The Promise of Strategic Customer Behavior: On the Value of Click Tracking

Abstract

Click tracking is gaining in popularity and the practice of web analytics is growing fast. Whether strategic customers are willing to visit a website when they know their clicks may be tracked is an important yet complex problem which depends on various factors. Using a newsvendor framework, we examine this problem by focusing on the operational factor: how product availability induces strategic customers to voluntarily provide advance demand information. We find that a strong Nash equilibrium exists where every customer is willing to click, and customer incentives to click are robust to noise. Hence, we demonstrate the promise of strategic customer behavior in the context of click tracking, contrary to the conventional wisdom that it is typically a peril for the firm. Notably, click tracking is typically advantageous to both the firm and its customers, compared with other strategies such as advance selling, quantity commitment, availability guarantees, and quick response. Lastly, we extend to two settings by including marketing decisions: price-sensitive demand and markdown pricing, and discuss how operations and marketing decisions interact in influencing the value of click tracking.

Keywords: Advance demand information (ADI), strategic consumer behavior, newsvendor, click tracking technology, game theory, strong Nash equilibrium

JEL Classification: C70