Customer Learning Processes,Strategy Selection,and Performance in Business‐to‐Business Service Firms*

Learning about customers takes place through relevant dialogues with those customers, also known as customer relationship management (CRM). As relationships develop, information about the customer is gathered in the firm's customer information systems (CIS): the content, processes, and assets associated with gathering and moving customer information throughout the firm. This research develops a measure of CIS management capabilities based on learning organization theory and measured by the ability to get, store, move, and use information throughout the business unit. This measure is then used to analyze customer learning processes and associated performance in the context of marketing strategic decision making. This study of 209 business services firms finds that generic marketing strategy positioning (low‐cost and differentiation) and the marketing tactics of personalization and customization are related to CIS development. Customer information systems development in turn is associated with higher levels of customer‐based performance, which in turn is associated with increased business growth. Since the strongest association with customer‐based performance is strategy selection, the long‐term benefits of the knowledge gained from the CIS may be in the ability to assist in measuring customer‐based performance, rather than in the ability to immediately contribute to performance. Finally, for these firms, customization and personalization are not directly associated with performance and thus may not be necessary to support every firm's marketing strategy.     

Network Positions and the Probability of Being Acquired: An Empirical Analysis in the Biopharmaceutical Industry

This paper examines the relationship between the firm's direct ties, its inter‐firm network prominence and its likelihood of being acquired. The authors argue that firm's direct ties and prominence enhance the firm's visibility and signal its quality – and thus foster the firm's likelihood of being acquired. However, higher levels of direct ties and prominence, by providing access to resources and the firm's status, respectively, increase the firm's ability to remain independent and thus reduce its likelihood of being acquired. Thus, the authors posit the overall relation as an inverted U‐shaped. Furthermore, they show that, for firms that undergo an initial public offering, the aforementioned relation becomes much weaker. The hypotheses are empirically tested in the biopharmaceutical industry and important theoretical and managerial implications are discussed.     

The Effect of Product Development Restructuring on Shareholder Value

This article examines the effect of product development restructuring (PDR) on shareholder value. The results are based on a sample of 165 announcements made during 2002–2011. PDR announcements are associated with an economically and statistically significant positive stock market reaction. Over a two‐day period (the day of the announcement and the day preceding the announcement), the mean (median) market reaction is 1.63% (0.87%). The market reaction is generally positive regardless of the PDR purpose or action. Although the market reaction is more positive for higher R&D intensity firms, it is not directly affected by the firm's prior financial performance or whether the firm's primary PDR objective is to increase revenues or cut costs. However, the interaction between the firm's prior financial performance and its primary PDR objective is significant. For firms that are financial outperformers, the market reaction is more positive if the firm's primary PDR objective is to increase revenues. For financial underperformers, the market reaction is more positive if the firm's primary PDR objective is to cut costs.     

Impact of Customer‐based Corporate Reputation on Non‐monetary and Monetary Outcomes: The Roles of Commitment and Service Context Risk

A firm's reputation is an important intangible asset, because of its potential for value creation. The authors explore non‐monetary and monetary outcomes of customer‐based corporate reputation (CBR) and hypothesize that commitment serves as a partial mediator, while service context risk is a moderator, of these relationships. Using a large sample of service customers who evaluated the reputation of service firms in four service categories, the results show that (1) commitment partially mediates the relationship between CBR and most of the outcome variables, and (2) service provider selection risk moderates these relationships, such that reputation has a stronger effect on several non‐monetary outcomes for higher‐risk services and commitment has a stronger effect for lower‐risk services, consistent with a dual‐processing framework explanation. The authors discuss the theoretical and managerial implications.     

A Design Theory Approach to Building Strategic Network‐Based Customer Service Systems*

Customer service is a key component of a firm's value proposition and a fundamental driver of differentiation and competitive advantage in nearly every industry. Moreover, the relentless coevolution of service opportunities with novel and more powerful information technologies has made this area exciting for academic researchers who can contribute to shaping the design and management of future customer service systems. We engage in interdisciplinary research—across information systems, marketing, and computer science—in order to contribute to the service design and service management literature. Grounded in the design‐science perspective, our study leverages marketing theory on the service‐dominant logic and recent findings pertaining to the evolution of customer service systems. Our theorizing culminates with the articulation of four design principles. These design principles underlie the emerging class of customer service systems that, we believe, will enable firms to better compete in an environment characterized by an increase in customer centricity and in customers' ability to self‐serve and dynamically assemble the components of solutions that fit their needs. In this environment, customers retain control over their transactional data, as well as the timing and mode of their interactions with firms, as they increasingly gravitate toward integrated complete customer solutions rather than single products or services. Guided by these design principles, we iterated through, and evaluated, two instantiations of the class of systems we propose, before outlining implications and directions for further cross‐disciplinary scholarly research.     

The Interplay Between Employee and Firm Customer Orientation: Substitution Effect and the Contingency Role of Performance‐Related Rewards

This paper identifies and explains a potential tension between a firm's emphasis on customer orientation (CO) and the extent to which employees value CO as a success factor for individual performance. Based on self‐determination theory and CO implementation research, the authors propose that firm CO may represent both autonomous and controlled motivations for CO, but that employees’ CO is more strongly linked to individual performance when employees experience solely autonomous motivation. Hence, the authors expect a substitution effect whereby the link between employees’ CO and their performance is weaker when firm CO is high. Furthermore, the authors examine a boundary condition for the previous hypothesis and propose that performance‐contingent rewards have a positive effect on the internalization of the extrinsic motivation stemming from firm CO. Two multilevel studies with 979 employees and 201 top management team members from 132 firms support these hypotheses. Against previous research, these findings offer a new perspective on the effectiveness of CO initiatives, propose employees’ motivational states as the theoretical explanation for the heterogeneity in the link between employee CO and performance, and reappraise the role of performance‐contingent rewards in CO research. Managerial implications for the effective implementation of customer‐oriented initiatives within firms are provided.     

How Governance Misalignment and Outsourcing Capability Impact Performance

Notwithstanding the popularity of outsourcing as a business strategy, the performance benefits realized through outsourcing efforts are observed to be mixed in practice. This leads to important unresolved questions regarding why some firms are able to derive substantial value from their outsourcing initiatives while other firms are left disappointed. This study joins an emerging literature integrating transaction cost economics and capabilities‐based perspectives to develop a deeper understanding of the drivers of outsourcing performance. I develop a theoretical model that examines the independent and joint influence of governance misalignment (i.e., deviation from transaction cost's predicted mode of governance) and a firm's outsourcing capability on the performance of outsourced processes. I test the theoretical model using a dataset of 172 outsourced and 156 in‐house processes. The finding that governance misalignment corresponds to inferior process performance supports transaction cost's discriminating alignment hypothesis. Interestingly, I also find that a retained technical expertise (TE) and outsourcing knowledge management routines (OKMR; both contributors to a firm's outsourcing capability) positively influence outsourcing performance both directly and via their relationship with governance misalignment. While a retained technical expertise and outsourcing knowledge management routines each positively influence outsourcing performance, they do so in distinctive ways. These findings have important managerial implications and make a significant theoretical contribution. Specifically, this study demonstrates that the notion of a governance misalignment is firm‐specific, conditional on the governance capabilities of the organization. This insight underscores the value of integrating transaction cost logic with capabilities‐based perspectives.     

Strategic Capacity Management When Customers Have Boundedly Rational Expectations

In retailing industries, such as apparel, sporting goods, customer electronics, and appliances, many firms deploy sophisticated modeling and optimization software to conduct dynamic pricing in response to uncertain and fluctuating market conditions. However, the possibility of markdown pricing creates an incentive for customers to strategize over the timing of their purchases. How should a retailing firm optimally account for customer behavior when making its pricing and stocking/capacity decisions? For example, is it optimal for a firm to create rationing risk by deliberately under stocking products? In this study, we develop a stylized modeling framework to answer these questions. In our model, customers strategize over the timing of their purchases. However, customers have boundedly rational expectations in the sense of anecdotal reasoning about the firm's fill rate, i.e., they have to rely on anecdotes, past experiences, or word‐of‐mouth to infer the firm's fill rate. In our modeling framework, we distinguish two settings: (i) capacity commitment, where the firm commits to its capacity level in the long run, or (ii) the firm dynamically changes it in each season. For both settings, within the simplest form of anecdotal reasoning, we prove that strategic capacity rationing is not optimal independent of customer risk preferences. Then, using a general form of anecdotal reasoning, we provide sufficient conditions for capacity rationing to be optimal for both settings, respectively. We show that the result of strategic capacity rationing being suboptimal is fairly robust to different valuation distributions and utility functions, heterogeneous sample size, and price optimization.     

A Strategy for Opening a New Market and Encroaching on the Lower End of the Existing Market

We identify and analyze a scenario where a firm first opens up what we call a “detached” market, by offering a new product that meets a customer need that is very different from (i.e., detached from) the need met by the old established product. Our analysis builds on the previous studies that describe alternate ways in which a new product might open a new market and ultimately encroach on an existing market. Consider the example of cell phones: They opened up a new detached market by meeting the customer need for mobility, a need very different from the traditional attribute of reception quality. By meeting an important detached need, a new product can sell at a high price, even though it might be woefully deficient with regard to the traditional performance dimension (the reception/coverage of early cell phones was sorely lacking). A person who is a high‐end customer for the old product initially despises the new product as a replacement for the old one but might simultaneously be one of the first customers for the new product because it fills the detached‐market need. Over time, the new product improves along the traditional dimension (e.g., cell phone reception/coverage has dramatically improved), and eventually it becomes a replacement for the old product, encroaching from the lower end upward (the first customers to drop their landlines have been lower‐end customers such as students and apartment dwellers, whereas higher‐end business customers still have landlines in their offices). We call this the detached‐market form of low‐end encroachment and show how it helps explain the conundrum of an expensive “disruptive” innovation. We go on to relate our results to the finding that “willingness to cannibalize” is a key factor in an incumbent firm's growth and survival, and to the “blue ocean strategy.”     

Customer complementarity in the digital space: Exploring Amazon’s business model diversification

In spite of the striking evidence that many firms run multiple business models, scholars and practitioners still lack a comprehensive understanding about business model portfolio dynamics, particularly when this happens in the digital space. Prior research on business model diversification tends to focus on supply-side complementarities, such as a firm's synergies among resources and capabilities. Yet, the demand-side with its customer complementarities remains theoretically and empirically underexplored, despite offering interesting opportunities for firms' competitive advantage. By developing a qualitative, longitudinal (1995–2018) analysis of the various business models developed by Amazon.com, we identify and map how customer complementarities—network effects and one-stop shop effects—can support firm growth and competitive advantage, particularly in the digital space. We identify what we term the ‘integrative business model,’ defined as the business model in a portfolio exhibiting the most (predominantly positive) customer complementarities with other business models. We propose mechanisms for the integrative business model to contribute to sustainable competitive advantage via a causal loop diagram and discuss implications for theory and practice.     

Product Launches and Buying Frenzies: A Dynamic Perspective

Buying frenzies caused by a firm's intentional undersupplying of a new product are frequently evident in several industries including electronics (cell phones, video games), luxury automobiles, and fashion goods. We develop a dynamic model of buying frenzies that incorporates the firm's manufacturing and sale of a product over time and characterizes the conditions under which inducing such frenzies is an optimal strategy. We find that buying frenzies occur when customers are sufficiently uncertain about their valuations of the product and when they discount the future sufficiently but not excessively. We propose measures of “customer desperation” and of the extent of scarcity to measure the depth and breadth of buying frenzies, respectively. We also demonstrate that such frenzies can have a significantly positive effect on firm profits and partially recover the loss due to non‐commitment to future prices. This study provides managerial insights on how firms can influence market response to a new product through production, pricing, and inventory decisions to induce profitable frenzies.     

Opportunism in Capital Budget Recommendations: The Effects of Past Performance and Its Attributions*

This study uses an experiment to examine the separate and combined effects of managers' loss aversion and their causal attributions about their divisions' performance on tendencies to make goal‐incongruent capital budget recommendations. We find that managers' recommendations are biased by their loss aversion. In particular, managers of high‐performing divisions are more likely than managers of low‐performing divisions to propose investments that maximize their division's short‐term profits at the expense of the firm's long‐term value. We also find that managers' recommendations are biased by their causal attributions. In particular, managers are more likely to propose investments that maximize their division's short‐term profits at the expense of the firm's long‐term value when they attribute their division's performance to external causes (e.g., task difficulty or luck) rather than to internal causes (e.g., managerial ability or effort). Further, the effects of causal attributions are greater for managers of high‐performing divisions than for managers of low‐performing divisions. The study's findings are important because loss aversion and causal attributions are often manifested in firms. Thus, they may bias managers' decisions, which in turn may be detrimental to the firms' long‐term value.     

Transnational Board Interlocks as a Source of Non‐experiential Knowledge for the Firm in Foreign Markets

Board interlocks between firms headquartered in different countries are increasing. We contribute to the understanding of this practice by investigating the transnational interlocks formed by the 100 largest British firms between 2011 and 2014. We explore the association between different attributes of a firm's internationalization process, namely performance, structural and attitudinal, and the extent of the firm's engagement in transnational interlocks. We posit that the value of transnational interlocks as a non‐experiential source of knowledge will vary according to which of these three attributes becomes more prominent as the firm internationalizes. We do not find a significant relationship between the performance and structural attributes of internationalization, as measured by the firm's percentage of foreign sales and assets, respectively, and increased engagement in transnational interlocks. We do, however, find an inverted U‐shaped relationship between the attitudinal attribute of internationalization, represented by the psychic dispersion of the firm's foreign operations, and the firm's number of transnational interlocks. This non‐linear relationship reveals both a natural boundary for the firm's capacity to engage in transnational interlocks and a reduced willingness to engage in such ties once a certain degree of attitudinal internationalization has been reached.     

Optimal Uniform Pricing Strategy of a Service Firm When Facing Two Classes of Customers

When facing heterogeneous customers, how should a service firm make its pricing decision to maximize revenue? If discrimination is allowed, then priority schemes and differentiated pricing are often used to achieve that. In many applications, however, the firm cannot or is not allowed to set discriminatory prices, for example, list price in retail stores, online shopping, and gas stations; thus a uniform price must be applied to all customers. This study addresses the optimal uniform pricing problem of a service firm using a queueing system with two classes of customers. Our result shows that the potential pool of customers plays a central role in the firm's optimal decision. Depending on the range of system parameters, which are determined explicitly by the primitive data, the firm's optimal strategy may choose to serve only one class of customers, a subset of a class of customers, or a combination of different classes of customers. In addition, the optimal price is in general not monotonic with respect to the potential market sizes because their changes may lead to a major shift in the firm's decision on which customer class to serve. However, unless such a shift occurs, the optimal price is weakly decreasing in the potential market sizes.     

How market entry order mediates the influence of firm resources on new product performance

Building from the resource-based view of the firm and the first-mover advantage literature, this paper asserts that the entry order in a new product-market affects how the firm's resources and capabilities influence the product's performance. This proposition is tested on a sample of 136 product launches by Spanish manufacturing firms. The empirical analysis reveals that firms with superior managerial and R&D resources achieve superior new product performance when an early-entry strategy is adopted. Manufacturing resources also contribute positively to the success of new products, but this effect is weakened by the difficulties and inconveniences that firms with advantages in operations face when they attempt to pioneer a new market. The results regarding the influence of marketing resources on new product performance are not conclusive.     

Diagnosing Customer Value: Integrating the Value Process and Relationship Marketing

The concept of value and, more specifically, customer value is of increasing interest to both academics and practitioners. This paper undertakes a substantial review of past and current literature on value and categorizes this considerable body of research into nine streams of literature. Building on the emerging relationship marketing paradigm, it then proposes a framework for relationship value management. Nine core streams of value literature are identified and discussed: consumer values and consumer value; the augmented product concept; customer satisfaction and service quality; the value chain; creating and delivering superior customer value; the customer's value to the firm; customer‐perceived value; customer value and shareholder value; and relationship value. To date, the core focus of most of this literature has been on the nature of value from the perspective of the organization and its customers – the customer–supplier relationship. However, it is argued that the emergence of the relationship marketing paradigm has emphasized the role of other stakeholders in building relationships. An existing multiple stakeholder model of relationship marketing, the six markets model, is introduced and is integrated with key concepts from the value literature to produce a conceptual framework for relationship value management.     

Investing in a Shared Supplier in a Competitive Market: Stochastic Capacity Case

When firms invest in a shared supplier, one key concern is whether the invested capacity will be used for a competitor. In practice, this concern is addressed by restricting the use of the capacity. We consider what happens when two competing firms invest in a shared supplier. We consider two scenarios that differ in how capacity is used: exclusive capacity and first‐priority capacity. We model firms' investment and production decisions, and analyze the equilibrium outcomes in terms of the number of investing firms and capacity levels for each scenario; realized capacity is a stochastic function of investment levels. We also identify conditions under which the spillover effect occurs, where one firm taps into the other firm's invested capacity. Although the spillover supposedly intensifies competition, it actually discourages firms' investment. We also characterize the firms' and supplier's preference about the capacity type. While the non‐investing firm always prefers spillovers from the first‐priority capacity, the investing firm does not always want to shut off the other firm's access to its leftover capacity, especially when allowing spillover induces the other firm not to invest. The supplier's preference depends on the trade‐off between over‐investment and flexibility.     

Casting a Wide Net for Innovation: Mediating Effect of R&D Human and Social Capital to Unlock the Value from Alliance Portfolio Diversity

This paper examines the performance effects associated with different alliance portfolio configurations in terms of geographical location and partner type. Based on these distinctions, the authors hypothesize that more diverse alliance portfolios enable firms to gain and exploit innovation opportunities. Additionally, the mediating effects of R&D human and social capital on the R&D alliance portfolio diversity–innovation performance relationship are explored. The authors reason that the absorptive capacity of R&D intellectual capital determines a firm's potential gains from highly diverse alliance portfolios. From panel data of manufacturing firms in Spain for the period 2008–2013, the results confirm the inverted U‐shaped relationship between alliance portfolio diversity and firm innovation performance, implying that both insufficient and excessive alliance portfolio diversity may be detrimental to firm innovativeness. Additionally, R&D human and social capital partially mediates the R&D alliance diversity–innovation performance relationship, emphasizing the importance of internal capabilities to leverage the benefits of highly diverse alliance portfolios. These findings add a dynamic dimension to the conceptualization of alliance portfolios and how firms create value by balancing explorative and exploitative alliances.     

A Structural Analysis of the Effectiveness of Buying Firms' Strategies to Improve Supplier Performance

Many manufacturing firms have increased the amount of component parts and services they outsource, while refocusing on their core capabilities. Outsourcing parts and services to independent, external suppliers means that suppliers' performance is increasingly critical to the long‐term success of these buying firms. Buying firms are increasingly using disparate supplier development strategies to improve supplier performance including supplier assessment, providing incentives for improved performance, instigating competition among suppliers, and direct involvement of the buying firm's personnel with suppliers through activities such as training of suppliers' personnel. Using resource‐based theory, internalization theory, and structural equation modeling, we examine the impact of these supplier development strategies on performance. We conclude that direct involvement activities, where the buying firm internalizes a significant amount of the supplier development effort, play a critical role in performance improvement.     

The Impact of Limited Supply on a Firm's Bundling Strategy

A firm's two‐product bundling decision is examined when the supply of one product is limited and consumer valuations are normally distSteckeributed. The firm can choose to sell products separately and/or through a bundle. We find that the impact of limited supply on a firm's bundling decision depends on the correlation between the consumer valuations of the two products as well as the symmetry level of the two products in terms of their attractiveness (how much they are valued by consumers). When the valuation correlation is high and the symmetry level of the two products is low, limited supply can drive bundling. When the valuation correlation is low or the symmetry level is high, limited supply can drive no bundling. When the attractiveness of both products are low or the valuation correlation is very high, limited supply has no impact on a firm's bundling decision: The firm should not bundle for all supply levels. This study offers a new driver for product bundling: the limited supply of a product. The existing bundling literature suggests that a firm should bundle symmetric products that have a low consumer valuation correlation, when bundling is driven by consumer valuation heterogeneity reduction. In contrast, when bundling is driven by limited supply, a firm should bundle asymmetric products with a high consumer valuation correlation. The benefit of supply‐driven bundling depends on the severity of supply limitation. When supply limitation is moderate, bundling creates value by expanding the market of the less attractive product. When supply limitation is severe, bundling enables a firm to extract a higher margin from the less attractive product.