Return on Strategy-Customer Alignment: Framework and Empirical Evidence

Abstract

In my dissertation, I examine the effect of relationship constructs such as commitment and alignment in the context of Business-to-Business Firms. Marketing scholars have hypothesized and found a linear and symmetric association between different dimensions of customer commitment and behavioral intentions. We utilize a four-dimensional conceptualization of commitment to hypothesize an asymmetric association among the different dimensions of commitment and repurchase intentions. We test for this asymmetric association using a large-scale dataset (N =8,589) in the Business to Business (B-to-B) segment. Results show an asymmetric association of affective, forced, habitual commitment with repurchase intentions, while economic commitment displays a symmetric association with repurchase intentions. Scholars and practitioners agree that a company’s strategy should be aligned with its customers' value drivers to deliver superior financial performance. Yet, we lack 1) an objective measure of strategy-customer alignment, 2) empirical evidence linking strategy-customer alignment and company financial performance, 3) and an understanding of how strategy-customer alignment affects senior executives’ attitudes and behaviors. We define strategy-customer alignment as a multidimensional measure comprising four types of alignment between a company’s business strategy scope and its customer value drivers. We combine data from 17,251 customer surveys of 127 publicly traded companies (to estimate customer value drivers), with deep learning of text from annual 10-K filings (to estimate business strategy scope) to objectively measure a company’s strategy-customer alignment. We find that a 10% increase in strategy-customer alignment: (1) increases company revenues by 25%, (2) reduces cost of selling by 20%, and (3) increases gross profits by 18%. In a follow-up study, we measure strategy-customer alignment for five private companies, showing that an increase in strategy-customer alignment reduces senior executives’ coordination costs and increases their perceived effectiveness of strategy accountability metrics. Compensation committees of public as well as private companies could include strategy-customer alignment in the set of metrics affecting executive pay.