Modeling customer portfolios in competitive B2B service markets to evaluate the relationship between loyalty and customer attractiveness

Abstract

Abstract In competitive B2B service markets, customer loyalty may be a necessary but not sufficient condition for achieving firm profitability. Assuming this, we design a portfolio analysis approach with a novel four-quadrant taxonomy to evaluate the relationship between loyalty and customer attractiveness. Employing an attractiveness matrix and stepwise stratification analysis, we evaluate 158,639 transactions associated with 616 business customers of a Taiwanese global freight forwarder. Our results indicate that in this competitive B2B service market, customers in the “pure loyalty” and “profitable disloyalty” segments accounted for 6% and 19% of customers, respectively. Customers with “pure loyalty” supported long-term profits through relational attractiveness, and those with “profitable disloyalty” supported short-term profits through transactional attractiveness. The largest group of customers (34%) exhibited “spurious loyalty” with low transactional value, and they are therefore less attractive from a firm value generation perspective. As traditional customer classification methods suffer from time lags and do not account for competition effects, our approach (using short-term observations around attractiveness and profitable loyalty) offers service suppliers aiming to enhance their profitability a tool to quickly identify segment customer portfolios and reveal distinctive characteristics of “golden customers”.