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The rapid evolution of information and communications technologies (ICT) has given rise to a competitive market in ICT services that is mushrooming not only in the volume of services offered, but also in term of variety. For example, mobile data services users can stream high-definition television programmes, conduct conference calls, access cloud services, and choose from over half a million applications. What’s more, in terms of value, ICT services were worth about US$3 trillion in 2015. That is all good news for ICT service providers, but there is a caveat.
The enormity of this industry and the fast pace of technological innovation has fostered intense competition that has resulted in consumers switching brands frequently. Since it costs more to attract new customers than to retain existing ones, the question begs – how can service providers build customer loyalty and improve customer retention?
Xin Xu, James Y.L. Thong, and Viswanath Venkatesh looked at this issue from both practical and theoretical perspectives. Their argument was that brand loyalty and customers’ valuation of a brand were influenced by service innovation, which they defined as a combination of service leadership, technological leadership, and the degree of customisation and personalisation provided to customers.
From that premise, they developed a model to show how this worked through serving consumers’ social lives and their identification with the focal brand—i.e., brand equity. With new generations of technology came the ability to offer new services and additional customisation and personalisation controls. Companies that quickly acted on this potential would enhance their brand’s appeal and the user experience, which would then lead to a stronger intention among customers to repatronise the brand.
“Service innovation will increase the variety of services under the brand and consumers will have a better chance of finding more of their roles, personalities and lifestyles served by these new services. As consumers increase their usage of the services, the brand will become more integrated into their personal and social lives, and identification with the brand – that is, the brand equity – will be enhanced,” they said.
“Customisation and personalisation control will also reinforce the effect of service leadership on brand equity, for example, by making recommendations that ease the information processing burden and facilitate a better match between consumer needs and services. Such recommendations can also help consumers to realise the potential of the great variety of services to serve or express the various social roles they play.”
The model was tested in a survey of 1,200 consumers of mobile data services in Hong Kong, where the market is highly competitive. The results bore out the general assumptions that brand equity and customer loyalty could be enhanced through service innovation.
“Our findings suggest brand equity formed from ICT service innovation can attract consumers to the service provider” in ways that go beyond rational assessments of the services and are based more on favourable feelings towards the brand. “This can have profound business value for ICT service providers. As ICT services become integrated into every aspect of consumers’ personal and social lives, their function of serving consumers’ social roles and identities can exert impacts on customer loyalty phases that transcend the instrumental values of the services.”
ICT service providers were therefore advised to pay attention to the impacts of technological evolution on their brands and use the power of their brands to gain a competitive advantage, such as maintaining customer loyalty. They should also provide superior customisation and personalisation functions so customers can find a better match between the services offered and their own social roles and identities, as this would foster higher brand equity.
The authors concluded with an example that illustrates how technological leadership, service innovation, brand equity and customer loyalty could interact. Apple has achieved competitive advantages by rolling out new generations of the iPhone—i.e., technology leadership—while at the same time providing a service portal, the App Store, with an ever-increasing number of apps and services and an environment that welcomes third-party application developers—i.e., service leadership. “Thus, a combination of service and technological innovation can achieve improved business performance through customer loyalty,” they said.
This article was contributed by HKUST Business School.