Marketing Science: Decision Information Models

The proliferation of channels through which customers can purchase makes it imperative for managers to understand the process by which customers choose which channel to use. Understanding this process can help managers design their channels more effectively, predict usage rates for each channel, and learn how to “right-channel” customers to desired channels. Despite this need, there is evidence that managers do not fully understand the customer channel decision process. We propose that one reason for this is that the decision process is a “moving target”. It evolves over the lifetime of the customer. A newly acquired customer may use a different decision process than a customer who has been with the company for over a year. A customer may make choices differently right after a major change has taken place in the channel environment, e.g., a new channel has been added, than after the “dust has settled” and the channel environment is more stable. Our paper examines four main questions: (1) Does the customer decision process evolve over time? (2) If so, how many customers evolve relatively quickly (the “learners”) versus how many evolve more slowly (the “stayers”)? (3) Among the learners, how does their “trial” decision process compare to the process to which they evolve, the “post-trial” process? (4) What are the managerial and profit implications of these findings? We conduct an empirical analysis of two datasets: one from a book retailer located in Italy; the second from an durables/apparel retailer located in the U.S. We find that (1) the process by which customers choose purchase channels does evolve, (2) a substantial segment (22-35%) evolves relatively quickly, (3) consumers are relatively responsive to marketing communications in the trial stage, but become less marketing responsive as they move to the post-trial stage. This evolution has important ramifications for managers. In the book dataset, we observe over time the channel choice behavior of newly acquired customers. We find a significant learner segment (22% of customers) that becomes less inertial with respect to channel choices and more driven by channel preferences. At first, their channel decisions are shaped significantly by the firm’s marketing communications, but later they become less responsive to marketing. Companies therefore should try to “right-channel” these customers soon after they are acquired. We find those who are more likely to be in the learner segment can be characterized in terms of directly measurable indicators such how these customers are acquired, their proclivity to provide their email address, and their age. We illustrate in an example scenario that by using these characteristics to identify the learner segment, and by using email to transition them early into the cheaper Internet channel, the company can increase its profits by about 24%. Another important managerial implication is that mature customers will be less amenable to marketing efforts aimed at getting them to try new channels. Companies should therefore focus on improving channel design to ensure mature customers are satisfied with the service experience of the channel(s) they have chosen to use.