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Customer Loyalty and Supplier Strategies for Quality Competition

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  • Noah Gans

Abstract

We analyze a model of consumer response to variation in product or service quality. The model, developed in [4], provides closed-form expressions that characterize short-term and long-term measures of customer loyalty to a supplier. In this paper, we develop sensitivity analyses that offer a rich characterization of how factors - such as the underlying quality levels of the suppliers, the customer's ability to distinguish between good and bad suppliers, and the customer's prior beliefs regarding the suppliers affect both short-term and long-term loyalty. We also use the expressions to develop simple normative models for suppliers that wish to develop effective quality strategies.

Suggested Citation

  • Noah Gans, 1999. "Customer Loyalty and Supplier Strategies for Quality Competition," Center for Financial Institutions Working Papers 99-12, Wharton School Center for Financial Institutions, University of Pennsylvania.
  • Handle: RePEc:wop:pennin:99-12
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    File URL: http://fic.wharton.upenn.edu/fic/papers/99/9912.pdf
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    Cited by:

    1. Dana, James D, Jr, 2001. "Competition in Price and Availability When Availability is Unobservable," RAND Journal of Economics, The RAND Corporation, vol. 32(3), pages 497-513, Autumn.
    2. James D. Dana, Jr. & Nicholas C. Petruzzi, 2001. "Note: The Newsvendor Model with Endogenous Demand," Management Science, INFORMS, vol. 47(11), pages 1488-1497, November.

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