Out of the trap: Conversion funnel business model, customer switching costs, and industry profitability

• 成果类型: Article
• 署名作者: Abolfathi, Niloofar; Fosfuri, Andrea; Santamaria, Simone
• 署名单位: National University of Singapore; Bocconi University; Bocconi University
• 刊物名称: STRATEGIC MANAGEMENT JOURNAL
• ISSN/ISSBN: 0143-2095
• DOI: 10.1002/smj.3388
• 发表日期: 2022
• 页码: 1872-1896
• 关键词: business model; conversion funnel; customer switching costs; industry profitability; Market frictions

摘要

Research Summary: Across many industries, firms employ a conversion funnel business model to attract customers with basic and affordable products, generate lock-in, and then sell them more advanced and expensive products. We argue that this business model, coupled with high customer switching costs, results in a market outcome characterized by aggressive pricing and reduced profits. A sudden reduction in customer switching costs disrupts the conversion funnel and can eventually increase industrywide prices and profitability, an outcome that contradicts conventional wisdom in strategy research. We develop a stylized model to formalize our ideas and provide supportive evidence using a difference-in-differences methodology with staggered treatment for a large, global sample of mobile telecommunications operators. Managerial Summary: Industry changes that lower customer frictions can surprisingly be beneficial for companies. Building on the telecommunications industry, we document how a reduction in customer switching costs following mobile number portability increases the profitability of mobile operators. We explain this finding based on a change in companies' business model. When switching costs are high, companies adopt a funnel business model designed to convert customers from basic to advanced products. While advantageous for a single company, when strategic interactions are accounted for, the diffusion of this business model has a depressive effect on average market prices and profitability. A reduction in customer switching costs breaks the funnel and decouples product pricing decisions that, counterintuitively, can lead to higher industrywide prices and greater profitability.