Reports

The Impact of Buying “Fit” Products on Customer Learning and Profitability in Multichannel Settings

Chun-wei Chang, Jonathan Z. Zhang, and Scott A. Neslin, 2016, 16-120

Customers’ product and channel decisions present challenges for the multichannel retailer, especially in product categories that require physical inspection for the customer to assess quality and fit. In this study, Chun-wei Chang, Jonathan Zhang, and Scott Neslin investigate how the type of product purchased—“fit” (categories with high quality and preference uncertainty) or “non-fit” (categories that are relatively simple and assessable via description or picture) — impacts customer learning, trust, and profitability.

Using longitudinal transactional data from a national outdoor-product retail chain, they use a multivariate hidden Markov model to investigate how customers make product and channel decisions in a multichannel environment. Their model identifies two consumer states: an exploratory state characterized by a high probability of purchasing fit products in-store, but lower purchase frequency and profitability, and a trusting state characterized by higher probability of purchasing fit products online, more frequent purchase, and higher profitability.

They find that fit-product purchases accelerate customer migration to the trusting state, especially if those purchases are made offline. Marketing communications can play a key role by enhancing the likelihood the customer migrates to the trusting state, for example, by inducing customers to buy fit products in-store, enabling positive learning experience that moves them to the more profitable state.

Chang, Zhang, and Neslin also identify two customer segments: adaptors, who progress more quickly to the trusting state and more quickly embrace purchasing fit products online, where they are more profitable, and traditionalists, who predominantly shop offline and are less likely to stay in the trusting state and more likely to stay in the exploratory state. Again, marketing communications play a key role. Traditionalists may need more frequent marketing to move them back to the trusting state, whereas adaptors may need marketing early in their relationship to move them to the trusting state.

Overall, this study demonstrates that customers’ joint product-type/channel decisions are crucial in shaping their value, and that marketing communication can facilitate learning and profits by shaping these choices. In essence, multichannel firms should be focused not only on “how much” customers buy, but also “what” and “where” they buy.

Chun-wei Chang is Assistant Professor of Marketing, College of Business, Governors State University. Jonathan Z. Zhang is Assistant Professor of Marketing, Foster School of Business, University of Washington. Scott A. Neslin is the Albert Wesley Frey Professor of Marketing, Tuck School of Business, Dartmouth College.

 

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