What Is the Difference Between a Customer Base & an Installed Customer Base?

An installed customer base helps to lock customers into a supplier.

A customer base is a set of records that lists all of an organization's customers. An installed customer base is the number of a specific digital product installed on customers' corporate information systems. A customer base provides general information for planning future sales and marketing programs. An installed customer base provides a specific platform for building future sales of upgrades to the installed product or related products and services. An installed customer base also acts as a barrier to entry for competitors

Customer Base

A customer base lists all of an organization's customers, large and small. The customer base includes customers that have bought any product from an organization at any point in time. Some customers may purchase regularly, others occasionally.

Marketing

Marketing teams use information on the organization's customer base to plan future marketing programs. Information on individual transactions, purchasing frequency and purchasing patterns enables teams to predict the long-term value of customers as a basis for allocating marketing resources. According to the Journal of Interactive Marketing, improvements in information technology enable marketing teams to improve the accuracy of predictions by using techniques such as probability models.

Growth

An organization's annual revenue derives from sales to the complete customer base. It can grow revenue by targeting new prospects to increase the customer base, or by selling more to the existing base. An organization must also protect its existing customer base, as the cost of dealing with existing customers is typically lower than the cost of acquiring new ones.

Installed Base

An installed customer base gives an organization a strong competitive advantage, compared to organizations whose customers buy products that competitors can match. According to a Massachusetts Institute of Technology paper, customers that have installed a digital product, integrated it with existing systems and trained their employees to use the product are likely to be reluctant to change to another supplier. The cost of switching suppliers is high and this leads to situation of vendor "lock-in."

Network Effect

Organizations with a large installed customer base can also benefit from network effect, according to the Handbook of Industrial Organization. This effect occurs when a large number of companies in a market are unwilling to switch to an alternative product that is incompatible with the product in the installed customer base. The network effect also acts as a barrier to entry to competitors.

Upgrades

Marketing teams can use the installed customer base to offer customers product upgrades and other related products and services. The compatibility of the new products simplifies changeover and reduces any associated costs. Organizations marketing a range of products to their customer base do not have the same benefit of compatibility. Customers can choose from a range of competitive alternatives without incurring switching costs.

References

• "Journal of Interactive Marketing"; Probability Models for Customer-Base Analysis; Peter S. Fader, et al.; 2009
• Massachusetts Institute of Technology: A Proposal for an Econometric Analysis of Switching Costs in the Software Industry; Steve Kahl; 2004
• Handbook of Industrial Organization: Coordination and Lock-In: Competition with Switching Costs and Network Effects: Joseph Farrell, et al.; 2007