Microeconomics of Customer Relationships

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Reading: Microeconomics of Customer Relationships


Reading: Microeconomics of Customer Relationships
The follow is a critique and review of the reading of Microeconomic of Customer Relationships by Fred Reichheld. I will review the article and evaluate Mr. Reachheld. I will also apply economic theories into why and how I came to my conclusions. Overview on the Reading

Microeconomic of Customer Relationships by Fred Reichheld is based on a simple survey based customer-relationship metric known as “net-promoter score”, or NPS. The NPS divides customers into three categories based on the simple question, “How likely is it that you would recommend us to a friend or colleague?” (Reichheld, 2006, pg.73) Customers at the high end are labeled promoters, because of their likelihood of loyalty and positive word-of-mouth promotion. The low end of the spectrum is the opposite of the promoter and labeled a detractor. By quantifying the value the customers have the company can then devise action plans to solve problems, or expatiate growth. Evaluation of the Author

Fred Reichheld was very good at relating NPS in a practical and evaluative way. What I found most interesting in his analysis of NPS was the customer grid (Figure 1).
Figure 1. Customer Grid. From Fred Reichheld’s Microeconomics of Customer Relationships. (2006, pg.76) Reichheld came to the conclusion that the upper right was the top long-term priority. I completely agree with this conclusion. He then put the upper right and the lower right as the next highest priority. He does make some good points, such as bad word-of-mouth and high profits that could pick up ship and move on elsewhere. I, however, would put a higher priority in the upper middle section as long as this is a large corporation. A small business may very well need to stamp out the issues of the unsatisfied because they can’t afford the risk of losing base. In a large corporation, volume is huge and needs to be...
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