Knowledge that Transforms

It is increasingly apparent that the financial value of a firm depends on off-balance-sheet intangible assets. In this article, the authors focus on the most critical aspect of a firm: its customers. Specifically, they demonstrate how valuing customers makes it feasible to value firms, including high-growth firms with negative earnings. The authors define the value of a customer as the expected sum of discounted future earnings. They demonstrate their valuation method by using publicly available data for five firms. They find that a 1% improvement in retention, margin, or acquisition cost improves firm value by 5%, 1%, and .1%, respectively. They also find that a 1% improvement in retention has almost five times greater impact on firm value than a 1% change in discount rate or cost of capital. The results show that the linking of marketing concepts to shareholder value is both possible and insightful.

An understanding of how to manage relationships with customers effectively has become an important topic for both academicians and practitioners in recent years. However, the existing academic literature and the practical applications of customer relationship management (CRM) strategies do not provide a clear indication of what specifically constitutes CRM processes. In this study, the authors (1) conceptualize a construct of the CRM process and its dimensions, (2) operationalize and validate the construct, and (3) empirically investigate the organizational performance consequences of implementing CRM processes. Their research questions are addressed in two cross-sectional studies across four different industries and three countries. The first key outcome is a theoretically sound CRM process measure that outlines three key stages: initiation, maintenance, and termination. The second key result is that the implementation of CRM processes has a moderately positive association with both perceptual and objective company performance.

For both academics and practitioners, the dominant focus of customer relationship management has been customer retention. The authors assert that customer winback should also be an important part of a customer relationship management strategy. Customer winback focuses on the reinitiation and management of relationships with customers who have lapsed or defected from a firm. In some cases, firms engage in extensive efforts to reacquire lapsed customers or defectors, and a common tactic is lowering the price to reacquire a customer. This investigation goes beyond the reacquisition pricing strategy and also examines the optimal pricing strategy when the customer has decided to reinitiate the relationship. By simultaneously modeling reacquisition and duration of the second tenure with the firm, the authors determine that the optimal pricing strategy for their application involves a low reacquisition price and higher prices when customers have been reacquired. In addition to pricing strategy, they also discuss the implications of their findings for targeting lapsed customers for reacquisition.

Building on the work of Dhar, Menon, and Maach (2004) , this commentary describes how the compromise effect models developed in the work of Kivetz, Netzer, and Srinivasan (2004) can be extended to predict complex (business-to-business) purchase decisions and additional behavioral context effects. The authors clarify their general modeling approach and outline how it applies to choices among solutions (augmented products) and group decision making. They then hypothesize about the influence of business-to-business and technology markets on various context effects (e.g., compromise and asymmetric dominance). They show how the models incorporate various context effects and discuss ideas for further research.

Products that require extensive and complex information flows among suppliers, intermediary vendors, and customers often pose particular challenges to the vertical marketing system. Using social network theory, the authors investigate buyers' preferences for specific patterns of relationships among buyers, intermediary vendors, and suppliers of complex products. Using a conjoint experiment with actual and prospective buyers of integrated computer networks and services, the authors find that beyond their dyadic interaction with a vendor, buyers take into account the buyer-vendor-supplier triad. Specifically, buyers value sequences of selective strong ties as well as sequences of more numerous weak ties. This is consistent with theoretical propositions that strong ties facilitate the mobilization of support and the transfer of complex knowledge, whereas nonoverlapping weak ties facilitate the gathering of intelligence and the monitoring of new developments. The authors find only mixed evidence that buyers value direct access to suppliers when strong ties exist between the vendor and suppliers, as predicted by the third-party sanctioning argument in social network theory. In addition, they find that interaction intensity and valence do not always have the same effects, thus providing criterion validation to the bidimensional nature of tie strength that has been documented in previous research.

According to the processing fluency model, advertising exposures enhance the ease with which consumers recognize and process a brand. In turn, this increased perceptual fluency leads to consumers having more favorable attitudes toward the brand. The authors extend the processing fluency model to examine the effect of conceptual fluency on attitudes. In three experiments, the authors show that when a target comes to mind more readily and becomes conceptually fluent, as when it is presented in a predictive context (e.g., a bottle of beer featured in an advertisement that shows a man entering a bar) or when it is primed by a related construct (e.g., an image of ketchup following an advertisement of mayonnaise), participants develop more favorable attitudes toward the target. It is believed that positive valence of fluent processing underlies these processing-fluency effects. When conceptual fluency is associated with negative valence (e.g., hair conditioner primed by a lice-killing shampoo), the authors observe less favorable attitudes.

The authors investigate the link between the color of a Web page's background screen while the page is downloading and the perceived quickness of the download. They draw on research that supports links between color and feelings of relaxation and between feelings of relaxation and time perception. The authors predict that the background screen color influences how quickly a page is perceived to download and that feelings of relaxation mediate this influence. In a series of experiments, they manipulate the hue, value, and chroma dimensions of the color to induce more or less relaxed feeling states. The findings suggest that for each dimension, colors that induce more relaxed feeling states lead to greater perceived quickness. The authors provide triangulating evidence with an alternative manipulation: the number of times subjects wait for a download. As does color, this also leads to variation in levels of relaxation and perceived quickness. A final experiment reveals that color not only affects perceived download quickness but also has consequences for users' evaluations of the Web site and their likelihood of recommending it to others.