Switching Costs, Satisfaction, Loyalty and Willingness to Pay for Office Productivity Software

Despite the availability of several free and lower-cost alternatives, the multi-billion dollar market for office productivity software suites (OPSS) is dominated by Microsoft Office. Theoretical and empirical research has typically attempted to explain such customer loyalty from the perspective of customer's satisfaction. However, although loyal customers are typically satisfied, satisfaction alone can be an unreliable predictor of loyalty. This research examines how switching costs can impact loyalty in a context where network effects may dominate. Additionally, the research measures how loyalty impacts customer willingness to pay (WTP) using a contingent valuation approach. The results reveal that switching costs do increase consumers' loyalty and WTP. For OPSS loyalty is a significant contributor to increased WTP. Implications for research and practice are discussed.

1. Introduction

In recent times, competition for customers in office productivity software suites (OPSS) market has increased. For example, Google recently added the ability to create presentations to their line of free online office productivity applications for word processing and spreadsheets called Google Docs¹

April, 17th 2007, http://www.reuters.com/article/intemetNews/idUSN1743970020070417

Six days before Google's targeted release date for the presentation software, Microsoft announced that their “Ultimate” version of Office 2007 is available to all students and teachers for ²

September, 12th, 2007, http://www.news.com/8301-10784_3-9777020-7.html

which is just nine percent of the estimated retail price³

http://office.microsoft.com/en-us/products/FX101754511033.aspx

. This also came only days before IBM announced the availability of a free online version of their office productivity software called Lotus Symphony⁴

September, 18th 2007 http://symphony.lotus.com/software/lotus/symphony/buzzentry.jspa?threadID=2581

. Although customers are now faced with more viable affordable options to meet their OPSS needs, it remains to be seen whether they will remain loyal to Microsoft Office and why. Recent research shows that new entrants such as Open Office have limited impact on customer's utility for Microsoft Office (Raghu et al., 2008).