Essays on the Role of Clickstream Tracking Technology and Consumer Behavior in Operations Management

Motivated by the recent Internet clickstream tracking technology and our interaction with an industrial manufacturer, I conduct an empirical and theoretical study to understand and evaluate the value of this important technology in operations management while explicitly considering consumer behavior.;The dissertation consists of three related but self-contained papers. The first paper (Chapter 1) is an empirical study that documents the work we have done with the company that has been using clickstream tracking technology. Many firms feature their products on the Internet but take orders offline. Precise customer identification and association with click data on such non-transactional websites is often problematic. Our novel data set contains online clickstream data matched with offline purchasing data. We empirically assess to what extent clickstream tracking of such non-transactional websites provides advance demand information (ADI) and estimate its operational value.;A structural estimation of a dynamic click and order model establishes that existing customers are forward-looking in their information collection and more loyal, i.e., they are more likely to return to the website than new customers. However, the forward-looking behavior is not statistically significant for new customers (who constitute 96% of all visitors in our data set), which suggests that a reduced-form model is sufficient. Using a simple logit model, we show that noisy clickstream data is statistically significant to predict the propensity, amount, and timing of offline orders. As a byproduct, we provide statistically significant evidence that click inter-arrival times have a long tailed distribution, rather than the traditionally assumed exponential distribution. Finally, a counter factual analysis shows that using the ADI extracted from the clickstream data in a dynamic inventory control model would reduce the inventory holding and backordering cost by about 5%.;The second paper (Chapter 2 and 3) is a game-theoretic study regarding the future value of this technology. Motivated by the fast growing practice of web analytics, we study whether strategic customers are willing to visit a website when they know their clicks may be tracked. Clicking reveals advance demand information which allows the firm to reduce demand-supply mismatch costs and thereby increase product availability to customers, but clicking may be costly to customers. Customer incentives to click also depend on their valuation uncertainty, preference learning and price, but we demonstrate how the magnitude of the click cost plays a crucial role in determining the equilibrium outcomes. For low click costs, a strong Nash equilibrium always exists where all strategic customers are willing to click.;We further study whether strategic customers with uncertain valuation are willing to click. Clicking allows such customers and the firm to learn their preferences but yields noisy advance demand information. We show that customer incentives to click are fairly robust to noise. While firm preference-learning always strengthens incentives, customer preference-learning does so only under certain conditions. Price-sensitive demand and markdown pricing may reduce incentives, but price commitment and product personalization can mitigate negative effects for the firm. Compared with related operations and marketing strategies such as quantity commitment, availability guarantees, quick response and advance selling, clickstream tracking of strategic customers may be advantageous to both the firm and its customers.;The third paper (Chapter 4) goes one-step further by evaluating the relationship of using clickstream data as both ADI and advance preference information (API). API can be used for product personalization and price personalization. We show that collecting ADI and conducting product personalization simultaneously typically generates significant complementarity effects. However, when markdown pricing is frequent, such complementarity benefits can be weakened by strategic customer behavior and thus they can be substitutes. We also show that ADI and price personalization are complements: Strategic customers are willing to reveal "more accurate" preference information in the presence of endogenous availability. Moreover, such endogenous availability makes price discrimination based on click behavior profitable. Our results emphasize the value of collaboration between Operations and Marketing in the context of clickstream tracking.