Incorporating Competitors’ Information to Investigate the Impact of Customer Loyalty, Browsing Behavior, and Websites’ Marketing Strategy on Financial Performance
Date Issued
2014
Date
2014
Author(s)
Lu, Kuan-Wei
Abstract
Search and transaction costs have been substantially reduced in the digital world, enabling consumers to reach multiple providers of similar products or services at the same time. As the Accenture Global Consumer Survey (2013) indicates that consumers are more inclined to switch providers and the adoption of loyalty programs has declined slightly in recent years, an empirical study evaluating the impact of customer loyalty on financial performance would provide guidance for whether firms should still invest in customer loyalty program in the digital world today.
Research gaps exist in prior research. First, most prior empirical studies in the field of customer loyalty are not able to consider the same customer’s relationship with the company’s competitors, and a loyal customer defined in their studies might purchase more at the company’s competitors. Second, many eCommerce practitioners view conversion rate as one of the most important performance indicators and many researchers associate conversion rate with profitability of Web sites. However, no empirical research measures the relationship between conversion rate and financial performance before. Therefore, the goal toward higher conversion rate might be irrational groupthink.
This research overcomes the insufficiency in prior research by incorporating competitors’ information and utilizing high-quality online consumer data collected by comScore. Defining industry boundaries is the premise for identifying competitors; we use four criteria to select the appropriate sample firms across 8 industries. Two statistical models- regression and decision tree model are employed to investigate the impact of customer loyalty, browsing behavior, and websites’ marketing strategy on financial performance.
Our research result justifies the allocation of resources to customer loyalty programs, even when consumers are able to compare multiple items easily online today. In the multiple regression model, we find that the impact of customer loyalty on financial performance is much stronger than conversion rate, and we suggest companies should prioritize their efforts on cultivating customer loyalty.
Building stickier relationships and utilization of the appropriate interaction strategies play the import roles as well. Stickiness is positive related to financial performance, and we think stickiness might generate “home advantage” for Websites. The most important finding from our research is the conversion rate, which should be considered as a variable for marketing strategy, not a performance indicator.
A website’s conversion rate, as trying to convert every visitor to customer, is not the best performance indicator; some customers or visitors may within the segmentation that would not benefit a firm financially, because they are not sticky and will not make repeated purchase if they do not get attractive pricing. It is meaningless to convert those visitors to customers. We find that customer conversion rate should be associated with browsing behavior, and the appropriate conversion strategy should be applied for individual customer, implying the utilization of interactive marketing is an important factor for financial performance.
Companies should invest in interactive database marketing and real-time computing systems, know each visitor better, and then apply the appropriate marketing strategy. Companies selling products or services to stickier loyal customers with right marketing strategies, can create 31% more value to shareholders, compared to companies selling products or services to less sticky disloyal customers.
Our research provides valuable insight not only for marketers, CFOs and CEOs in the business, but also for investors and analysts in the capital market. In conclusion, to improve financial performance, we propose the traditional customer loyal model should be used for eCommerce, and applied with the “smarter way”.
Subjects
顧客忠誠度
瀏覽行為
黏著度
轉換率
網站行銷策略
財務績效
網路電子商務
Type
thesis
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