The Dynamic Impact of Buying 'Fit Products' on Customer Learning and Profitability in Multichannel Settings
51 Pages Posted: 7 Apr 2016
Date Written: April 4, 2016
Many retailers enable customers to purchase both online and offline. We posit that the type of product purchased in this multichannel environment, “fit” or “non-fit”, impacts customer learning and profitability, and that purchasing fit products offline is especially effective at creating high value customers. Using longitudinal transactional data from a national outdoor-product retail chain, we use a multivariate hidden Markov model (HMM) to investigate how customers choose both product and channel in a multichannel environment. The HMM identifies two states – an “exploratory” state characterized by higher likelihood to purchase fit products offline, lower purchase amount, and longer inter-purchase time; and a “trusting” state where customers are more likely to buy all product types online, buy more, and buy more frequently. We find that fit-product purchases accelerate customer migration to the trusting state, especially if those purchases are made offline. Marketing communications play a key role by enhancing the likelihood the customer migrates to the trusting state. Our findings identify a strategic role that fit products and retail stores play in customer development, and show that marketing can help implement this strategy.
Keywords: product fit, customer relationship management, multi-channel shopping, hidden Markov model, learning model
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