# Word-of-Mouth on Action: Analysis of Operational Decisions When Customers are Resentful

**Authors:** Bahar Çavdar, Nesim Erkip  
**arXiv:** [2203.11251](https://arxiv.org/abs/2203.11251)  
**Date:** 2022-03-21  
**Summary page:** https://www.summarizepaper.com/en/paper/2203.11251v1/

## Key points

- Word-of-Mouth (WoM) communication through customer reviews influences purchasing decisions in online shopping.
- Retailers must consider the impact of WoM to manage customer perceptions and future demand.
- The paper "Word-of-Mouth on Action: Analysis of Operational Decisions When Customers are Resentful" studies an online shopping system with premium and regular customers to model customer preferences based on perceived service quality indicated by WoM.
- The authors integrate this information into the retailer's operational problem to determine a shipment policy.
- The paper considers the e-tailer's problem when they have no knowledge of WoM and only react to changes in demand, showing that potential market size and customer sensitivity are key parameters determining long-term customer behavior.
- The authors build a model that integrates knowledge of WoM into operational decision-making processes while partially characterizing the optimal solution.
- Beating competition in the market may not always benefit companies under strict operational constraints as it can result in undesired customer switching behavior.
- Relaxations in operational constraints may hurt profitability due to difficulties associated with managing perceptions.
- Seeking a stationary policy can lead to suboptimal solutions; therefore, cyclic policies should also be considered when appropriate.
- Retailers need to consider WoM communication when making operational decisions about shipment policies to better manage customer perceptions and future demand while ensuring profitability is maintained at an acceptable level.

## Summary

In the world of online shopping, Word-of-Mouth (WoM) communication through customer reviews plays a significant role in influencing purchasing decisions. As such, retailers must consider the impact of WoM to manage customer perceptions and future demand. In their paper titled "Word-of-Mouth on Action: Analysis of Operational Decisions When Customers are Resentful," authors Bahar Çavdar and Nesim Erkip delve into this topic by studying an online shopping system with both premium and regular customers. Building on existing literature in behavioral and operations management, the authors model customer preferences based on perceived service quality indicated by WoM. They then integrate this information into the retailer's operational problem to determine a shipment policy. The paper first considers the e-tailer's problem when they have no knowledge of WoM and only react to changes in demand. Through their analysis, they show that potential market size and customer sensitivity are key parameters determining long-term customer behavior. Next, the authors build a model that integrates knowledge of WoM into operational decision-making processes while partially characterizing the optimal solution. They find that beating competition in the market may not always benefit companies under strict operational constraints as it can result in undesired customer switching behavior. Additionally, relaxations in operational constraints may hurt profitability due to difficulties associated with managing perceptions. Seeking a stationary policy can lead to suboptimal solutions; therefore, cyclic policies should also be considered when appropriate. Overall, this paper highlights how important it is for retailers to consider WoM communication when making operational decisions about shipment policies. By doing so, they can better manage customer perceptions and future demand while also ensuring profitability is maintained at an acceptable level.