“Customer Retention under Imperfect Information” (Job Market Paper, August 2019)
I study why many firms face low retention rates among new customers, which is a challenge observed in various contexts ranging from food delivery services to hotels. In particular, I study whether customer churn at the firm level after a single product experience is solely driven by heterogeneous preferences or is also affected by information frictions. I use a novel, long panel of individual-level ticket purchases from a major U.S. symphony center for which 53% of first-time customers do not return at least for 4 years.
The data exhibit patterns consistent with learning and information frictions in the market; as predicted by conventional learning models, new customers’ concert choices converge towards experienced customers’ choices across visits, regardless of their length of survival. Descriptive analyses document information frictions and learning spillover that jointly cause customer attrition. First, many customers attend concerts with a low match value due to their incomplete information about the underlying concert values at the purchase stage. Second, a low match value at the initial visit creates a strong adverse learning spillover effect by reducing a customer’s expectations about all future concerts.
To explore marketing strategies for the firm to reduce customer attrition, I develop a structural model that incorporates the learning spillovers and information frictions. Through counterfactual analyses, I analyze both a policy that offers high-quality concerts to first-time customers and a policy that offers targeted pricing to second-time customers after their initial visit to low-quality concerts. The results emphasize the importance of introductory marketing to new customers.
“Valuing Brand Collaboration: Evidence From a Natural Experiment” (with Sanjog Misra and Bradley Shapiro, March 2019) R&R, Journal of Marketing Research
We study how brand impacts consumer demand in the context of museum memberships in a U.S. metropolitan city. Over the course of our sample, one major museum with a highly recognized brand closed. During the closure, it sequentially co-branded with two established local museums. The closure and collaboration events, combined with individual panel data on museum memberships, allow us to measure how these changes in brand affect demand. Collaboration with the closed museum lifts demand for the partner museum; however, this aggregate increase masks two counter-acting forces. First, customers with no history of buying membership from either museum enter the market, consistent with the prominent brand providing a signal of vertical quality. Second, a sub-group of customers who previously purchased from either or both of the museums display decreased demand. This is consistent with a model of brand providing information about horizontal match value, with decreasing demand from the broadening of brand being an example of brand dilution. The magnitude of these offsetting forces varies between collaboration events. These results have implications for the treatment of brand intercepts in counterfactuals when studying consumer demand.