Net Present Value

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  • Topic: Consumer behaviour, Loyalty business model, Net Promoter
  • Pages : 10 (3406 words )
  • Download(s) : 35
  • Published : January 23, 2011
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Assignment

“Net Promoter Score: a strong indicator of loyalty and growth?”

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Table of Content Page Introduction…………………………………………………………………………3 1 Main advantages of the NPS……………………………………………...4 1.1 1.2 1.3 2 Simple and understandable – the calculation of the NPS……...4 Simple categorization of the customer groups - …………………. application of the NPS……………………………………………...5 Motivating Change - customer-focused management by NPS...6

Main disadvantages of the NPS ...........................................................6 2.1 2.2 2.3 NPS - superficial view of loyalty research………………………...6 Why a single question is not a true indicator …...........................8 Other critic points……………………………………………………9

Conclusion………………………………………………………………………….10 References………………………………………………………………………….11

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Introduction A company´s biggest asset is its customers loyalty. The term customer loyalty describes the demand-side perspective of a bond, e.g. the customer has reduced willingness to change (Homburg / Bruhn, 2000, p.8). Customer loyalty can be seen as an solidarity leading to the customer´s deliberate and intentional continuation of a business relationship, developing a positive attitude towards the supplier. Customer satisfaction is a key fact of customer loyalty. It depends on the provider´s performance and the variety of competitors. The difference between customer loyalty and customer satisfaction is, that the latter is a voluntary binding of the customer to the supplier. (C.Zerres / M. Zerres, 2005, p.205). Empirical studies have shown that the relationship of customer satisfaction and customer loyalty are industry-dependent. The stronger the competition, the closer the observed correlation between customer loyalty and customer satisfaction. Context is quite complex and includes such factors as: repurchase rate, cross-selling, price sensitivity, and word of mouth.(Blum, 2004, p.17-19) In today's competitive markets, the sustainable development of customer loyalty to existing and new customers is one of the key tasks of management. The longer a company keeps a loyal and profitable customer, the more profit it gets through it. Therefore, the primary goal should be to keep the profitable customers and not to lose a single one of them. High customer loyalty and low “moving away”- rates ensure the long-term business success. Only loyal “recurring”customers are the real drivers of a positive business development. A loyal customer is not only returning again and again, but he is also resistant to competition. But above all, he speaks enthusiastically about his favorite vendors and generates in this way, the valuable word of mouth. Positive word of mouth is the precursor of recommendation business. Especially with strategic considerations, it is often overseen that the most efficient drivers of growth are all the customers who regularly recommend the products, services, brands, and performance of a company. Loyal customers are the most credible ambassadors and sellers. Connected to a community, they can bring companies and brands far up very fast, for free, voluntarily and willingly (Schüller, 2010, p.9). Loyal customers are attractive not only as repeated buyers, but also as active referrers. Willingness to recommend is a clear indication of high customer loyalty. Mangle of willingness to recommend, however, is a first “take-off”- early warning signal for a loosing customer. Recommendations are therefore the most valuable thing that a company can obtain from its customers. "Increasing customer loyalty is obviously one of the most important factors for sustainable business growth”, writes the American loyalty expert Frederick F.Reichheld in his article for the “Harvard Business Review "(2003). He shows that the customer´s willingness to recommend highly correlates to the company's growth. This has been detected for all surveyed industries. A study revealed, that the companies with the highest number of positive recommendations had...
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