Customer Transaction Costs and Marketing Simulations: Modeling A New Relationship Marketing Approach

Hugh M. Cannon, James N. Cannon, Ahmet Koksal, Aaron Johnson

Abstract


From an economic perspective, the role marketing is to facilitate the convergence of supply and demand. The fact that the convergence needs facilitation implies there are natural sources of resistance to convergence. The cost of overcoming the resistance can be conceptualized as transaction costs. This paper discusses how a simulation can incorporate the theory of transaction costs into a cost function and can use the concepts of marketing, and particularly relationship marketing, to reduce them. Building these two concepts into marketing simulation games not only gives game participants experience with the practical application of transaction costs in marketing strategy, but it also allows them to experiment with a new business model that uses relationship marketing to reduce transaction costs as opposed to a model in which marketing seeks to increase profits through product differentiation.

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