The Impact of Customer Concentration on Firm Performance

Customer concentration is playing an increasingly important role for firms’marketing strategies. Much attention in customer concentration literature is placed onthe 80/20 rule that a small group of profitable customers can generate 80% of revenue for firms. However, a key question is what degree of customer concentration can generate the highest profit for a firm. In this paper, the goal is to answer this question by investigating the relationship of concentration and firm’s financial performance and the factors that could impact on this relationship. A panel data set was assembled using data from two databases; the comScore web behavior database and the COMPUSTAT financial database. The research was based on longitudinal analyses of
large-scale secondary data of fifty-two samples of publicly traded US online companies by adopting the Hierarchical Bayesian model approach in analysis. The results indicate that the customer concentration rate has a positive or negative impact on firm performance which depends on each firm. The degree of impact of customer concentration on firm performance would be moderated by five variables: length of visit time, page views, product types, channel strategy, and firm size. The findings provide guidelines to E-commerce marketing managers; indicating a strong focus on
degree of customer concentration should be incorporated into the development of a marketing strategy by attracting and retaining target profitable customers. The firm can allocate suitable marketing costs to the most profitable online customer group; which assists firms in setting customized strategy over competitors.