Client base, age and competitive advantage in the services sector

Abstract

For many types of products, quality can be uncertain even after purchase and use; this applies especially in services industries. The purpose of this paper is to develop a conceptual basis for analysing this phenomenon structured around the idea that suppliers and product users use informational “surrogates” to overcome ex post uncertainty about purchase quality. Many such surrogates are based on the idea at the heart of herding behaviour where prospective buyers group with others, i.e. join a herd, so that they can utilize the observed effects of choices made by others as information to support their own chokes. Under such conditions, the “size” of a selling organization's client base provides a competitive advantage; analogously, the organization's “age” also provides an advantage. Our ideas are illustrated by references to examples drawn from service industries such as insurance, banking and legal services.