Reversing the Logic: The Path to Profitability through Relationship Marketing

Many firms have experienced greater success through implementing relationship marketing strategies. This is achieved by gaining knowledge about their own customers through database marketing and about the general marketplace through marketing research. Over time, this has led firms to adopt a general framework which we call the conventional path to profitability. This conventional framework suggests that new product innovation leads to acquisition, acquisition combined with a rich experience leads to satisfaction, satisfaction leads to loyalty and customer retention, and loyalty/retention leads to profitability. However, we show that some of the links in the framework are weak based on both academic research and marketplace realities. Consequently, we reverse the logic of the conventional path to profitability. We introduce a new approach that starts the customer relationship management strategy with customer profitability and the notion that different customers should be rewarded and satisfied differently. In addition, we outline a strategy that relationship marketing firms can implement, leading to higher levels of customer profitability and offer directions for future research.     

Knowledge embeddedness and the transfer mechanisms in multinational corporations

This paper reports a qualitative study conducted at four Japanese subsidiaries in China and Vietnam about their process of international knowledge transfer. Building on the literatures concerning the diverse types and characteristics of knowledge in multinational corporations (MNCs), we explore the broad mechanisms adopted and locally generated by the host country subsidiaries for transferring the foreign knowledge and putting the locally embedded knowledge into practical use at the local settings. The findings indicated (1) the limitations of applying a standardized and universal set of knowledge transfer mechanisms without considering local idiosyncrasies and (2) the contributions of local agents and institutions throughout the process of local knowledge adaptation and development.     

Optimal dividend policy and growth option

We analyse the interaction between the dividend policy and the decision on investment in a growth opportunity of a liquidity constrained firm. This leads us to study a mixed singular control/optimal stopping problem for a diffusion that we solve quasi-explicitly by establishing a connection with an optimal stopping problem. We characterize situations where it is optimal to postpone the distribution of dividends in order to invest at a subsequent date in the growth opportunity. We show that uncertainty and liquidity shocks have an ambiguous effect on the investment decision.      

Spatial patterns of biodiversity conservation in a multiregional general equilibrium model

Migration dynamics and local biodiversity are interrelated in a way that is likely to affect patterns of regional specialisation. We assess this relationship with a New Economic Geography model that has been extended with biodiversity. Biodiversity is heterogeneous, and responds to habitat availability. The results indicate that a symmetric pattern of regional specialisation is more likely, and that additional equilibria may emerge as the marginal utility of biodiversity increases. In the policy analysis we focus on the case where the overall social optimum is symmetric and show that it can be supported as a non-cooperative Nash equilibrium. However, multiple Nash equilibria may exist.     

The critical discount factor as a measure for cartel stability?

This paper considers the stability of tacit collusion in price setting duopolies with repeated interaction. The minimum discount factor above which tacit collusion can be sustained in a subgame perfect equilibrium is called the critical discount factor δ*. In addition, δ* is often used as an intuitive measure for the stability of a tacit cartel, assuming that a collusive equilibrium is more difficult to sustain when δ* increases. However, according to standard theory the distance δ − δ* between the actual and the critical discount factor does not matter for stability as long as δ > δ*. This paper contributes experimental evidence that supports the intuitive idea that a larger critical discount factor makes collusion a less likely outcome.      

Delaying retirement in Spain

We study the reform of the Spanish public pension system in a multiperiod, general equilibrium, overlapping generations model economy populated by heterogeneous households. Our households differ in their place of birth, in their age, in their education and, endogenously, in their employment status, in their wealth, and in their pension entitlements. They receive a stochastic endowment of efficiency labor units each period. And they face a disability risk and a survival risk. They understand the link between the payroll taxes that they pay and the public pensions that they receive. And they decide how much to consume and to work, and when to retire from the labor force. We calibrate this economy to Spanish data, and we use it to study the consequences of delaying three years the statutory retirement ages in 2010. We find this reform is sufficient to solve the sustainability problems that plague the current Spanish public pension system. Our model economy predicts that under the current rules, the pension system fund will run out in 2028 and in the reformed economy it will last until 2050. We also find that it is moderately expansionary, and that it improves social welfare from the year 2015 onwards. We conclude that policymakers should seriously consider delaying the statutory retirement ages in Spain sometime in the near future.     

Assessing supply chain risks with the analytic hierarchy process: Providing decision support for the offshoring decision by a US manufacturing company

This paper reports the process used by a US manufacturing company to assess supply chain risks within the context of an offshore sourcing decision. The case study company was faced with the objective of finding a new supplier for two of its major product lines. Five alternatives were considered: (1) sourcing finished goods from Mexico; (2) sourcing finished goods from China; (3) sourcing parts from China and assembly in the US; (4) sourcing parts from China, assembly in a Maquiladora in Mexico with investment; and (5) sourcing parts from China, assembly in a Maquiladora in Mexico with no investment in the venture. To find the best solution, action research methodology was combined with the application of the analytic hierarchy process (AHP). Through iterative and structured discussions, 17 risk factors were identified, which were subsequently grouped into main and sub objectives. AHP was then used to evaluate the importance of each risk factor, and to determine the best alternative. This study makes several contributions to the field of purchasing and supply management. First, it provides a comprehensive framework of empirically derived risk factors to be considered in an international sourcing context. Second, it shows how AHP can be used to assess these risk factors and alternatives as part of the framework to facilitate and support the final offshoring decision. And third, it illustrates the successful application of the approach by a US manufacturing company. As such, this paper contributes to the research streams of offshoring and risk management in purchasing and supply, as well as to decision-making under uncertainty and AHP. In addition, it serves as a practical methodology for firms in similar situations.     

The exit decision in the European venture capital market

This article analyses the exit decision in the European venture capital market, studying when to exit and how it interacts with the exit form. Using a competing risks model we study the impact on the exit decision of the characteristics of venture capital investors, of their investments and of contracting variables. Our results reveals that the hazard functions are non-monotonic for all exit forms and suggest that, in Europe, Initial Public Offering candidates take longer to be selected than trade sales. Moreover our results show that, in Europe, venture capitalists associated with financial institutions have quicker exits (stronger for trade sales), and highlight the importance of contracting variables on the exit decision. An unexpected result is that the presence on the board of directors leads to longer investment durations.     

Adam Smith on lotteries: an interpretation and formal restatement

The paper concerns a neglected aspect of the Wealth of Nations (with the notable exception of D. Levy 1999 Levy, D. M. 1999. “Adam Smith’s Katallactic Model of Gambling: Approbation from the Spectator.” Journal of the History of Economic Thought 21 (1): 81–91. doi:10.1017/S1053837200002868.[Crossref] , [Google Scholar]), dealing directly with decision under risk. In a few pages from book I, chapter 10, Adam Smith explicitly named “lotteries” various objects of choice (possible occupations, or investment opportunities, for instance) and provided an analysis which standard expected utility glasses would hardly fit. Taking this into account allows a better understanding of the part played by typical characters like the “projector” or the “sober man”, in such matters as Smith’s conception of entrepreneurship or of the credit market. The use of some modern concepts in decision analysis (inverse stochastic dominance, rank dependent utility, prudence toward risk), is a means to show the existence, in Smith’s work, of an original theory from decision under risk, where his analysis of lotteries in the Wealth of Nations is consistent with statements from his moral philosophy on asymmetric sensitivity to gains and losses and to the regulating part played by the impartial spectator.