revealed that a celebritys endorsement of a product or service positively influenced the purchase intention of the consumer. Such findings have created a necessity to identify the specific characteristics of celebrities that most positively influence an advertisers target audience. This study offers an innovative model for selecting celebrities that will most effectively endorse a specific product. By implementing adaptive conjoint analysis and genetic algorithms in the advertising process, advertisers will newly approach the method of matching product and celebrity from the perspective of product design.

Optimal Management of Fringe Entry Over Time

In this paper, we investigate the problem of a dominant company facing entry of a “competitive fringe” (smaller competitor or fringe of smaller competitors). We seek to identify pricing and advertising (or other promotional strategies) that maximize long-term profits for the dominant firm, under possible reactions of the competitive fringe. Two main situations are considered: •The firms in the fringe are price-takers, but they advertise. •The firms in the fringe are not price-takers and advertise. The possibility of a passive reaction, in the case of a very small fringe, is considered as a particular case. We assume that the rate of change of fringe sales is dynamically related to the current sales, price and advertising efforts of both the dominant firm and the fringe. The higher the dominant firm price, the faster fringe entry. The higher dominant firm advertising effort, the slower fringe entry. Fringe advertising and pricing may counterbalance these effects. Formulating a dynamic game, with the dominant firm as a leader and the fringe as a follower, we present a new methodology for providing time-invariant feedback Stackelberg equilibrium. The methodology relies on finding the relationship between the co-state variables and the state variable. The equilibrium solution is obtained in an implicit form by solving a set of two backward differential equations. To show the applicability of our solution to real situations, we use data from the U.S. long-distance market and find optimal decision rules for AT&T facing the entry of MCI and Sprint during the 1980-1990 period. The feedback equilibrium indicates that while AT&Ts price is decreasing when fringe (MCI and Sprint) sales increase, the fringe price is increasing. AT&Ts advertising is increasing with fringe sales while the fringes advertising increases and then decreases. The comparison with actual behavior indicates that AT&T has adhered closer to the optimal solution in both price and advertising than the fringe.