Multi-Channel Pricing for Financial Services

Transcription

1 /0 $7.00 (c) 00 IEEE Proceedgs of the 35th Aual Hawa Iteratoal Coferece o yste ceces (HIC-35 0) /0 $ IEEE Proceedgs of the 35th Hawa Iteratoal Coferece o yste ceces - 00 Mult-Chael Prcg for Facal ervces Joche Dzezol, Mchael Eberhardt, Aette Rez, Jürge chacka Uversty of Augsburg, Busess chool, Departet of Iforato ystes Uverstaetsstr. 6, 8659 Augsburg, Geray {oche.dzezol chael.eberhardt aette.susae.rez}@studet.u-augsburg.de, [email protected] Abstract For several years, the facal servces dustry has dscovered the opportutes of dfferet chaels lke the Iteret, call-ceters, WAP etc. May baks bult up separate drect baks focusg exclusvely o the Iteret ad/or call-ceters. Oly recetly, soe baks started to retegrate the drect baks wth ther tradtoal brckad-ortar baks order to offer servces over several chaels for the coveece of ther custoers. However, each chael duces addtoal fxed costs ad the chaels ay fluece each others turovers ad profts. Therefore, the questo of how to prce dfferet products ad servces dfferet chaels arses. I order to solve ths proble wth regard to proft axzato, baks have to corporate effects lke custoer s wllgess-to-pay for certa products ad servces over dfferet chaels, cross-sellg terdepedeces betwee the chaels ad argal costs of each chael. Ths paper wll provde further sght to ult-chael prcg strateges based o prce dscrato odels especally dscrato by dstrbuto chael. The ovato of ths work wll be the cosderato of cross-sellg aspects.. Itroducto Mergers, assve staff reducto ad the closg of ay braches the facal servces dustry (FI) have show that t was udergog a aor revoluto the sales ad dstrbuto structure of ay facal servce provders (FP) wth the last years. Durg the past decade, a declg proftablty of the tradtoal brck-ad-ortar brach as the ost cost-tesve dstrbuto-chael (cf. p. 6 [3]) could be otced. I cosderato of that fact, ay FPs have establshed ew addtoal chaels lke Iteret or call ceters, whch prosed lower dstrbuto costs for the FPs (p. 6 []) ad at the sae te offered ore coveece for the custoers. Especally Geray, the appearace of these ew chaels cae alog wth the foudato of copletely depedet so called drect baks (cf. p. 3 [3]) the frst half of the 90 s. However, a chaelretegrato strategy of the tradtoal brck-ad-ortar FPs to offer ther custoers real ult-chael oppurtutes ad prove ther ow proftablty could be otced lately. Ths developet the FI ca be descrbed by a shft fro a copetg chael odel, whch every chael has ts ow ad depedet resources ad (IT-) frastructure, to a aaged copetto odel wth a cetral aageet ad clear copesato schees ad terfaces betwee the dfferet chaels [8]. A FP s cetral chael aageet wth a ult-chael-strategy provdes ts custoers ore choce desos of coveece, place ad te, sce t s ther choce to select the best chael to ake a certa trasacto (e.g. rettaces) depedg o ther curret stuato. Especally, through less te-tesve chaels lke the Iteret or call ceters custoers utlty, satsfacto ad wllgess-topay ca be creased [8]. Therefore, ult-chaelaageet s a struet to prove custoers loyalty ad crease the custoer-lfe-te-value (cf. [5], []). Furtherore, the dfferet chaels ca ot oly be used for the dstrbuto of certa trasactos, but also for arketg purposes. Besdes, ult-chaelaageet s a portat eabler for successful custoer relatoshp aageet ad dvdualzato respectvely custozato of products, because t allows to delver the rght goods to the rght persos at the rght te (cf. [5]). O the other sde, ult-chael-aageet poses addtoal fxed costs for establshg ew chaels, whch ght ot be covered through the addtoal turover created by the custoer base ad ew custoers. Wth ths cotext, chael coflcts lke cabalzato have to be etoed: stead of creasg proft through ew custoers, the establshet of ew chaels ght ust redrect the turover fro aother chael. However, cabalzato ght be copesated by certa spllover ad cross-sellg effects, whch ay crease the FP s turover ad profts ad elarge custoer relatoshp soe cases.

2 /0 $7.00 (c) 00 IEEE Proceedgs of the 35th Aual Hawa Iteratoal Coferece o yste ceces (HIC-35 0) /0 $ IEEE Proceedgs of the 35th Hawa Iteratoal Coferece o yste ceces - 00 I order to utlze ult-chael-aageet chaces ad sultaeously zg ts rsks, proftaxzg prcg-strateges are evtable struets for oder FPs. Mult-chael-aageet should eable the drecto of partcular custoers segets to the correspodg proft axzg chaels (.e. chaels wth lower argal costs, e.g. Iteret []) va ult-chael prcg. To gve useful hts for the prcg a ult-chael world, the paper dscusses the curret stuato of ultchael prcg secto. I the followg secto 3, a croecooc odel s troduced, whch the proftaxzg prcg of basc facal servces, that are versoed through the dstrbuto va dfferet chaels, wll be dscussed. Furtherore, secto 5 exteds the odel ad troduces cross-sellg cosderatos, whch are prevously ot etoed croecooc prcg odels. ecto 6 ad 7 gve fal plcatos about the relevace of the llustrated odel the FI.. Mult-Chael Prcg Ths secto presets the state-of the-art of ultchael prcg. Afterwards, prcg strateges the cotext of ths paper are explaed detal ad the arsg research questos are stated... tate-of-the-art Although prcg s a very portat struet to drect custoers to the desred proft axzg chael, the authors have ot foud ay lterature - besdes the already etoed papers about secod-degree prce dscrato - wth quattatve respectvely croecooc approaches of prcg-strateges a ult-chael-world. May FPs that are cocered wth ult-chael-aageet rght ow are aly dealg wth orgazatoal aspects of ther sales structure ad the dstgushable easureet of perforace of ther sgle chaels. Most of the research work s doe the feld of techcal realzato of ult-chael-strateges, lke e. g. Buhl ad Wll [3] have show ther proect work wth Gera Advace Bak. Nevertheless, a FP eeds quattatve approaches for a successful hadlg ad cotrollg of such ult-chael-archtectures or -orgazatos order to hadle the trade-off betwee addtoal costs ad sales of such a cocept. Curretly, several arketg-software-provders lke the Brtsh Egage ( offer e-busess applcatos wth rudetary prcg fuctoalty. ebel ystes ( offers wth ts I (Iteractve ellg ute) a sell-sde e-coerce applcato that offers a custoer-cetrc cofgurato ad dyac prcg fuctoalty to axze the value of each custoer teracto. However, the uderlyg quattatve approaches behd these proft-axzg solutos are ukow. Tll ow there s also o explaato for o-tutve effects of the realty, lke egatve prces for rettaces va Iteret or trasfer payets aog dfferet chaels. E.g. Gera HypoVeresbak pays each custoer of ther 3D accout a 0,6 bous per atoal rettace up to 8 tes per quarter. Together wth the ole-trasacto-fee of 0,05 that eas a egatve prce of -0, per trasacto. There s also o explaato why rettaces va call ceter, whch geerates about 60%-70% of the argal costs as va the brach (cf. [3]), are free of charge by ay FPs. Howeber accordg to a study of Booz-Alle & Halto ad Credt usse (cf. [3]), the ult-chael FP s (argal) costs of a rettace va the brck-ad-ortar brach are up to 5 tes hgher as va the ole-chael. Ths paper dscusses such aspects ad correspodg prce settg solutos wth a sple exaple secto 6 whch s based o the croecooc odel of sectos How t works To llustrate prcg-strateges a ult-chael world ad expla effects descrbed above, the reader of ths paper a croecooc odel s appled, that provdes certa servces through dfferet chaels. Thereby, a servce, that s provded through several chaels, s terpreted as a verso of ths servce ad wll be deoted chael versoed servce. As llustrated the paper of Dewa et al. [4] ad Gerster et al. [6], product versog s a eas for a secod-degree prce dscrato dfferet dstrbuto chaels. Thereby, the custoer self-selects the optal product verso. The seal papers of Mussa [0] ad Mask [9], provde deep abstract uderstadg of optal vertcal product dfferetato ad prcg for the oopolstc case. Extesos of these odels whch deals wth vertcal prce-dscrato ca be foud the paper of Vallett [6] or for forato goods Bhargava ad Choudhary []. They llustrate secod-degree prce dscrato by usg a geeralzed utlty fucto where the utlty s ootocally creasg wth product qualty ad cosuer type. I cotrast to Mussa [0], Mask [9], Bhargava ad Choudhary [], where the level of vertcal product dfferetato could be chose by the oopolst, our case the chael characterstcs theselves caot be flueced by the FP (e.g. uderlyg techology). A secod dfferece s based o the type of product versog. Mussa [0] Mask [9], Bhargava ad Choudhary [] assue vertcal versog lke qualty, where a superor level of qualty s valued hgher by all custoers. Equal servces dstrbuted by the FPs through dfferet chaels are horzotally versoed: oe Prcg forato based o Hypoveresbak s tarff lst of 0 th epteber 00.

3 /0 $7.00 (c) 00 IEEE 3 Proceedgs of the 35th Aual Hawa Iteratoal Coferece o yste ceces (HIC-35 0) /0 $ IEEE Proceedgs of the 35th Hawa Iteratoal Coferece o yste ceces - 00 custoer could value a specfc servce over the Iteret hgher tha the sae servce va Call-Ceter, a other custoer less. For exaple, based o a eprcal study, o ad Craer [3] showed that custoers of the wss bak Credt usse could be dvded fve dfferet custoer groups wth hoogeeous chael prefereces, behavor ad valuato. Ths ca be used wth our odel by splttg the custoer base to several hoogeeous segets. ubsequetly, each custoer seget has dfferet costs, lke trasacto or search costs, but also opportuty costs ad ore psychologcal copoets lke the dscofort of usg a secure or persoal chael. These are ssues that have especally arse wth the advet of electroc arkets [4] the FI. E.g. custoers are feelg strog safety cocers regardg ther persoal data trastted va the Iteret. Besdes, the lack of face-to-face cotact wth a facal advsor by usg ole-bakg ad the absece of trust-relatoshps are atters that ay accrue the custoers costs. O the other had, the advatages of the Iteret (e.g. coveece, rapdty, actualty ad trasparecy) wll reduce the costs of usg ths chael. Besdes the custoer sde, also the FP s cost structure cosstg of aual fxed costs ad argal costs (dstrbuto ad arketg chaels already exst ad rea exstg a d- ad short-ter perspectve), has to be cosdered a proft-axzg prce-settg. Ulke Mussa [0] ad Mask [9], chael costs are ot correlated wth custoer s valuato of the chael. The FP axzes ts ow proft va prce settg wth respect to the costrat of custoers utlty axzato, the dvdual ratoalty costrat. However, the FI s based o log-ter custoer relatoshps ad therefore reles o cosecutve custoer purchases. Cosequetly, cross-sellg ght have sgfcat fluece o optal prcg strateges. For exaple, Ward ad Morgaosky [7] have show that cross-sellg ght eve copesate for cabalzato effects. Thereby, cross-sellg, a ter ofte used arketg cotexts, descrbes the effect of cosuers buyg addtoal servces whch they oly get to kow through the purchase of a certa already kow servce. Ths effect could be especally terestg for the FP, f the ukow addtoal servce offers hgh args because of low producto costs ad a hgh wllgessto-pay (e.g. stadardzed lfe suraces). These crosssellg terdepedeces are regarded our odel by assug certa cross-sellg-probabltes. I the reader of ths paper, oopolstc arket structure wll be assued sce a short- ad d-ter cosderato the stalled custoer base of the FP faces swtchg costs ad wll usually ot chage ts provder..3. Research questos The followg research questos are tred to be aswered the reader of the paper, usg the plcatos of the croecooc odel: Is there a possblty at all to drect partcular custoer segets to certa chaels va prce-settg? Are egatve prces as they are otced soetes realty reasoable wth respect to the costrat of proftaxzato? What are the cosequeces of cross-sellg terdepedeces for a ult-chael prcg strategy? Uder whch crcustaces should certa chaels be offered or closed? 3. The Model I ths secto, we troduce a odel that descrbes a optal ult-chael prcg strategy for FPs. Whle ost croecooc prcg odels oly cosder the optzato of oe partcular chael, ths paper the brd s eye vew s appled oto several chaels through whch servces are offered (e.g. braches, Iteret, callceter, oble sales forces, WAP). By settg dfferet prces dfferet chaels, a FP ca actvely drect custoer segets to specfc chaels ad thus axze ts overall profts over all chaels. The odel cosders terdepedeces betwee the varous chaels, cost dffereces betwee the chaels, the et utlty of custoers, ad cross-sellg effects. I a frst step (secto 4), a stuato s cosdered where a FP offers oe basc servce through several chaels to several custoer segets. Depedg o both, the cost structure of the FP ad the chael specfc costs of the custoer segets, proft axzg prces for ths servce each chael ca be detered. I a secod step (secto 5), we wll troduce the very terestg atter of cross-sellg ad ts fluece o the prcg dscusso. Therefore, we cosder a cross-sellg servce that s offered oly oe of the chaels. Thereby, the probablty that the suppleetary servce s bought depeds o the chael through whch the basc servce has bee purchased. 3.. Assuptos The tal stuato s characterzed detal by the followg assuptos: Istalled Custoer Base (A) The custoer base of a FP ca be dfferetated custoer segets. Each custoer seget s characterzed by ts costs c for usg chael. These (opportuty-) costs clude trasacto costs lke search costs or trasport costs as well as ore psychologcal

4 /0 $7.00 (c) 00 IEEE 4 Proceedgs of the 35th Aual Hawa Iteratoal Coferece o yste ceces (HIC-35 0) /0 $ IEEE Proceedgs of the 35th Hawa Iteratoal Coferece o yste ceces - 00 copoets lke the dscofort of usg a allegedly secure or persoal chael. Custoer Utlty (A) The custoer s utlty N of cosug a servce does ether deped o the seget a custoer belogs to, or s t flueced by chael choce. The utlty coprses the basc utlty the servce offers,.e. the rettace of a su of oey at a certa date ay provde the sae utlty for each custoer. The custoer s et utlty cossts of the utlty N of the servce less the effectve prce p of the servce chael, less the costs c custoer seget faces chael. Thus, the et utlty ca be coputed as N = N p c. The custoers choose the servcechael-cobato a) that axzes ther et utlty N b) as log as N s greater tha zero. FP (A3) The FP has a gve, stalled custoer base ad s therefore ot copetg wth other FPs. (A4) The FP offers several servces through specfc chaels to ts custoers: 3 a) Basc servces: a well-kow servce to each custoer, about whch she s very well fored ad does ot eed ay further forato. The dead of custoer seget for a basc servce s t. The FP wll prce ths servce such that every seget has a oegatve et utlty at least oe chael, because all custoers have to be served. b) Cross-sellg servces : a tally ukow servce to the custoer. The custoer s ether aware of ts exstece, or does she have ay further forato (lke the prce) about t. The probablty x that custoer seget lears about servce because of cross-sellg efforts by the FP depeds o the chael through whch the basc servce s cosued. If a custoer seget does ot cosue ay basc servce at all, t caot lear about servce : x 0 = 0. The cross-sellg servce s oly provded through oe specfc chael wth a et utlty N c p for each custoer. The dead of custoer seget for the cross-sellg servce s t. (A5) The argal costs of the FP for provdg a basc servce chael are k. Although, t s assued that all chaels are already establshed, there are fxed aual costs K for each chael to ata ts The et utlty ca be terpreted as the persoal cosuer surplus, as well. 3 However, ths does ether ply that a servce s always provded o all chaels, or that a servce has to be provded at all (e.g. f t s ot proftable). operablty, whereby all K s deoted K. The FP s argal costs of the cross-sellg servce are k. There exst o fxed costs for offerg, sce the chaels have already bee establshed for the basc servces. 3.. The custoer s pot of vew the dead fucto The dead D of the custoers for a servce chael s the su of deads of the several custoer segets. As t was assued (Aa,b), a seget s dead for a servce through a chael depeds o the et utlty a servce-chael cobato offers. Custoer seget wll buy t servces the chael that provdes the axu et utlty, as log as the et utlty s oegatve. If t s egatve, the custoer seget wll ot purchase the servce the chael. To forulate ths stuato, we troduce the duy varable d : 4 l f : N = ax N 0 d = l () 0 otherwse Thus, the dead for a servce chael ca be aggregated over the uber of servces cosued by all segets chael : D = d t () The FP s pot of vew the proft fucto The FP s supposed to axze ts proft, whereby the overall proft cossts of the su of the chaelspecfc profts ad ca be coputed as follows: ( p k ) + x t ( p k ) K 5 π = D (3) For further ecooc aalyss ad terpretato of the ult-chael-prces, the FP s optzato proble (3) eeds to be solved aalytcally. 6 Therefore a frst step, a stuato s cosdered, where there are oly basc servces offered through several chaels. I a secod step, the pact of cross-sellg servces o the prcg decsos wll be aalyzed. For splcty of aalyss, but wthout loss of geeralty, the reader of ths paper we wll assue that there exst oly two custoer segets ad two chaels. 4 Thereby, ght ot oly stad for the basc servces, but also for the cross-sellg servce. 5 deotes the chael through whch the basc servce s purchased by seget. 6 Bascally, there exst two ethods, that ca be appled order to solve ths axzato proble: ether the splex optzato algorth ([]) or a graphcal optzato ([7]), that ca oly be appled the two-seget-two-chael scearo. Although both ethods wll ecessarly lead to the sae results, for the purpose of llustrato ths paper the graphcal ethod wll be appled.

5 /0 $7.00 (c) 00 IEEE 5 Proceedgs of the 35th Aual Hawa Iteratoal Coferece o yste ceces (HIC-35 0) /0 $ IEEE Proceedgs of the 35th Hawa Iteratoal Coferece o yste ceces Prcg of chael versoed basc servces I the followg, two cases have to be dfferetated: the copay ght set prces such that ether both segets are drected to the sae chael (case ) or to dfferet chaels (case ). 4.. Case : Both segets are drected to the sae chael If custoer seget ad are drected to chael ad oe to chael k (wth, k {, } k ), the optzato proble wth respect to cetve copatblty (IC, Aa) ad dvdual ratoalty (IR, Ab) s as follows:! π = ( t + t ) ( p k ) K Max (4) Costrats: (I) p + c p + c p p + c c (IC) N p + c 0 p N c (II) (IR) p + c p + c p p + c c (III) (IC) N p + c 0 p N c (IV) (IR) It ca be show easly that the result of ths optzato proble s as follows: p = N ax( c ; c ) (5) k p > N ax( c c ) ; (6) π = ( t + t ) ( N ax( c ; c ) k ) K (7) Aalyzg (5) ad (7) reveals that the proftaxzg prce equals the utlty subtracted of costs o ths chael of ether seget or, depedg o whch oe s costs are larger. Ths result s tutve, sce (based o (A) ad the costrats (II) ad (IV)) the prce has to be set such a aer that both segets have a oegatve et utlty o chael. Therefore, order to choose the proft-axzg prce, the seget wth hgher costs o chael s relevat, sce ths seget wll put the cap o the prce. Ths result s also llustrated fgure : the upper graph of (II) ad (IV) - ad therefore the oe wth hgher costs deteres the prce. However, we have ot fgured out yet, f t s ore proftable to drect both segets to chael or chael k. Therefore, we copute the dfferece of profts betwee drectg both segets to chael or chael k ad ca thereby derve the proft-axzg-codto (PMC) for chael : k 8 p p = ( N ax( c ; c )) ( N ax( c ; c )) = ax( c ; c ) ax( c ; c ) = π = π k k ( p ) π ( p ) > 0 k 443 k + a ( c ; c ) ax( c ; c ) > 0, k {, }, k + ax b k Part a of the PMC ( k k ) s the dfferece of the frs argal costs each chael ad ca be terpreted as the dfferece costs, the fr curs per servce fro drectg both segets to chael. Part b of the PMC ( ( ; c ) ax( c c )) c ; (8) ax s the proft axzg prce dfferece 8 each chael ad ca be terpreted as the dfferece prce, the FP curs per servce fro drectg both segets to chael. 9 Therefore, the PMC says that a fr should drect both segets to the chael, where the argal ga prces (costs) exceeds the argal loss costs (prces). II IV p 4.. Case : Custoer segets are drected to dfferet chaels If custoer seget s drected to chael ad seget to chael (wth, {, } ), the optzato proble wth respect to (Aa,b) s as follows:! k + t p k K Max (9) π = t ( p ) ( ) Costrats: (I) p + c p + c p p + c c (IC) (II) N p + c 0 p N c (IR) (III p + c p + c p p + c c (IC) (IV) N p + c 0 p N c (IR) It ca be show easly that the result of ths optzato proble s: p = N c + ( 0; c c ) () p = N c + ( 0; c c ) () 9 It should be etoed that the dfferece both prces ad costs ght be postve or egatve. I soluto set Fgure. Graphcal Optzato of Case III p k

6 /0 $7.00 (c) 00 IEEE 6 Proceedgs of the 35th Aual Hawa Iteratoal Coferece o yste ceces (HIC-35 0) /0 $ IEEE Proceedgs of the 35th Hawa Iteratoal Coferece o yste ceces - 00 π = t + t ( N c + (0; c c ) k ) + ( N c + (0; c c ) k ) K (3) Itutvely, wth respect to costrats (II) ad (IV) the FP wll axze prces each chael such that the et utlty of each seget s set to zero,.e. t extracts all the cosuer surplus ad thereby axzes ts ow producer surplus. However accordg to ths tuto, f the custoer seget wth relatvely lower costs a specfc chael (.e. copared to the other seget s costs ths chael) should be drected to the other chael, ths seget wll stll purchase through the wrog chael, sce ths dfferece costs causes the et utlty to be hgher. Therefore, order to off-set ths effect, the prce ths chael has to be lowered for exactly ths dfferece costs ad wll thereby lower the FP s profts. Cosequetly, the FP ca realze the hghest prces, f t drects each seget to the chael, where t has relatvely the lowest cost. Otherwse, the FP wll realze a loss prces. I ths case the PMC s ot relevat, sce based o costrat (I) ad (III) there exsts a codto, that eeds to be fulflled, order for ths case to exst (case exstece codto CEC): ( c c ) + ( c c ) 0, {,}, a b (4) Part a of the CEC s the dfferece optal prces the fr curs for drectg seget to chael ad part b s the dfferece optal prces the fr curs for drectg seget to chael. The CEC exsts, because o seget ca be drected to a chael, where the dfferece costs s relatvely hgher, sce t would always realze a larger et utlty through the other chael. Ths result ca also be cocluded fro fgure : order for a o epty soluto set to exst, graph (I) has to be above graph (III). II IV soluto set p Fgure. Graphcal Optzato of Case I III p 4.3. Results It could be show that the optal prcg of the chael versoed basc servces oly reles o the custoers et utlty. The FP s decso, whch chael to use, depeds o ts argal costs ad the custoers costs of usg the chael. However, o aalytcal soluto, whether case or are proft axzg, could be draw fro the odel. But by coputg ad coparg the axu proft each case, the FP ca easly fd the proft axzg case, whch wll cosequetly be chose. If case leads to the proft axzg soluto, (8) costtutes the decso rule for the chael choce. Thereby, oly the argal costs of the FP ad the costs of ts costuers (respectvely ther dffereces) each chael are relevat for ths decso. Furtherore, we fd that the larger the dfferece costs of the custoers s, the saller s the cosuer surplus that ca be extracted by the FP ad hece the producer surplus. Aother property of ths case s that the FP ca save the fxed aual costs by closg dow the uused chael. I case the FP s argal costs are o loger relevat for the chael decso. The oly fluecg factors are the custoers costs for the dfferet chaels. The chael decso s exactly defed by the CEC. Thereby, the proft of the FP s detered by the dfferece costs of the custoer: The larger t s, the saller s the proft. ce ths stuato both chaels rea establshed, there are o savgs the fxed aual costs as we could observe the prevous case. 5. Cross-ellg I our prevous aalyss, cross-sellg was ot cosdered. The decso, whether a custoer bought a servce or ot oly depeded o her et utlty. I realty, custoers kow soe servces of a FP ad could evaluate ther costs ad utlty by cosug the. But a assortet of servces usually cotas ay servces for whch ths s ot the case,.e. these servces are ukow to the stalled custoer base. Every te a cosuer buys a already kow servce, the FP has a certa chace to for the custoer about yet ukow servces. We thk that ths chace depeds o whch chaels a custoer uses, because of a dfferet qualty ad also uber of custoers cotact pots. As a cosequece, there s a coecto betwee the prcg of servces yet kow by the custoer (basc servces) ad cross-sellg servces. To acheve a optal proft, a FP has to cosder ths coecto. Therefore, the optal prcg strategy ad chael decso of basc servces secto 4 ght chage.

7 /0 $7.00 (c) 00 IEEE 7 Proceedgs of the 35th Aual Hawa Iteratoal Coferece o yste ceces (HIC-35 0) /0 $ IEEE Proceedgs of the 35th Hawa Iteratoal Coferece o yste ceces Prcg of the cross-sellg servce Cosderg a suppleetary servce wth cross-sellg aspects, the FP has to thk about the prcg of ths cross-sellg servce. Regardless of the sales of the chael versoed basc servce, the FP wll oly try to sell the cross-sellg servce, f prce exceeds argal costs, otherwse t wll set the prce such that o custoer wll buy. Therefore, the FP wll choose prce as follows: = N c for k N c p (5) > N c for k > N c Furtherore, the FP also has to cosder the expected dead x t + x t for deterg the proft of servce, whch depeds o the cosupto of the basc servce offered chael ad, wth,,, ). { } ( x t + x t ) ( N c ) = for k N c π (6) 0 for k > N c ce p also depeds o the sales of the basc servce, t would ot be optal to axze the proft of servce solated, but to axze the overall proft π + = π + π π. 5.. Prcg of the basc servce versos regardg cross-sellg effects The least coplex stuato of prcg the basc servce through chael ad occurs, whe the axal prce for servce (based o Ab) s lower tha ts argal costs k. The, the FP sets prce p such that o custoer seget cosues servce eve whe they lear about t. Cosequetly, o cross-sellg servce wll be sold ad the results are equal to secto 4. I order to fd the proft axzg prces for basc servce versos ad, both cases of secto 4 have to be aalyzed regardg ther pact o the expected dead ad proft of servce Case wth cross-sellg aspects: Both segets are drected to chael. Based o (3), the proft ow cludg the cross-sellg servce could be coputed as: π = ( t + t ) ( N ax( c ; c ) k ) + (7) + x ( t + t ) ( p k ) K The optal prce for the basc servce N ax( c ; c ) the optal chael does ot chage cosderg cross-sellg aspects, sce t s oly flueced by the utlty ad custoer s costs for the basc servce. But what could chage s the optal chael decso, because of dfferet cross-sellg probabltes the chaels. I order to fgure out, uder whch crcustaces t s ore proftable to drect both segets to chael stead of chael k (wth, k {, } k ), the dfferece of overall profts s coputed cosderg cross-sellg-plcatos. Thereby, we ca derve the proft-axzg-codto (PMC) for chael : π = π p = π p = > 0 ( ) ( ) c a b k ( t + t ) k k + ax( c ; c ) ax( c ; c ) k ( t + t ) ( p k ) ( x x ) > 0, k {, }, k d e f (8) Whether ths ew PMC holds for chael does ot oly deped o cost dfferece (part a) ad the prce dfferece (part b) of the two chaels, but also o crosssellg. If the old PMC (secto 4) was true wthout cross-sellg, t s obvous that stays the optal chael k f cross-sellg s easer ( x > x ) through t tha through chael k: the parts d, e ad f of the PMC are postve,.e. a hgher proft wth servce s acheved whe all custoers use chael stead of chael k. The stuato becoes ore coplex f the cross-sellg k probablty s larger chael k ( x < x ). A argal proft advatage (a + b) for the basc servce whe all custoers use chael s ow ot suffcet ayore to prefer chael over chael k. Usg chael stead of chael k regardg cross-sellg effects duces a loss the argal ( e f ) ad also total proftablty of servce ( f ad therefore d e f are egatve). Thus, chael s oly optal for the basc servce whe the total proft advatage for the basc servce favor of chael exceeds the total dsadvatage of chael for cross-sellg servce. I cotrast to the prevous decso favor of chael wthout cosderato of cross-sellg aspects, chael k s ow optal f the proft advatage for the basc servce favor of chael s outubered by a proft dsadvatage of chael for the cross-sellg servce Case wth cross-sellg aspects: Custoer segets are drected to dfferet chaels. The overall proft cludg the cross-sellg servce could be coputed as: 0 π = t N c + (0; c c ) k + + ( ) t ( N c + (0; c c ) k ) ( x t + x t ) ( p k ) K + (09) + ce the CEC s oly a result of the custoer s et utlty for basc servces ad ther chael choce, t s detcal to secto 4.. The cross-sellg servce does ot fluece ther decsos, because t s ukow to the at the begg. Thus, the cross-sellg of servce oly 0 As case, the prcg of the basc servces s ot flueced by the cross-sellg servce.

8 /0 $7.00 (c) 00 IEEE 8 Proceedgs of the 35th Aual Hawa Iteratoal Coferece o yste ceces (HIC-35 0) /0 $ IEEE Proceedgs of the 35th Hawa Iteratoal Coferece o yste ceces - 00 has a fluece o the overall proft, but ot o the prcg of the basc servce versos ths case Results To su up, the ot optzato of the overall proft has ether a fluece o the prcg of the basc servce versos, or o the prcg of the cross-sellg servce. Furtherore case, the chael choce does ot chage copared to the stuato wthout cross-sellg, as t s exactly detered by the CEC. Thus, eve f the FP would lke to redrect the custoer segets to aother chael - whch ght be reasoable because of crosssellg aspects -, ths s ot possble. However case, a possble cross-sellg advatage favor of chael chages ths decso, whe t outubers a possble proft advatage the basc servce versos favor of chael ad vce versa. Coparg the overall profts of the optal prcg decso case ad wth ad wthout cosderato of cross-sellg aspects, the FP wll set the prces such that the case wth the hghest overall proft wll be realzed. The optal decso does ot ecessarly eed to chage cosderg cross-sellg aspects. 6. Iplcatos Regardg the questo whether custoers ca be drected to a specfc chael by prcg the basc servces, t has bee show that the FP ca ether drect all custoers to oe chael or dstrbute the over several chaels. I the frst case, the FP ca drect the custoers to the desred chael accordg to hs cost structure. Wth the help of the PMC, the ost proftable chael ca be detered easly. However the secod case, there s o chael choce as the CEC defes exactly, whch custoers ca be drected to whch chael. ce a decso rule for the FP s optal chael choce could ot be cocluded aalytcally fro the odel, ths has to be decded each stuato by coparg the profts of both cases. Cosequetly, the prcg of the chael versoed servces drects the custoers ad has therefore a sgfcat fluece o FP s profts. Based o these fdgs, we ca detere the proft axzg prces of the basc servces each case as a result of the odel. Thereby, the results oly deped o the custoers costs of usg a chael, ad cosequetly certa stuatos ght duce eve egatve prces for oe chael versoed servce. Wthout cosderg crosssellg aspects, ths leads to the cocluso that a dto log-ter perspectve ths loss-ducg servce should be abadoed, uless t s such a basc servce (e.g. a rettace) that costtutes the ature of the FP. Geerally speakg, we ca coclude that f case s ore proftable, the other chael should be closed dow order to save fxed costs. Thus, cabalzato betwee the chael versoed basc servces sees to be possble. However, regardless of case or, certa custoer cost stuatos ght lead to egatve profts. Thus, f there s o cross-sellg, the FP should be closed dow. As show, cross-sellg servces do ot fluece the prce settg of the basc servces. However, cross-sellg ght chage chael decsos ( case ) ad ake egatve prces reasoable, eve a log-ter perspectve. I.e. t could be optal to offer a basc servce at a prce lower tha ts argal costs (egatve args) order to establsh cross-sellg opportutes. I practce for exaple, these fdgs ght also ustfy the charge-free offerg of basc servces lke research forato of ay FPs. Equally, the uproftable prcg (.e. the settg of egatve prces) of payet trasactos of Gera HypoVeresbak - etoed secto - ca be uderstood cosderg the results of the preseted odel. Geerally, FPs hope to establsh custoer relatoshps through the well kow basc servce order to cross-sell ukow servces usg the varous cotact pots (chaels) to the custoer. The fdgs of the odel ca be clarfed a sple exaple based o the followg fgures: Table. Exaple Varables: N basc servce : 0 uts N cross-sellg 300 uts servce: Custoer seget : Custoer seget : c : oey c : 6 oey uts uts c : oey c : oey uts uts t: 50 t: 70 t : 30 t : 40 c : 7 oey c : 7 oey uts uts FP: k : 3 oey uts k : oey uts k : 5 oey uts K : 00 oey uts K : 50 oey uts K : 50 oey uts Cross-sellg probabltes: x : 0% x : 3% Thereby, chael s a brck-ad-ortar brach wth hgh fxed aual costs, ad chael represets the Iteret, o whch the basc servce - a atoal rettace - s dstrbuted. Thereby the exaple s put value of FP s argal costs of the brach-chael s

9 /0 $7.00 (c) 00 IEEE 9 Proceedgs of the 35th Aual Hawa Iteratoal Coferece o yste ceces (HIC-35 0) /0 $ IEEE Proceedgs of the 35th Hawa Iteratoal Coferece o yste ceces - 00 chose 3 tes hgher tha the argal costs of the ole-chael. Ths represets a realstc assupto correspodg to the study etoed secto. (cf. [3]). The rettace as a basc servce does ot geerate a hgh utlty (0 uts) to the custoers. However, the cross-sellg servce, a stadardzed lfe surace, costtutes a value-added servce to both custoer segets ad geerates a hgh arg for the FP. Wthout cosderg cross-sellg, the FP wll set optal prces p = 4 for the rettace the brach ad p =, 99, (a payet of,99 oey uts to the custoer) per trasacto through the Iteret. Despte ths prce settg, the cost structure of both custoer segets duces the to use the brach offce ths stuato, where a proft of 0 oey uts s geerated. The Iteret s ot used, ad therefore there exsts a egatve proft of 50 (.e. the fxed aual costs), whch leads to a egatve overall proft of 30. I ths case, t ght be reasoable to close dow the Iteret (or ot to establsh t at all), as the fxed aual costs could be saved. If cross-sellg s cosdered the proft-axzg prcg decso, the prces chage to p = 8 ad p =. The addtoal cross-sellg servce s prced wth p = 93. As the prce for usg the brach has doubled, the custoer segets ca ow be drected to dfferet chaels: eget reas chael (the brach offce) sce ts et utlty of usg the brach s o-egatve ad that of the Iteret egatve. However, the et utlty of seget for usg the brach s ow egatve ad zero for usg the Iteret. Therefore, ths seget chages ts chael choce to the Iteret. The proft stuato chages draatcally: cosderg oly the basc servces, the overall loss s eve bgger (-0) tha the prevous stuato, but through crosssellg, a overall proft of 5,6 ca be geerated. Thereby a terestg fact s, that a egatve prce (-) for the rettace va Iteret leads to ths global proft optu. Cocludg, t ca be stated that eve f prces are optzed oly wth regard to the basc servces, cross-sellg wll create a postve proft of 886. However, the exaple shows clearly that the FP should cosder cross-sellg opportutes whe axzg ts proft sce the overall proft creases fro 886 to 5,6, whch represets %. Obvously, ult-chael prcg s a effectve struet for a FP to optze the overall proft, but for achevg optal results, all servces ad chaels have to be cosdered. The solated proft axzato of basc servces leads oly to sub optal overall profts. 7. Ltatos ad Outlook I ths paper we troduced the dea of chael versoed products ad, at the frst te, a (sple) odel for ult-chael prcg was set up. Although we had to troduce rather strct assuptos, lke the reducto to two chaels ad two custoer segets ad oly a splfed way of cross-sellg, we were able to deduct soe very useful results: It could be show that the troducto of addtoal chaels ght - but ot ecessarly - be postve for the FP as well as for the custoers. Moreover, the basc hypothess of ths paper that ult-chael prcg s useful ad creases the FP s profts, could be proofed. oe rather o-tutve effects of realty, lke egatve prces for rettaces at Gera HypoVeresbak or the provso of free research for custoers could be explaed wth the odel. Fally, decso rules were deducted to detere the chael versoed prces ad the chael choce of the custoers. However, so far oly basc questos of ultchael prcg were vestgated. But these results are the geeral bass for further research: The splfcato of chaels ad segets should be offset further aalyss. o far, a oopolstc stuato was aalyzed, where the FP could set prces wthout respect to copettors. The troducto of a olgopolstc copetto wll surely provde deeper sght the structure of arkets, whch ult-chael stuatos are prevalg. Fro a FP s pot of vew, the custoers decso, whch FP to choose, sees to be very relevat. Ths aspect s especally portat wth regard to the acqusto of ew custoers. But sce the custoers provder decso s ot oly based o oe, but o a set of servces, the budlg of servces ad ts prcg should be cosdered as well. Yet, the questo of welfare has ot bee vestgated. Although t has bee show that several chaels ght offer the possblty to extract cosuer surplus by the FP, a aalyss of the welfare of the ecooy ght be rewardg. 8. Refereces [] Y. Bakos, "The Eergg Role of Electroc Marketplaces o the Iteret" Coucatos Of The ACM, Vol. 4, No. 8 (August), 998, Pp [] H. K. Bhargava, V. Choudhary, ecod-degree Prce Dscrato for Iforato Goods, : Proceedgs of the Thrty-Fourth Aual Hawa Iteratoal Coferece o yste ceces (HIC-34), Los Alatos, Hawa, 00.

10 /0 $7.00 (c) 00 IEEE 0 Proceedgs of the 35th Aual Hawa Iteratoal Coferece o yste ceces (HIC-35 0) /0 $ IEEE Proceedgs of the 35th Hawa Iteratoal Coferece o yste ceces - 00 [3] H.U. Buhl, ad Wll, A., "Ecooc Aspects of Electroc Coerce Facal ervces ad Advatageous teps to Exteded Offers Iteret Bakg", Proceedgs of Proceedgs of the Thrty-ecod Aual Hawa' Iteratoal Coferece o yste ceces, R. H. prague, Jr.; ed., Koa Coast, Hawa, Jauary 6-9, 998, IEEE Coputer ocety Press. [4] R. Dewa, M. Freer et al., Orgazg Dstrbuto Chaels for Iforato Goods o the Iteret, Maageet cece, Vol. 46, No. 4, pp , 000 [5] J. Dzezol, N. chroeder et al., Kudewertoreterte Uterehessteuerug, accepted cotrbuto for the WI/IF 00 coferece, Augsburg, 00. [6] E. Gerster, J. D. Hess et al., Prce Dscrato Through a Dstrbuto Chael: Theory ad Evdece, The Aerca Ecooc Revew, Vol. 84, No. 5, pp , 994 [7] W. Hauke, O. Optz, Matheatsche Uterehesplaug: ee Eführug, Verlag odere Idustre, Ladsberg/Lech, 996. [8] C. A. Holse, R. N. Palter et al., Retal Bakg: Maagg copetto aog your ow chaels, The McKsey Quarterly, 998, Nuber. [9] E. Mask, J. Rley, Moopoly wth coplete forato, Rad Joural of Ecoocs, Vol. 5, No., 984 [0] M. Mussa,. Rose, Moopoly ad Product Qualty, Joural of Ecooc Theory 8, pp , 978. [] K. Neua, Operatos Research Verfahre Volue, Carl Haser Verlag, Müche/We, 975. [] J. chacka, W. teck et al. Ee ökoosche Betrachtug vo Custoer Relatoshp Maageet ud dvduelle Fazdestlestuge, 3rd. FAN-Coferece 000, ege, 000. [3] M. o, Maro Craer, Ole Bakg als Bestadtel der Multchael-tratege der Credt usse, Isttut für schwezersches Bakwese, Uversty of Zürch, 999. [4] J. og, & Zahed, F., "Deterats of Market trateges Electroc Markets", Proceedgs of Proceedgs of the Aerca's Coferece o Iforato ystes (AI '98), Elle D. Hoadley & Izak Bebasat; ed., Baltore Marylad, Opress, 998. [5] oo-yog Cho, D. tahl, A. Whsto, The Ecoocs of Electroc Coerce, Maclla Techcal Publshg, Idaa, 997. [6] T. M. Vallett, Prce Dscrato ad Prce Dsperso a Duopoly, Research Ecoocs, vol. 54,. 4, pp , 000. [7] M. Ward, M. Morgaosky, Ole Cosuer earch ad purchase a ultple chael evroet ; Departet of Agrcultural ad Cosuer Ecoocs, Uversty of Illos, Urabaa-Chapag, 000. [8] A. Wll, uchkoste ud Presdsperso auf Netzärkte, Dscusso Paper WI-36, Isttut für Betrebswrtschaftslehre, Uversty of Augsburg, 997