Are You Willing to Click? On the Value of Advance Information When Selling to Strategic Customers

Motivated by the fast growing practice of web analytics, we study whether strategic customers are willing to click. Clicking reveals advance demand information which the firm can use to reduce demand-supply mismatch cost thereby increasing product availability to customers. Using newsvendor models that incorporate customers who anticipate that their clicks are tracked, we demonstrate how the magnitude of the click cost impacts the existence of Bayesian Nash equilibria both in pure and mixed strategies. For low click costs, a strong Nash equilibrium always exists where all strategic customers are willing to click. In contrast, the existence of mixed-strategy equilibria depends strongly on the nature of the demand distribution. We further study whether strategic customers are willing to click in the presence of noisy advance demand information and preference learning stemming naturally from customer valuation uncertainty. We show that the customer incentive to click is fairly robust to the presence of noise. While firm preference-learning always reinforces this incentive, customer preference-learning does only under certain conditions. To investigate the robustness of our results, we investigate two settings: price-sensitive demand and markdown pricing where the value of the technology can be small. We propose measures such as price commitment and product personalization to mitigate negative effects for the firm. To further understand the future value of this novel technology, we evaluate how embracing the Internet information channel with click tracking compares to related traditional operations and marketing strategies such as quantity commitment, availability guarantees, quick response and advance selling.