Fornell, Claes; Wernerfelt, Birger
June 1988
Marketing Science;Summer88, Vol. 7 Issue 3, p287
Academic Journal
A model of customer complaint management is developed in terms of defensive marketing strategy. Based on an explicit microfoundation, firms' incentives to manage complaints are analyzed. In the context of a monopoly and homogeneous oligopoly, we discuss the optimal levels of customer compensation and effort and characterize industries where complaint management is likely to be used. We then examine a differentiated oligopoly and find an explicit formula for the market share gains associated with complaint management. This is illustrated in an example with real data. We finally consider the trade-off between defensive strategy in the form of complaint management and various offensive marketing tools such as advertising and pricing. (Complaints; Oligopoly; Repeat Purchase)


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