Managing Quality under Heterogeneous Consumer Demand and Product Quality

Date
2005-10-01
Authors
Carriquiry, Miguel
Babcock, Bruce
Babcock, Bruce
Major Professor
Advisor
Committee Member
Journal Title
Journal ISSN
Volume Title
Publisher
Altmetrics
Authors
Research Projects
Organizational Units
Journal Issue
Series
Department
Center for Agricultural and Rural Development
Abstract

Based on accepted advances in the marketing, economics, consumer behavior, and satisfaction literatures, we develop a micro-foundations model of a firm that needs to manage the quality of a product that is inherently heterogeneous in the presence of varying customer tastes or expectations for quality. Our model blends elements of the returns to quality, customer lifetime value, and service profit chain approaches to marketing. The model is then used to explain several empirical results pertaining to the marketing literature by explicitly articulating the trade-offs between customer satisfaction and costs (including opportunity costs) of quality. In this environment firms will find it optimal to allow some customers to go unsatisfied. We show that the relationship between the expected number of repeated purchases by an individual customer is endogenous to the choice of quality by the firm, indicating that the number of purchases cannot be chosen freely to estimate a customer's lifetime value.

Comments
Description
Keywords
Citation
DOI
Source
Collections