The Effects of B2B Service Innovations on Firm Value and Firm Risk: How Do They Differ from Those of B2C Service Innovations?
Thomas Dotzel and Venkatesh Shankar, 2016, 16-132
Developed economies today are dominated by services, and in developing economies, services are growing by leaps and bounds. Business-to-business (B2B) firms, which account for the majority of the market transactions, are increasingly using new services or service innovations (B2B-SIs) to grow and garner competitive advantage. Such service innovations are associated with a certain degree of risk. For example, new services are often hard to scale since they may have to be “produced” at the customers’ locations and cannot be manufactured and inventoried at a central location ahead of time.
To better assess the return and risk outcomes of B2B-SIs, it is useful to compare them to business-to-consumer service innovations (B2C-SIs). In this study, Thomas Dotzel and Venkatesh Shankar analyze a unique panel data set of 1,668 service innovations (B2B-SIs as well as B2C-SIs) across 14 industries. They empirically examine the effects of B2B-SIs on firm value and firm risk and compare these effects to those of B2C-SIs.
They find that B2B-SIs have a positive effect on firm value and an insignificant effect on idiosyncratic and systematic risk. B2C-SIs increase firm value but are surrounded by greater uncertainty, resulting in higher idiosyncratic and systematic risk.
At the industry level, the authors uncover important asymmetries in the effects of B2B-SIs and B2C-SIs on firm value. Interestingly, for firms that compete in industries with both B2B and B2C customers, B2B-Sis have a slightly more positive effect on firm value than B2C-SIs. In B2B (B2C)-dominant industries, B2B (B2C)-SIs have a greater effect on firm value.
The findings have implications for managers of goods and services companies in B2B and B2C industries. B2B executives should consider introducing more B2B-SIs. They should also consider introducing B2C-SIs. In B2C industries, executives need to evaluate if the greater effect of B2C-SIs on firm value outweighs the increased risk associated with these innovations. Furthermore, executives in industries that deal with both business customers and end consumers should slightly favor introducing B2B-SIs: in these industries, B2B-SIs increase firm value to a larger degree than B2C-SIs, without raising firm risk.
Thomas Dotzel is Assistant Professor of Marketing at the Desautels Faculty of Management at McGill University in Montreal. Venkatesh Shankar is Professor of Marketing and Coleman Chair in Marketing and Director of Research, Center for Retailing Studies, Mays Business School, Texas A&M University.
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