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.

We organize the existing theoretical pricing research into a new two-level framework for industrial goods pricing. The first level consists of four pricing situations: New Product, Competitive, Product Line, and Cost-based. The second level consists of the pricing strategies appropriate for a given situation. For example, within the new product pricing situation, there are three alternative pricing strategies: Skim, Penetration, and Experience Curve pricing. There are a total of ten pricing strategies included in the framework. We then identified a set of cost, product, market, and information conditions which determine what pricing situation(s) a firm is facing as well as which strategies are appropriate within a given situation. Some of these determinant conditions are common to many pricing strategies (e.g., highly elastic demand) while others are unique to a given strategy within a particular pricing situation. For example, within the product line situation, the profitability of supplementary sales is a unique determinant of the Complementary Product pricing strategy (razor-and-blade pricing). Using this framework as a basis for an empirical study, we examined how well current industrial pricing practice matches the prescriptions from the existing research. Our sample consisted of 270 respondents (27% response rate). Of these, more than 50% indicated that they used more than one pricing strategy in formulating their most recent pricing decision for a high-value industrial product sold in the United States. As in previous research, Cost-Plus pricing was the most often cited pricing strategy (56% of the respondents). Since the respondents were able to indicate their use of more than one pricing strategy, the data are of the “pick from ” variety. In order to model the managers' pricing strategy choices, we constructed a “stacked” binary logit with a separate observation for each strategy within a given pricing situation. The signs of the determinant variables were estimated as interaction terms. The new product pricing strategies (skim, penetration, experience curve) were used for new models in the market. Skim pricing was used in markets with high levels of product differentiation by firms at a cost disadvantage due to scale. Penetration pricing was used by firms with a cost advantage due to scale in markets with high level of overall elasticity but low brand elasticity. Experience curve pricing was used for minor innovations by firms with low capacity utilization in markets with a high level of differentiation. The competitive pricing strategies (Leader, Parity, and Low-price Supplier) were used in mature markets. Parity pricing was used by firms in a poor competitive situation, i.e., high costs, low market share, low product differentiation. These firms were also unable to take advantage of high levels of elasticity since their capacity utilization was high. In contrast, the low-price supplier strategy was used by firms with low costs due to scale advantages. Since they have low utilization, these firms can t...

No abstract

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 firm's 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.

When a firm announces a significant permanent layoff, the firm ' s reputation among key stakeholders such as employees and investors suffers. However, what does this action mean for rival firms? How does the information contained in a layoff announcement by one firm transfer to the reputations of other firms in the industry? Building on the similarity between the reputation formation process and the firm valuation process, we use stock price as an aggregate measure of firm reputation in the eyes of shareholders. We examine how changes in the announcing firm ' s reputation affect the reputations of rival firms, through changes in their stock prices, in the same (contagion effect) or opposite (competitive effect) direction. This paper examines a longitudinal sample of layoff announcements in the US oil and gas industry from 1989 to 1996. Results suggest that reputation effects of layoff announcements spillover beyond the announcing fi rm and extend to other firms in the industry. These interorganizational reputation effects follow a contagious process, that is, if shareholders respond negatively to a layoff announcement, they will exhibit simultaneous negative reactions for non-announcing firms and that the negative effects of layoff announcements increase with layoff prevalence. Furthermore, we find that close rivals experience a dampening of the contagion effect, perhaps reflecting countervailing competitive effects. By examining layoff announcements through both the institutional reputation and resource-based lenses, our work begins to reconcile how the two competing forces of cooperation and competition work together to influence firm-level outcomes.

No abstract

We determine the optimal response to competitive entry in a market characterized by a market share attraction model. The response of an incumbent is limited to changes in prices, advertising and distribution expenditures; brand positions are assumed to be fixed. We also assume that the entrant's position is chosen exogenously and that the sales potential of the market is constant. After proving the existence of a unique Nash equilibrium, we show that the optimal response depends on the relative market share of the incumbents. The response by nondominant brands (with market shares less than 50%) mirrors the prediction by decoupled response function models—reduce price, advertising and distribution spending. For the dominant brand (having a market share of 50+%), the response is to reduce price and marketing spending. This finding explains previous empirical results that could not be addressed by the decoupled models.defensive marketing strategy, competitive strategy, game theory

No abstract