Abstract
The effect of a firm’s strategic focus on acquiring new customers and/or retaining existing customers (customer acquisition and retention orientations) on innovation performance is evaluated. With dyadic primary data collected from 225 strategic business units, the authors demonstrate that a firm’s focus on customer acquisition enhances its radical innovation performance but hinders its incremental innovation; a firm’s strategic orientation toward customer retention has the opposite effects. These effects are mediated by both customer knowledge development and the firm’s resource configuration decisions. In addition, the authors provide insight into the impact of managerial decision trade-offs when implementing customer engagement strategies. The results suggest that the effect of customer acquisition and retention orientations on customer knowledge and investment decisions, and ultimately on innovation performance, is amplified when a firm consistently implements a specific engagement strategy. Implementing a dual strategy by attempting to focus on both acquiring and retaining customers undermines resource configuration decisions, with diverse effects on both radical and incremental innovation.
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Notes
We also conducted separate analyses in the financial service and retailing industries and found no significant difference for any of the significant coefficients. For clarity, we present only the results from the pooled sample.
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Authorship is alphabetical, with an equal contribution among authors. The authors thank Abbie Griffin for her input into this project.
Appendices
Appendix A
Constructs and Items | Loadings |
|---|---|
Customer acquisition orientation (Reported by first informant) | |
Structure (coefficient alpha: .71, composite reliability: .75) | |
We have a formal system in place that differentiates engagement processes with new customers based on their potential value. | .88 |
Our organization is structured in a way to better acquire valuable potential customers. | .85 |
New customer segments are clearly defined in our unit’s customer relationship management efforts. | .87 |
Leadership (coefficient alpha: .70, composite reliability: .66) | |
Our senior management emphasizes very often the significance of acquiring valuable new customers. | .84 |
The leaders in our organization have a clearly defined mission driven by customer acquisition. | .80 |
Senior management communicates the importance to our unit of acquiring valuable new customers. | .79 |
Culture (coefficient alpha: .74, composite reliability: .66) | |
Employees across the unit agree that being able to acquire valuable customers is the key to our competitive advantage. | .83 |
In our unit, differentiating and targeting valuable new customers is viewed more like an investment, instead of an expense. | .79 |
Acquiring valuable new customers is seen by employees as essential for the unit’s success. | .82 |
Strategy (coefficient alpha: .73, composite reliability: .65) | |
Our unit’s strategy for competitive advantage is based on acquiring high-value customers from competitors. | .82 |
Our competitive advantage depends largely on differentiating and targeting valuable new customers. | .79 |
Our unit has a clear strategic planning process to identify and target new customer opportunities. | .81 |
Control (coefficient alpha: .78, composite reliability: .63) | |
Employees’ reward and promotion opportunities depend largely on how they successfully target and acquire valuable new customers for the unit. | .82 |
Employees are given specific guidance for acquiring new valuable customers. | .78 |
Our unit regularly measures how successfully employees acquire valuable new customers. | .74 |
Front-line employees’ performance evaluations depend largely on how well they acquire new valuable customers. | .82 |
Customer retention orientation (Reported by first informant) | |
Structure (coefficient alpha: .70, composite reliability: .62) | |
We have a formal system for determining which of our current customers are of the highest value. | .78 |
Our organization is structured to optimally respond to existing customers with different values. | .77 |
We have a formal system to segment existing customers based on their economic value. | .82 |
Leadership (coefficient alpha: .72, composite reliability: .63) | |
Our senior management emphasizes the significance of managing relationships with valuable existing customers. | .79 |
The leaders in our unit have a clearly defined mission driven by customer retention. | .74 |
Senior management communicates the importance to our unit of retaining valuable existing customers to the competitive advantage of the unit. | .85 |
Culture (coefficient alpha: .73, composite reliability: .65) | |
Employees across the unit agree that being able to retain valuable existing customers is the key to our competitive advantage. | .79 |
In our unit, maintaining relationships with valuable existing customers is viewed more like an investment, instead of an expense. | .81 |
Being able to retain valuable existing customers is seen by employees as essential for the unit’s success. | .81 |
Strategy (coefficient alpha: .80, composite reliability: .62) | |
Our unit’s strategy for competitive advantage is based on retaining valuable existing customers. | .81 |
Our competitive advantage depends largely on cross-selling and up-selling to our existing customers. | .80 |
Our unit has a clear strategic planning process to manage relationships with valuable existing customers. | .75 |
Control (coefficient alpha: .85, composite reliability: .62) | |
Employees’ reward and promotion opportunities depend largely on how they successfully maintain relationships with high value existing customers for the unit. | .81 |
Employees are given specific guidance for retaining high value existing customers. | .74 |
Our organization regularly measures how successfully employees retain valuable existing customers. | .82 |
Customer satisfaction is an important component of front-line employees’ performance evaluations. | .77 |
Constructs reported by first informant | |
Radical innovation performance (coefficient alpha: .71, composite reliability: .57) | |
Significant innovations in our customer service technologies have contributed significantly to our financial performance. | .74 |
The incorporation of substantially different technologies has helped to achieved significant profits. | .80 |
The introduction of radical innovations has helped our unit to achieve significant revenue growth. | .73 |
Incremental innovation performance (coefficient alpha: .73, composite reliability: .61) | |
The incremental improvement in our existing customer service technologies has significantly helped our financial performance. | .81 |
The improvement of our existing customer service technologies has contributed significantly to our profits. | .80 |
We have gained significant revenue growth from improvements of our service offerings and service extensions. | .74 |
Market dynamism (coefficient alpha: .71, composite reliability: .73) | |
In the market, customers’ preferences change quickly over time. | .84 |
Market demand and consumer tastes have been upredictable. | .90 |
In the market, customers tend to look for new products and services all the time. | .83 |
Competitive intensity (coefficient alpha: .75, composite reliability: .62) | |
Competition in our market is cutthroat. | .80 |
There are many “promotion wars” in our market. | .76 |
Anything that one competitor can offer, others can match readily. | .81 |
Technology turbulence (coefficient alpha: .73, composite reliability: .62) | |
The technology in our market is changing rapidly. | .79 |
Technological changes provide big opportunities in our industry. | .76 |
It is very difficult to forecast where the technology in our industry will be in the next 2 to 3 years. | .81 |
Constructs reported by second informant | |
Depth of customer knowledge (coefficient alpha: .79, composite reliability: .64) | |
Our unit has gathered a large amount of customer information to help identify our high-value customers. | .83 |
Our unit has established a thorough understanding of customers lifetime values. | .77 |
Our unit has detailed knowledge about the appropriate channels to reach customers. | .80 |
Diversity of customer knowledge (coefficient alpha: .74, composite reliability: .61) | |
Customer knowledge our unit has developed is very diverse. | .81 |
Our unit has developed customer knowledge which consists of distinctive customer characteristics. | .82 |
The customer knowledge our unit has developed is very homogeneous (reversed). | .77 |
Our unit has acquired customer knowledge with different profiles and behavior patterns. | .73 |
Resource exploitation (coefficient alpha: .73, composite reliability: .62) To what extent has your unit (very low | |
Invested in enhancing skills in exploiting mature technologies that improve productivities of current innovation operations. | .75 |
Enhanced resource investments in searching for solutions to customer problems that are near to existing solutions rather than completely new solutions. | .80 |
Strengthened the resources for projects that improve efficiency of existing innovation activities. | .81 |
Resource exploration (coefficient alpha: .71, composite reliability: .59) To what extent has your unit (very low to | |
Invested resources to acquire new service technological infrastructure entirely new to the organization. | .77 |
Strengthened resources for projects in areas where you had no prior experience. | .74 |
Acquired new service development processes entirely new to the industry. | .80 |
Appendix B: Significant Interaction Effects
A. Diversity of Customer Knowledge DV: Level of Acquisition Orientation by Level of Retention Orientation
B. Resource Exploration DV: Level of Acquisition Orientation by Level of Retention Orientation
C. Resource Exploitation DV: Level of Acquisition Orientation by Level of Retention Orientation
D. Resource Exploration DV: Level of Acquisition Orientation by Consistency of Acquisition Orientation
E. Depth of Customer Knowledge DV: Level of Retention Orientation by Consistency of Retention Orientation
F. Diversity of Customer Knowledge DV: Level of Retention Orientation by Consistency of Retention Orientation
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Arnold, T.J., (Er) Fang, E. & Palmatier, R.W. The effects of customer acquisition and retention orientations on a firm’s radical and incremental innovation performance. J. of the Acad. Mark. Sci. 39, 234–251 (2011). https://doi.org/10.1007/s11747-010-0203-8
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DOI: https://doi.org/10.1007/s11747-010-0203-8