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

Recent Internet clicks-tracking technology has generated the fast growing practice of web analytics and extensive ongoing research in academia. Motivated by empirical evidence, we study whether strategic consumers are willing to click to reveal their advance demand information (ADI and preferences. We show that by embracing clicks tracking technology, operations management can bring significant improvements in firm profit. We compare the new technology to traditional practices such as quantity commitment, availability guarantees, and quick response, and distinguish three different effects:We show that the efficiency effect from better matching uncertain demand and the learning effect from contingent pricing are much more significant than the strategic effect from only relying on strategic instruments. We then study the value of personalized pricing under strategic consumer behavior. To investigate the robustness of our results, we study settings with price-sensitive demand and markdown pricing where the value of the technology can be small. We propose measures, such as price commitment and personalization, to mitigate such negative effects for the firm. Additionally, we show how competition and the quality of ADI affect our results. Finally, we provide managerial guidelines to maximize the value of the technology from an operations management perspective.