Why the Steve Jobs Approach Pays Off
IT firms working with business-to-business clients can boost customer satisfaction and loyalty by bundling hardware, software, and services.
(originally published by Booz & Company)Authors: Jason Kuruzovich (Rensselaer Polytechnic Institute), Shu Han (Yeshiva University), Nevena T. Koukova (Lehigh University), and T. Ravichandran (Rensselaer Polytechnic Institute)
Publisher: Journal of Service Research, vol. 16, no. 3
Date Published: August 2013
During his tenure at Apple, Steve Jobs championed a product-focused strategy that combined hardware, software, and services in a bundle for customers. This holistic approach to the Apple suite of products is perhaps the most successful example of diversification into related offerings. The strategy helped Apple both develop an extremely loyal customer base and top Fortune’s list of the most admired companies in the world for the past five years.
Now, Apple’s competitors are employing similar strategies. Google’s recent acquisition of Motorola Mobility has been widely viewed as a way for Google to employ a bundling strategy involving phones, tablets, and computers. Oracle’s CEO, Larry Ellison, has articulated his company’s new strategy as selling “a lot of separate pieces that our customers used to buy as components.” Even Apple’s archrival, Microsoft, which has traditionally dominated the personal computer field by concentrating on software, has now integrated across-the-board elements into its Surface tablet.
The big question is this: Can the Steve Jobs approach, which has proven successful when targeting customers, be extended to the business-to-business context? The authors of this paper, the first to empirically test this question, answer with an emphatic yes. The clients of IT firms report increased levels of satisfaction and loyalty after buying bundles of related products and services, which translates to better evaluations of the vendors and a higher likelihood of repeat purchases.
The authors analyzed a data set of more than 36,000 IT vendor ratings issued by managers and executives at leading firms over a four-year period. They focused on the relationship between the type of IT products and services offered together in bundles and their effect on clients’ satisfaction and loyalty. The participants represented companies from a variety of industries, and they answered a range of questions about their experiences with the vendors.
The analysis showed that customers whose company had bought a suite of hardware, software, and services were significantly more satisfied with their purchase than customers whose company had purchased any single piece of the technology bundle. Customer satisfaction was lowest when buyers obtained only services, suggesting that technology assistance or consulting activities mean little when not accompanied by hardware and software.
Customer satisfaction was also higher when clients bought “adjacent” layers of the technology suite, such as both hardware and software, or both software and services. Purchase of more widely dispersed elements, such as hardware and services together, occurred less frequently and did not significantly boost satisfaction. This underlies how important it is for IT firms to market their integrated suites hierarchically—emphasizing to prospective clients how each layer of the stack builds on the one above or below it.
B2B firms, therefore, should consider expanding their portfolios to include products or services that are closely related. As the authors note, acquisitions, mergers, and partnerships have long paved the typical, though arduous, route for a firm trying to expand its products and services. But the increasing modularity of product components can help firms integrate different products and services without having to go through the hassle of merging with or buying another company, especially in the IT field. Open source software systems such as Linux, Moodle, and Sugar CRM, along with cloud-based hosting and delivery systems such as Amazon Web Services and Rackspace, “dramatically increase the capabilities of IT vendors to deliver IT application solutions that are scalable and highly reliable,” the authors write.
On the flip side, firms investing in IT packages should look for opportunities to purchase all-in-one solutions. Although companies that focus on specialized products may outperform their competitors in side-by-side comparisons of specific offerings, this paper finds that buyers will be more satisfied overall when they purchase all elements of an IT package. In addition, this can help companies form stronger relationships with a smaller group of IT providers—an approach that has been found to boost a firm’s technological capabilities in the long term.
The authors recognize that there are switching costs associated with a vendor’s shift from offering one or a small number of products to integrating several across an inclusive suite. But given the long-standing observation that increased satisfaction and loyalty drive higher sales and firm performance, IT vendors may reap long-term revenue benefits from expanding their portfolio that outweigh the additional costs they’ll incur.
Indeed, the latest strategies adopted by leading technology companies appear to support these findings. Alesh Houdek of the Atlantic has argued that “with the success of Apple’s integrated approach, and the troubles in the PC market, it seems like the time has come’’ for Microsoft to stop outsourcing the manufacture of computers and get into the PC-building business itself. It could be the latest case of “if you can’t beat ’em, join ’em,” but it could also signal a shift toward a wider embrace of the Steve Jobs approach.
Bottom Line:
IT firms that offer related suites of products are rewarded with higher satisfaction and loyalty ratings from the companies they do business with. Building on Apple’s holistic approach to its consumer-oriented product suites, this paper argues that business-to-business firms can also benefit from integrating their offerings for clients.
