Executive summary of “A diffusion model for service products”

Citation

(2014), "Executive summary of “A diffusion model for service products”", Journal of Services Marketing, Vol. 28 No. 4. https://doi.org/10.1108/JSM-06-2014-0201

Executive summary of “A diffusion model for service products”

Article Type: Executive summary and implications for managers and executives From: Journal of Services Marketing, Volume 28, Issue 4

This summary has been provided to allow managers and executives a rapid appreciation of the content of the article. Those with a particular interest in the topic covered may then read the article in toto to take advantage of the more comprehensive description of the research undertaken and its results to get the full benefit of the material present.

As inventors and marketers of products and services learn – often the hard way – nothing stays the same for long. This seems especially true in online services where the leaders often become the followers or the forgotten. Service providers compete with each other for potential customers while, at the same time, having to constantly improve the overall satisfaction of their offerings to persuade existing customers to stay loyal. Customer switching – “churn” – is one of the key issues of concern to service providers.

Consider the significant role switching behavior plays in the user growth of Web browsers. For example, a decrease in the number of Internet Explorer users is mainly because of their gradual switch to other Web browsers, and it is apparent that customer switching contributes significantly to the rapid growth in use of Chrome and other Web browsers.

Initially, Internet Explorer and Firefox could still attract users of other Web browsers. Due to the relatively slow improvement of their product utility, however, they are both losing their attraction. Not only do they not attract many users of other Web browsers, the products are also constantly losing current users at a significant rate. The fact that they still hold a notable market share is because many of their existing users are still reluctant to change due to their familiarity in using the products. That loyalty, however, is likely to wane if the difference in utility between them and their competitors continues to grow.

Conversely, Chrome and other Web browsers have been gradually gaining the upper hand in this competition. Customer switching is especially important for Chrome, and more than half of its new users are switchers from other products. The number is even larger than the first-time users the product attracts. The market growth of service products can have different diffusion patterns with that of durable goods, which is evidence of the need for specific models for service diffusion.

As service products for customers to retrieve, exploit, present and communicate information on the Internet, Web browsers are no longer simple information accessing tools. They serve as headquarters or gateways for many other online products. For instance, with embedded technologies, toolbars and plug-ins, most Web browsers are capable of providing seamless connectivity to other online services such as search engines, email, calendar, news, online shopping and so on. Also, a Web browser serves as an advertisement channel and represents the company’s image and reputation. If customers choose one Web browser, they are more likely to use the online services/products that are suggested by that browser. Therefore, the competition between Web browsers is one of the most intense battlefields in today’s online service industry.

So, how do you read the trends, make the forecasts, do the sums to either protect your own business or aggressively take over your competitors’ place in the continuing evolution of online offerings? In “A diffusion model for service products”, Dr Xiaohui Shi et al. develop a model that can be used to understand and forecast the market growth of service products in a competitive environment. They suggest that it could be a useful tool for practitioners in assessing competing service products’ relative utility, for estimating the market potential of the service category, for explaining and predicting the market growth of competing service products and for making the corresponding marketing planning in the service industry.

The model, which is capable of exploring the respective role of both first-time users and switching users, focuses on the growth trend of service products in a competitive environment, with particular consideration being given to customers’ switching behavior. Based on an investigation of four competitors in the online industry, the study demonstrates the complex nature of the competitive diffusion phenomena.

Strictly speaking, the first Web browser that a new Internet user is likely to use is the one embedded in the hardware’s operating system (OS). As Microsoft Windows OS has nearly 70 per cent market share of PC OS, Internet Explorer will be the first Web browser of most new Internet users. Microsoft is facing complaints regarding its monopoly behavior, and therefore has been asked to unbundle Internet Explorer from its OS in many countries.

It is important to understand the importance of the distinction between first-time customers and switching customers in modeling service diffusion. A service product can quickly lose its user base due to switching – note the market performance of Internet Explorer. Customer switching can be the key driver for the market growth of service products, and sometimes it is even more important than competing for the new market potential. Therefore, first-time customers and switching customers should be understood and treated in both respective and collective manners to better understand the service diffusion phenomena.

To read the full article enter 10.1108/JSM-11-2012-0224 into your search engine.

(A précis of the article “A diffusion model for service products”. Supplied by Marketing Consultants for Emerald.)