Microeconomics of Customer Relationships Harvard Case Solution & Analysis

Despite considerable research on customer retention and word-of-mouth referrals, has always been difficult to quantify their contribution to the bottom line. Using a metric known as the "net promoter score" (NPS), the author's view of firms can be measured in terms of dollars based on customer satisfaction. Survey of thousands of customers in six industry sectors shows that customers tend to cluster in one of three categories: promoters, passives, and detractors. Promoters are more than 80% of the positive directions of the company receives, while detractors are more than 80% of the negative word-of-mouth. NPS is calculated by subtracting the percentage of detractors percentage of promoters. Using this data, the company can quantify the value needs, observing five categories: retention rate, earnings, costs, cost-effectiveness, and word-of-mouth. Firm can use NPS to make strategic decisions, directing its efforts to bring the most value for your dollar of customer service. "Hide
by Fred Reichheld Source: MIT Sloan Management Review 8 pages. Publication Date: January 1, 2006. Prod. #: SMR197-PDF-ENG

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