Academic SeminarEffects of Technological Advancements on a Firm’s Strategy on Customer Retention and Acquisition
- 2019-04-18 ~ 2019-04-18
- Supex Building, Lecture Room 101
- School of Management Engineering
We would like to invite you to participate in Management Engineering(ME) Seminar.
1. When: April 18th (Thursday), 16:20~17:20
2. Where: Supex Building, Lecture Room 101
3. Speaker: Prof. Wooje Cho (University of Seoul)
4. Topic: Effects of Technological Advancements on a Firm’s Strategy on Customer Retention and Acquisition
5. Research field: IT Management
* Lecture will be delivered in Korean.
* Seminar materials: Abstract
The widespread practice in some industries under which firms compete with each other by charging a lower price only to switchers contradicts the conventional wisdom that firms benefit more by focusing on retaining existing customers. If this is true, are the firms assigning their limited CRM resources unreasonably? What is a rational choice that a firm can make in response to its competitor’s CRM resource allocation decision? To address these questions, the research develops a game-theoretic model to examine the strategic choices of two competing firms between retention-focused and acquisition-focused strategies. Our main finding is that when the switching cost and the degree of technology advancement are sufficiently high, both firms can maximize their profits by employing customer acquisition-focused strategies that involve charging a lower (higher) price to switchers (current customers). Conversely, in the case when the switching cost is sufficiently high, but the degree of technology advancement is small, it is optimal for competing firms to adopt customer retention-focused strategies. Contrary to the high switching cost situation, a firm’s rational CRM resource allocation decision in the low switching cost case depends on the firm’s market position. An economic equilibrium exists when a firm with a high market share adopts a retention-focused strategy, given that a rival with low market share allocates more resources into customer acquisition. This research extends the extant literature by analyzing a firm’s logical decision on the CRM resource allocation under competition in a duopoly market and provides insights into how a firm should assign its CRM resources between retention and acquisition efforts in response to a competitor’s choice.