Research On Competitive Location Problem With Customer Switching Behavior Considered

Customer switching refers to the behavior of a customer switching from one supplier of a product or service to another one. Among competing facilities, this behavior can be described as a customer switching from one facility to another, which provides similar service. However, the influence of customer switching on location strategy has been ignored all the time.According to Stackelberg Model, competitors enter the market in sequence. The competitor who enters first plays as the leader, the others are called the follower. The leader can forecast followers’movements, and followers can only observe the leader’s behavior. In this paper, only two competitors are studied, one plays as the leader, the other plays as the follower.Firstly, the formation of customer switching behavior in competitive facilities is described in the paper. The influence of customer switching on location strategies of both follower and leader and the benefit of each side are analyzed numerically by two examples.Secondly, follower competitive location models, considering customer switching behavior or not, have been constructed, with the aim to maximize the customer capture of the follower. Without considering customer switching behavior, it is assumed that customers choose facilities only by measuring the distance between facilities and customers. Considering customer switching, the process of customer capture has been cut into two stages. Stage one:customers choose facilities by ranking facilities by travelling cost. Stage two:customer in a certain facility decides whether to switch and how to switch by measuring the travelling cost of switching and the waiting cost of lining up in the current facility. The sum of customer capture of two stages is the eventual customer capture. The parameter’customer switching rate’is introduced to quantize the ratio of customers who switch out of all customers in a facility. Then, by computing and analyzing a case, the influence of customer switching behavior on facilities’customer capture is explored. Compare results of two models, the optimal solutions and the optimal object values are found changed.Lastly, combined with the (r/p)-centroid model, the market leader competitive location models are constructed, based on the market follower competitive location models. These two models are mini-max problems, with the aim to maximize the customer capture of the market leader. Then, by computing and analyzing the extended case, the importance and influence of customer behavior are verified. According to the analysis, management advice is proposed.This paper complements and develops competitive location theory, and fills the gap of the current study. It makes theoretical senses, as well as practical senses, and can be used to direct the location practice of enterprises.