The diffusion of services

Barak Libai*, Eitan Muller, Renana Peres

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

111 Scopus citations


Many of the products introduced during the past two decades have been services rather than goods. An important influence on the growth and long-term profits of these services is customer attrition, which can occur at the category level (disadoption) or between firms (churn). However, the literature has rarely modeled how services penetrate a market and has not evaluated the effect of attrition on growth. The authors combine diffusion modeling with a customer relationship approach to investigate the influence of attrition on growth in service markets. In particular, the authors model the effects of disadoption and churn on evolution of a category and on growth of individual firms in a competitive environment. The authors show how neglecting disadoption can bias parameter estimation and, especially, market potential. They also derive an expression for the customer equity of a growing service firm and apply it to valuation of firms operating in competitive industries. The results for six of seven firms in four service categories are remarkably close to stock market valuations, an indicator for the role of customer equity in valuations of growing service firms.

Original languageAmerican English
Pages (from-to)163-175
Number of pages13
JournalJournal of Marketing Research
Issue number2
StatePublished - Apr 2009


  • Attrition
  • Customer relationship management
  • Diffusion
  • Services


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