Companies use monetary and non-monetary incentives to manage customers The objective of the project is to gain insights that will help to make customer management more efficient for the benefit of both consumers and companies, and to find solutions to reduce the negative consequences of strategic customer behavior for the economy as a whole. It is funded by the German Research Association (DFG).
Companies in a wide range of industries use monetary and non-monetary incentives to acquire customers, discourage them from canceling or, if they have already cancelled, to encourage them to take back the cancellation. Despite the undisputed positive effect of incentives, however, there is a risk that customers will behave strategically in order to obtain the incentives. In that case, it is precisely the attractive incentives offered in retention and win-back campaigns that encourage customers to cancel their contracts instead of preventing or curing this as the company intended. Because the incentives granted and strategies to get them are openly discussed by customers on social media and Internet forums, this strategic customer behavior is not uncommon in corporate practice. Concerned about their margins, companies react to this by, for example, automatically renewing contracts or worsening the price conditions in subsequent terms. Overall, the individually rational actions of some customers lead to collectively inefficient outcomes, as companies experience lower profitability and customers who do not behave strategically and cancel are worse off compared to customers who act strategically, as they use the service at significantly higher prices. The growing possibilities of interactions between customers and the resulting increase in the transparency of incentives suggest that strategic behavior will continue to increase and that negative macroeconomic consequences will not be absent. Despite the relevance of the topic for a large number of actors in the economy, research has so far lacked insights into the influence of interactions between customers and companies in the emergence and development of strategic customer behavior.
Creating Value, Marketing