Executive Summary
Consumers frequently purchase multiple products and services from the same provider over time. (Throughout the article, the authors refer to products and services interchangeably. The model developed in this study is applicable to both.) Often, these products can be naturally ordered in terms of complexity and functionality, leading to the behavioral regularity such that, in general, the purchase of certain products precedes the purchase of others. This customer life-cycle effect may exist independently of any marketing activities, and it constitutes an exogenous effect on the overall customer life cycle.
For example, in general, a person establishes a checking account with a given bank before he or she establishes a brokerage account. A consumer may also sequentially purchase local and long-distance telephone service, cable television service, and Internet access from the same company. A person who purchases a personal digital assistant may then acquire Internet access, additional memory, and software from the same provider in the future. The common thread that runs through each of these examples is that consumers are more likely to purchase some products or subset of products before others. The authors term the over-time development of consumers’ complementary demand for multiple products and services “natural ordering,” and in this article, they demonstrate the importance of this concept.
Markets that are especially prone to this behavioral regularity include those in which consumers’ wants or needs evolve after some preliminary consumption, those in which consumers face some uncertainty about the quality of the product or service offering, and those in which some consumer learning is required to receive the full benefit of the product. In such markets, the sequential purchase of multiple products or services from the same provider can enhance the relationship with the provider, raise switching costs that are associated with a move to a new provider, lower uncertainty with respect to additional product purchases, and, in some cases, ensure proper technical compatibility with products that the consumer already owns The existence of sequentially developed demand for naturally ordered products offers substantial opportunities for companies that carry multiple products and services to “cross-sell” other products and services to their existing customer base.
In this article, the authors explicitly model the development of customer demand for multiple products over time, and they derive a product acquisition sequence based on customers’ individual level of demand maturity. They apply the model to consumer banking data.
The banking application uncovered several behavioral findings that may be instructive with respect to consumers’ financial service adoption in general.
- A household’s evolving financial maturity drives the sequential purchase of multiple products.
- Households with a higher level of education or male household heads move more quickly along the financial maturity continuum than do those households that are headed by a person with less education or by women. Households that are older and with higher incomes also move along this continuum more quickly.
- The switching costs associated by owning multiple products creates opportunities to cross-sell other products to the same customer.
- Customer satisfaction or service quality has a significant influence on a customer’s future purchase decisions, especially for more advanced financial products (e.g., brokerage). This effect is particularly strong for older customers.
These and other results of this study provide useful information to financial services marketers as they attempt to develop coherent marketing strategies in this increasingly complicated marketplace.
Biography
Shibo Li is Assistant Professor of Marketing at the Rutgers Business School–Newark and New Bruswick. He holds an undergraduate and a master’s degrees from Peking University, China, and a doctoral degree in industrial administration from the Graduate School of Industrial Administration (Tepper), Carnegie Mellon University. In 2004, he was awarded the American Marketing Association’s John A. Howard Doctoral Dissertation Award. His current research interests include quantitative modeling in marketing with a particular emphasis on clickstream data and pharmaceutical marketing.
Baohong Sun is Associate Professor of Marketing in the Tepper School of Business at the Carnegie Mellon University. She holds an undergraduate degree from Renmin University, China, and a doctoral degree from the University of Southern California. Her research interests involve the analysis of consumer choice in dynamic structural model settings. She is currently engaged in research projects that are focused on the impact of promotions on consumption, new product innovation strategies, and customer satisfaction and retention.
Ronald T. Wilcox is Associate Professor Business Administration at the Darden Graduate School of Business, University of Virginia. He holds an undergraduate degree from Xavier University and a doctoral degree from Washington University in St. Louis. He was formerly an economist at the U.S. Securities and Exchange Commission. His research focuses on the application of statistical modeling techniques in the market for financial services.
J Marketing Research, Volume 42, Number 2, May 2005
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