Competitive Density and the Customer Acquisition–Retention Trade-Off
Published 11/1/2008
Author: Glenn B. Voss & Zannie Giraud Voss
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Executive Summary
There is widespread consensus that resources and capabilities are key drivers of competitive advantage and business performance, but this knowledge alone is insufficient to achieve superior performance. Managers need to know which resources and capabilities are most effective in achieving different performance objectives—for example, building revenues and market share versus driving net income. More importantly, they need to recognize how the competitive environment can influence these relationships. In short, managers must understand how to build, allocate, and adapt their resources and capabilities in a way that allows them to achieve evolving performance objectives in a dynamic marketplace.
The results of this study offer guidance for this complex task. The authors provide conceptual, analytical, and empirical evidence that firms can increase performance by shifting emphasis away from customer retention strategies toward customer acquisition strategies as the number of competitors increases and the marketplace becomes more dynamic. When competitive density is low, managers enhance performance by implementing a customer retention strategy that emphasizes close relationships with customers and an adaptive learning capability. When competitive density is high, managers enhance performance by implementing a customer acquisition strategy that emphasizes innovation and competitor learning capabilities.
Four key takeaways emerge from a study of 129 nonprofit professional theaters. As competitive density increases, (1) the financial impact of choosing the right mix of resources and capabilities increases; (2) close customer relationships become liabilities, providing no revenue benefits and exerting a negative effect on net income; (3) close relationships with suppliers increase revenues but also expenses, so that net income decreases; and (4) adaptive learning lowers revenue and, even more so, expenses, so that net income increases. The authors discuss the implications of these findings, identifying combinations of resources and capabilities that achieve different performance objectives.
Biography
Glenn B. Voss (PhD, Texas A&M University) is Associate Professor of Marketing at Southern Methodist University. His research interests include marketing strategy, innovation and creativity, relationship marketing, and retail pricing strategies. His research has appeared in leading journals in marketing (e.g., Journal of Marketing, Journal of Marketing Research) and management (e.g., Academy of Management Journal, Organization Science). He is the recipient of research grants awarded by the National Science Foundation, Marketing Science Institute, and Aspen Institute. As an editorial review board member, he was recognized as an Outstanding Reviewer at Journal of the Academy of Marketing Science for the 2000–2003 period and the 2003–2006 period and at Journal of Retailing in 2006. He is also a member of the editorial review board for Journal of Services Research and is an ad hoc reviewer for Journal of Marketing, Journal of Marketing Research, and Marketing Science. He has taught graduate courses in marketing strategy, international entrepreneurship, and pricing strategy in the United States and Europe.
Zannie Giraud Voss is Chair and Professor of Arts Administration in the Meadows School of the Arts and the Cox School of Business at Southern Methodist University. Before joining the Southern Methodist University faculty, she was an adjunct professor in the Fuqua School of Business and Professor of Theater Studies at Duke University, where she also served as Producing Director of Theater Previews at Duke, a professional theatre company. Zannie consults for the National Endowment for the Arts, Theatre Development Fund, and Theater Communications Group. She holds an affiliate professorship at the Euromed School of Management in Marseille, France, and she has published research in journals, including Journal of Marketing, Journal of Marketing Research, Academy of Management Journal, Organization Science, and International Journal of Arts Management, for which she serves on the editorial board. Zannie is the corecipient of research grants awarded by the National Science Foundation and the Aspen Institute, among others.
Journal of Marketing, Volume 72, Number 6, November 2008
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