A Model for Customer Complaint Management

A model of customer complaint management is developed in terms of defensive marketing strategy. Based on an explicit microfoundation, firms' incentives to manage complaints are analyzed. In the context of a monopoly and homogeneous oligopoly, we discuss the optimal levels of customer compensation and effort and characterize industries where complaint management is likely to be used. We then examine a differentiated oligopoly and find an explicit formula for the market share gains associated with complaint management. This is illustrated in an example with real data. We finally consider the trade-off between defensive strategy in the form of complaint management and various offensive marketing tools such as advertising and pricing.

[1]  Alan R. Andreasen,et al.  Consumer Response to Unsatisfactory Purchases: A Survey of Perceiving Defects, Voicing Complaints, and Obtaining Redress , 1977 .

[2]  Claes Fornell,et al.  Consumer input for marketing decisions: A study of corporate departments for consumer affairs , 1976 .

[3]  Richard Schmalensee,et al.  A Model of Promotional Competition in Oligopoly , 1976 .

[4]  Paul R. Milgrom,et al.  Price and Advertising Signals of Product Quality , 1986, Journal of Political Economy.

[5]  Gerard J. Tellis,et al.  Competitive Price and Quality Under Asymmetric Information , 1987 .

[6]  J. Bain.  Barriers to new competition , 1957 .

[7]  Geoffrey Heal,et al.  Guarantees and Risk-Sharing , 1977 .

[8]  Sanford J. Grossman.  The Informational Role of Warranties and Private Disclosure about Product Quality , 1981, The Journal of Law and Economics.

[9]  M. Porter,et al.  From Entry Barriers to Mobility Barriers: Conjectural Decisions and Contrived Deterrence to New Competition , 1977 .

[10]  R. Schmalensee.  A Model of Advertising and Product Quality , 1978, Journal of Political Economy.

[11]  C. Fornell,et al.  Economic Constraints on Consumer Complaining Behavior , 1980 .

[12]  Steven A. Matthews,et al.  MONOPOLY PROVISION OF QUALITY AND WARRANTIES: AN EXPLORATION IN THE THEORY OF MULTIDIMENSIONAL SCREENING , 1987 .

[13]  Warren H. Hausman,et al.  Warranty Scope and Reliability under Imperfect Information and Alternative Market Structures , 1979 .

[14]  Ursula Hansen,et al.  Consumer affairs departments. A report on their development in the United States and their transferability to the Federal Republic of Germany , 1986 .

[15]  B. Wernerfelt,et al.  Defensive Marketing Strategy by Customer Complaint Management: A Theoretical Analysis , 1987 .

[16]  Joseph E. Stiglitz,et al.  Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information , 1976 .

[17]  D. Ravenscraft.  Structure-Profit Relationships at the Line of Business and Industry Level , 1983 .

[18]  Albert O. Hirschman,et al.  Exit, Voice, and Loyalty , 1970 .

[19]  Janet L. Yellen,et al.  Commodity Bundling and the Burden of Monopoly , 1976 .

[20]  M. Spence.  Product Selection, Fixed Costs, and Monopolistic Competition , 1976 .

[21]  John Conlisk,et al.  Product Quality in Markets Where Consumers are Imperfectly Informed , 1979 .

[22]  M. Spence.  Consumer Misperceptions, Product Failure and Producer Liability , 1977 .

[23]  Walter Y. Oi,et al.  The Economics of Product Safety , 1973 .

[24]  C. Fornell,et al.  The Vicious Circle of Consumer Complaints , 1984 .

[25]  William T. Robinson,et al.  Industrial Organization and Consumer Satisfaction-Dissatisfaction , 1983 .

[26]  Paul R. Milgrom,et al.  Predation, reputation, and entry deterrence☆ , 1982 .

[27]  A. Spence.  Entry, Capacity, Investment and Oligopolistic Pricing , 1977 .

[28]  Dennis H. Gensch,et al.  Targeting the Switchable Industrial Customer , 1984 .

[29]  K. Moorthy.  Cournot competition in a differentiated oligopoly , 1985 .