Take Action

Home | Faculty & Research Overview | Research

Research Details

Sharing the Wealth: When Should Firms Treat Customers as Partners?, Management Science

Abstract

Marketers often stress the importance of treating customers as partners. A fundamental premise of this perspective is that all parties can be weakly better off if they work together to increase joint surplus and reach pareto efficient agreements. For marketing managers, this implies organizing marketing activities in a manner that maximizes total surplus. This logic is theoretically sound when agreements between partners are limitless and costless. In most consumer marketing contexts (business-to-consumer), this is typically not true. The question I ask is should one still expect firms to partner with consumers and reach pareto efficient agreements? In this paper, I use the example of a firm's choice of product configuration to demonstrate two effects. First, I show that a firm may configure a product in a manner that reduces total surplus but increases firm profits. Second, one might conjecture that increased competition would eliminate this effect, but I show in a duopoly that firm profits may be increasing in the cost of product completion. This second result suggests that firms may prefer to remain inefficient and/or stifle innovations. Both results violate a fundamental premise of partnering - that firms and consumers should work together to increase total surplus and reach pareto efficient agreements. The model illustrates that pareto efficient agreements are less likely to occur if negotiation with individual partners is infeasible or costly, such as in business to consumer contexts. Consumer marketers in one-to-many marketing environments should be wary of treating customers as partners because pareto efficient agreements may not be optimal for their firm.

Type

Article

Author(s)

Eric T. Anderson

Date Published

2002

Citations

Anderson, T. Eric. 2002. Sharing the Wealth: When Should Firms Treat Customers as Partners?. Management Science. 48(8): 955-971.

KELLOGG INSIGHT

Explore leading research and ideas

Find articles, podcast episodes, and videos that spark ideas in lifelong learners, and inspire those looking to advance in their careers.
learn more

COURSE CATALOG

Review Courses & Schedules

Access information about specific courses and their schedules by viewing the interactive course scheduler tool.
LEARN MORE

DEGREE PROGRAMS

Discover the path to your goals

Whether you choose our Full-Time, Part-Time or Executive MBA program, you’ll enjoy the same unparalleled education, exceptional faculty and distinctive culture.
learn more

Take Action