Growth and Customer Loyalty: Evidence from the App Economy

40 Pages Posted: 10 May 2016 Last revised: 24 Nov 2016

See all articles by Haim Mendelson

Haim Mendelson

Stanford University - Stanford Graduate School of Business

Ken Moon

University of Pennsylvania - The Wharton School

Date Written: November 23, 2016

Abstract

The burgeoning app economy increasingly drives growth in today's service sector. We study a dataset encompassing apps' daily, weekly, and monthly usership time series and show how its nested-echelon structure allows researchers to reliably infer how and when an app's customers adopt, use, and leave its services. Thereby gaining novel visibility into these services' customer flows, we study how firms should prioritize the acquisition of customers and market share via viral effects against cultivating customer loyalty. Contrary to common wisdom in the app economy, our findings reinforce the central role and effects of customer loyalty, as theorized by the Service Profit Chain. While loyalty bolsters customers' retention and repeat business (i.e., usage), a natural experiment that suppressed viral customer acquisition across the Facebook platform demonstrates the power of a more subtle benefit: improved customer loyalty actually amplifies the rate of word-of-mouth acquisition. A potent experience curve that rewards firms' experience with loyal customers dismantles a classic trade-off between customer loyalty and market share in services.

Keywords: App economy; Customer acquisition; Customer loyalty; Empirical operations management; Service operations; Service Profit Chain

Suggested Citation

Mendelson, Haim and Moon, Ken, Growth and Customer Loyalty: Evidence from the App Economy (November 23, 2016). Stanford University Graduate School of Business Research Paper No. 16-24, Available at SSRN: https://ssrn.com/abstract=2777764 or http://dx.doi.org/10.2139/ssrn.2777764

Haim Mendelson

Stanford University - Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States
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650-725-7979 (Fax)

HOME PAGE: http://https://www.gsb.stanford.edu/faculty-research/faculty/haim-mendelson

Ken Moon (Contact Author)

University of Pennsylvania - The Wharton School ( email )

Jon M. Huntsman Hall
3730 Walnut St.
Philadelphia, PA 19104-6365
United States

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