Survey evidence on customer markets

Abstract

This paper uses survey data from Iceland on 884 firms to test for the theory of customer markets proposed by Phelps and Winter (1970) and Okun (1981). The results provide support for the customer market theory in that managers agree that customers are valuable to firms – they rank them second only to employees – and they use various means of augmenting and retaining their customer base, such as advertising. Surprisingly, however, price setting appears not to be an important ploy for attracting and retaining customers. In this we confirm the earlier results of Lye and Sibly (1994) using Australian data. Instead, advertising and direct contact with customers are listed as significantly more important.