Customer base management and profitability in information technology industries

The study of information-technology (IT) markets has emerged as an important research theme in the literature. They are governed by a unique set of features and characteristics that may render invalid some of the well-established models and findings in prior research. In these markets, the customer base becomes a critical strategic asset to assessing the firm�s current and future competitive position. To optimally manage the customer base and maximize profitability in IT industries, it is crucial to understand the key drivers of customer acquisition and retention, and how they are related to performance outcomes. In this study, we integrate customer relationship management (CRM) and information systems research and provide a comprehensive framework to understand the effects of two defining IT characteristics, network effects and market growth, on a firm�s ability to acquire and retain customers, and the links from acquisition and retention to profitability. The proposed framework is empirically tested in the European mobile communications industry using a panel that provides longitudinal information (quarterly data during 1998-2008) for 65 companies in 19 European markets. The results reveal that network size and market growth positively affect customer acquisition and retention, and that these two IT characteristics moderate the impact of price on customer acquisition, but not on retention. They also show that acquisition and retention are two key sources of profitability for IT firms. This research discusses the theoretical and managerial implications of the study findings.

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