When Acquisition Spoils Retention: Direct Selling vs. Delegation Under CRM
The widespread implementation of customer relationship management technologies in business has allowed companies to increasingly focus on both acquiring and retaining customers. The challenge of designing incentive mechanisms that simultaneously focus on customer acquisition and customer retention comes from the fact that customer acquisition and customer retention are usually separate but intertwined tasks that make providing proper incentives more difficult. The present study develops incentive mechanisms that simultaneously address acquisition and retention of customers with an emphasis on the interactions between them. The main focus of this study is to examine the impact of the negative effect of acquisition on retention, i.e., the spoiling effect, on firm performance under direct selling and delegation of customer acquisition. Our main finding is that the negative effect of acquisition on retention has a significant impact on acquisition and retention efforts and firm profit. In particular, when the customer acquisition and retention are independent, the firm's profit is higher under direct selling than under delegation; however, when acquisition spoils retention, interestingly, the firm's profit may be higher under delegation. Our analysis also finds that the spoiling effect not only reduces the optimal acquisition effort but may also reduce retention effort under both direct selling and delegation. Comparing the optimal efforts under direct selling and delegation, the acquisition effort is always lower under delegation regardless of the spoiling effect, but the retention effort may be higher under delegation with the spoiling effect. Furthermore, when the customer antagonism effect from price promotions is considered, our main results hold regarding the firm's preferences between direct selling and delegation, which demonstrates the robustness of our model. This paper was accepted by Pradeep Chintagunta, marketing.
Volume (Year): 57 (2011)
Issue (Month): 7 (July)
|Contact details of provider:|| Postal: 7240 Parkway Drive, Suite 300, Hanover, MD 21076 USA|
Web page: http://www.informs.org/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Joel S. Demski & David E.M. Sappington, 1991. "Resolving Double Moral Hazard Problems with Buyout Agreements," RAND Journal of Economics, The RAND Corporation, vol. 22(2), pages 232-240, Summer.
- Andrés Musalem & Yogesh V. Joshi, 2009. "—How Much Should You Invest in Each Customer Relationship? A Competitive Strategic Approach," Marketing Science, INFORMS, vol. 28(3), pages 555-565, 05-06.
- Slade, Margaret E, 1996. "Multitask Agency and Contract Choice: An Empirical Exploration," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(2), pages 465-86, May.
- Eric T. Anderson & Duncan I. Simester, 2010. "Price Stickiness and Customer Antagonism," The Quarterly Journal of Economics, Oxford University Press, vol. 125(2), pages 729-765.
- Wujin Chu & Preyas S. Desai, 1995. "Channel Coordination Mechanisms for Customer Satisfaction," Marketing Science, INFORMS, vol. 14(4), pages 343-359.
- Gregory R. Heim & Kingshuk K. Sinha, 2001. "Operational Drivers of Customer Loyalty in Electronic Retailing: An Empirical Analysis of Electronic Food Retailers," Manufacturing & Service Operations Management, INFORMS, vol. 3(3), pages 264-271, July.
- Duncan Simester & Juanjuan Zhang, 2010. "Why Are Bad Products So Hard to Kill?," Management Science, INFORMS, vol. 56(7), pages 1161-1179, July.
- Gounaris, Spiros P., 2005. "Trust and commitment influences on customer retention: insights from business-to-business services," Journal of Business Research, Elsevier, vol. 58(2), pages 126-140, February.
- Dennis Campbell & Frances Frei, 2010. "Cost Structure, Customer Profitability, and Retention Implications of Self-Service Distribution Channels: Evidence from Customer Behavior in an Online Banking Channel," Management Science, INFORMS, vol. 56(1), pages 4-24, January.
- Ajay Kalra & Mengze Shi & Kannan Srinivasan, 2003. "Salesforce Compensation Scheme and Consumer Inferences," Management Science, INFORMS, vol. 49(5), pages 655-672, May.
- David A. Schweidel & Peter S. Fader & Eric T. Bradlow, 2008. "A Bivariate Timing Model of Customer Acquisition and Retention," Marketing Science, INFORMS, vol. 27(5), pages 829-843, 09-10.
- Rajiv Lal, 1986. "Technical Note—Delegating Pricing Responsibility to the Salesforce," Marketing Science, INFORMS, vol. 5(2), pages 159-168.
- Julian Villanueva & Pradeep Bhardwaj & Sridhar Balasubramanian & Yuxin Chen, 2007. "Customer relationship management in competitive environments: The positive implications of a short-term focus," Quantitative Marketing and Economics (QME), Springer, vol. 5(2), pages 99-129, June.
- Kissan Joseph & Alex Thevaranjan, 1998. "Monitoring and Incentives in Sales Organizations: An Agency-Theoretic Perspective," Marketing Science, INFORMS, vol. 17(2), pages 107-123.
- Ajay Kalra & Mengze Shi, 2001. "Designing Optimal Sales Contests: A Theoretical Perspective," Marketing Science, INFORMS, vol. 20(2), pages 170-193, December.
- Young-Hoon Park & Peter S. Fader, 2004. "Modeling Browsing Behavior at Multiple Websites," Marketing Science, INFORMS, vol. 23(3), pages 280-303, May.
- Birendra K. Mishra & Ashutosh Prasad, 2004. "Centralized Pricing Versus Delegating Pricing to the Salesforce Under Information Asymmetry," Marketing Science, INFORMS, vol. 23(1), pages 21-27, January.
- Jagmohan S. Raju & V. Srinivasan & Rajiv Lal, 1990. "The Effects of Brand Loyalty on Competitive Price Promotional Strategies," Management Science, INFORMS, vol. 36(3), pages 276-304, March.
- Narasimhan, Chakravarthi, 1988. "Competitive Promotional Strategies," The Journal of Business, University of Chicago Press, vol. 61(4), pages 427-49, October.
- Holmstrom, Bengt & Milgrom, Paul, 1991. "Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design," Journal of Law, Economics and Organization, Oxford University Press, vol. 7(0), pages 24-52, Special I.
- Fangruo Chen, 2005. "Salesforce Incentives, Market Information, and Production/Inventory Planning," Management Science, INFORMS, vol. 51(1), pages 60-75, January.
- Ram C. Rao, 1990. "Compensating Heterogeneous Salesforces: Some Explicit Solutions," Marketing Science, INFORMS, vol. 9(4), pages 319-341.
- Birendra K. Mishra & Ashutosh Prasad, 2005. "Delegating Pricing Decisions in Competitive Markets with Symmetric and Asymmetric Information," Marketing Science, INFORMS, vol. 24(3), pages 490-497, March.
- Eric T. Anderson & Duncan I. Simester, 2004. "Long-Run Effects of Promotion Depth on New Versus Established Customers: Three Field Studies," Marketing Science, INFORMS, vol. 23(1), pages 4-20, February.
- Jillian Dawes Farquhar, 2005. "Retaining customers in UK financial services: The retailers' tale," The Service Industries Journal, Taylor & Francis Journals, vol. 25(8), pages 1029-1044, December.
- A. M. McGahan & Pankaj Ghemawat, 1994. "Competition to Retain Customers," Marketing Science, INFORMS, vol. 13(2), pages 165-176.
When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:57:y:2011:i:7:p:1288-1299. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mirko Janc)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.