Growth and Customer Loyalty: Evidence from the App Economy

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