Thomas S. Gruca

Customer Satisfaction, Cash Flow, and Shareholder Value

In this article, the authors strengthen the chain of effects that link customer satisfaction to shareholder value by establishing the link between satisfaction and two characteristics of future cash flows that determine the value of the firm to shareholders: growth and stability. Using longitudinal American Customer Satisfaction Index and COMPUSTAT data and hierarchical Bayesian estimation, the authors find that satisfaction creates shareholder value by increasing future cash flow growth and reducing its variability. They test the stability of findings across several firm and industry characteristics, and they assess the robustness of the results using multimeasure and multimethod estimation.

Reducing Adverse Selection Through Customer Relationship Management

Adverse selection is an important problem for marketers. To reduce the chances of acquiring an unprofitable customer, companies may screen prospects who respond to a marketing offer. Prospects who respond are often not approved. At the same time, prospects who are likely to be approved are unlikely to respond to a given marketing offer. Using data from a firms customer relationship management system, the authors show how to target prospects who are likely to respond and be approved. This approach increases the number of customers who are approved and reduces the number of applicants who may defect after being turned down. This method can be extended to new customer acquisition and more effective targeting of costly promotions to migrate customers to higher levels of lifetime value.

Convergence across alternative methods for forming strategic groups

We studied the convergence of three different methods for identifying group structure (strategic groups) in a single competitive environment. Using a version of the MTMM matrix, we tested the convergent validity of the concept of strategic groups in a mature, geographically delimited competitive environment. We find significant evidence of convergence between competitive structures identified using archival and perceptual data as well as those identified using archival measures of strategy and direct measures of competitors. There is limited evidence of convergence between competitive structures identified from perceptual and direct measures. Taken as a whole, these results are consistent with the emerging theory of strategic groups. We conclude that strategic groups are a theoretical construct and not a methodological artifact, as is suggested by some authors.

Internet Pricing, Price Satisfaction, and Customer Satisfaction

Given the challenges of increasing margins and building a loyal customer base, the interaction between pricing and customer satisfaction is of great interest to e-tailers. The present research models the relationships between e-tailer pricing, price satisfaction, and satisfaction with the ordering and fulfillment processes. The model is calibrated using data about book e-tailers from BizRate.com and a database of market-basket prices. By providing a satisfactory ordering process, e-tailers can somewhat ameliorate the negative effects of higher prices and will have higher overall ratings for fulfillment satisfaction. This is critical because fulfillment satisfaction creates loyal customers. As expected, higher prices lead to lower price satisfaction, but the effect of price satisfaction on fulfillment satisfaction was negative. This unexpected result has important implications for e-tailers intending to compete based on low prices. Increased levels of price satisfaction due to low prices do not positively affect satisfaction with the fulfillment process. Therefore, competing on price may not be a viable long-term strategy for on-line retailers.

The Effect of Electronic Markets on Forecasts of New Product Success

In this paper, we extend field experiments of real money prediction markets to the problem of forecasting the success of a new product. We collect forecasts using a traditional survey mechanism and a market mechanism. Our results suggest that market prices summarize the information contained in survey forecasts and improve those forecasts by reducing the variability of the forecast. However, we find no evidence of a “crystal ball” equilibrium. Our markets have considerable variability and predict only as well as the public signal provided by the HSX movie market game.

Hospital web sites: Promise and progress

Abstract The Internet provides a wide range of technologies that enable hospitals to communicate with their patients, physicians and other important groups. We discuss the promise of many widely used web site features for hospitals. Using a structured audit of 111 hospital web sites, we evaluate the progress being made. We find that most hospitals have mastered the basic “electronic brochure” capabilities. However, less than half of the sites enable visitors to easily search for pertinent information. The progress towards using web sites for appointment scheduling or providing discussion forums about health care is likewise confined to a small group of hospitals.

Optimal new product positioning: A genetic algorithm approach

Abstract Identifying an optimal positioning strategy for new products is a critical and difficult strategic decision. In this research, we develop a genetic algorithm based procedure called GA SEARCH that identifies optimal new product positions. In two simulation comparisons and an empirical study, we compare the results from GA SEARCH to those obtained from the best currently available algorithm (PRODSRCH). We find that GA SEARCH performs better regardless of the number of ideal points, existing products, number of attributes or choice set size. Furthermore, GA SEARCH can account for choice set size heterogeneity. Results show that GA SEARCH outperformed the best current algorithm when choice set size varied at the individual level, an important source of consumer heterogeneity that has been ignored in current algorithms formulated to solve this optimization problem.

The Technical Efficiency of Hospitals under a Single Payer System: The Case of Ontario Community Hospitals

Using DEA, we investigated the impact of ownership, size, and location on the relative technical efficiency of community hospitals in Ontario, which has a single payer system. Consistent with Hansmanns theory of non-profit organizations and contrary to US-based research, we find no significant differences in efficiency across ownership types (government, religious or secular non-profit). Nor do we find significant differences in efficiency by size or location. Our findings suggest that model formulation and differences in payer mix across types of hospitals in the US have a strong influence on the measurement of the hospital ownership–efficiency relationship.

The IEM Movie Box Office Market: Integrating Marketing and Finance Using Electronic Markets

The Iowa Electronic Markets Movie Box Office Market forecasting and trading exercise is an important new form of Internet-based experiential learning. In this experience, students proceed beyond problem analysis to decision making in a situation in which their actions have real-dollar implications. From the exercise, students develop important marketing, finance, and technology skills. Instructors benefit from having a unifying activity to illustrate interesting aspects of new product development, pricing, and decision-making biases.

Exploiting synergy for competitive advantage

Abstract The desire to achieve synergy via shared resources is a primary motivation for many mergers, acquisitions and alliances. However, all too often the benefits of synergy are never realized. Using the results of empirical studies from a wide range of manufacturing and service industries, the authors develop a series of checks which can be used to determine whether there is potential for synergy from shared resources; whether that potential is realized and whether the synergy will lead to a sustained competitive advantage.