Microeconomics of Customer Relationships

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Unit 1 Assignment 2

A Summary of Reichheld’s journal article
“The Microeconomics of Customer Relationships”

Michael G. Castro

Capella Univeristy
MBA6008 – Global Economic Environment
Professor Hidsell
January 10, 2013

Customer Relationship Management is a way of creating and evolving your organization in the market place and at the same time in the mind of each individual customer. Customer expectations such as product quality, service responsiveness, price stability and the overall sales process experience are vital for a business to stay relevant and successful on a long-term basis. Amidst the amount of research on brand loyalty, customer retention and the word-of-mouth advertising, it is a difficult task to quantify these intangible assets and make an impact to a company’s bottom line. This is where the article “Microeconomic of Customer Relationships” by Fred Reichheld investigates and analyzes a way that the quality of customer relationships affects the economics of a business. This investigation is based on a simple survey based customer-relationship metric known as “net-promoter score”, or NPS. Their CEO, Jeffrey R. Immelt, used this survey as an instrument in General Electric’s marketing efforts. Immelt announced that GE “organically” grew from 5% to 8%.   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.  

The results of the NPS uncovered to Immelt and GE that they had three customer groups: promoters, passives and defectors. Promoters, who scored a nine or 10 on the...
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