Customer Loyalty and Customer Lifetime Value
1 comments | 4847 reads
Posted on Mar 25, 2008
Customer loyalty and customer lifetime value are two different, yet related, areas of study. The purpose of this discussion is to outline each area and highlight how knowledge in both areas is necessary to better understand how to grow a company. Companies are not static entities; they make business decisions in hopes to increase customer loyalty and grow their business. The key to business growth is to make decisions that will improve customer loyalty. Customer loyalty management is the practice of determining how to maximize customer loyalty. To understand how improvements in customer loyalty will improve business growth, we need to first understand the value of customers to the organization.
Customer Lifetime Value (CLV)
Customer lifetime value reflects the present total value of a customer to the company over his or her lifetime. The concept of CLV implies that each customer (or customer segment) differs with respect to their value to the company. When we discuss CLV, we typically refer to the value of a single customer, whether that customer represents the typical customer overall or the average customer within a customer segment (e.g., West coast customer vs. East coast customer).
The generic model of CLV can be broken down as a function of four elements:
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Customer Feedback Professionals Do Not Believe the NPS Claims
0 comments | 2083 reads
Posted on Mar 20, 2008
The Net Promoter Score (NPS) is used by many of today’s top businesses to monitor and manage customer relationships. Fred Reichheld and his co-developers of the NPS say that a single survey question, “How likely are you to recommend Company Name to a friend or colleague?”, on which the NPS is based, is the only loyalty metric companies need to grow their company. Despite its widespread adoption by such companies as General Electric, Intuit, T-Mobile, Charles Schwab, and Enterprise, the NPS is now at the center of a debate regarding its merits.
Fred Reichheld, the co-developer of the NPS (along with Satmetrix and Bain & Company) has made very strong claims about the advantage of the NPS over other loyalty metrics. Specifically, they have said:
1. The NPS is “the best predictor of growth,” (Reichheld, 2003)
2. The NPS is “the single most reliable indicator of a company’s ability to grow” (Netpromoter.com, 2007)
3. “Satisfaction lacks a consistently demonstrable connection to… growth” (Reichheld, 2003) Read more »
Customer Feedback Programs Best Practices: An Empirical Investigation
0 comments | 2158 reads
Posted on Mar 13, 2008
Improving the customer relationship is seen as the key to improving business performance (Ang & Buttle, 2006; Reinartz, Krafft & Hoyer, 2004). In the course of this endeavor, popular business strategies emerged that have shined a spotlight on the importance of understanding customers’ attitudes, expectations and preferences. Customer-centric business strategies, such as CRM (customer relationship management) and CEM (customer experience management), focus on managing customers’ attitudes about their experience, fueling the proliferation of customer feedback programs (CFPs).
Customer feedback programs (CFPs) reflect a variety of types of customer programs where formal customer data are collected on customers’ perceptions and satisfaction programs, customer advocacy programs and customer loyalty programs. This study was designed to identify best practices regarding customer feedback programs.
A web-based survey was used to collect information from 112 customer feedback professionals on their company’s CFP. Survey administration was conducted using a Web-based survey tool provided by GMI (Global Market Insite, Inc.). Respondents were provided by CustomerThink.com and through the author’s professional network.
CFP Best Practices Read more »
Customer Loyalty and Goal Setting
6 comments | 2479 reads
Posted on Jan 17, 2008
All companies who use customer loyalty surveys strive to see increases in their customer loyalty scores. Improving customer loyalty has been shown to have a positive impact on business results and long-term business success. Toward that end, executives implement various company-wide improvements in hopes that improvements in customer loyalty scores will follow.
One common method for improving performance is goal setting. There is a plethora of research on the effectiveness of goal setting in improving performance. In the area of customer satisfaction, what typically occurs is that management sees that their customer loyalty score is 7.0 (on a 0-10 scale) at the start of the year. They then set a customer loyalty goal of 8.0 for the end of the fiscal year. What happens at the end of the year? The score remains about 7.0. While their intentions are good, management does not see the increases in loyalty scores that they set out to attain. What went wrong? How can this company effectively use goal setting to improve their customer loyalty scores?
Here are a few characteristics of goals that improve the probability that goals will improve performance:
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Customer Loyalty 2.0, Part 6: Advocacy and Purchasing Loyalty; Company Comparisons, and Predicting Business Growth
0 comments | 4144 reads
Posted on Jan 07, 2008
The measurement of customer loyalty has been a hot topic lately. With the latest critiques of the Net Promoter Score coming in from the both practitioners and academic researchers, there is much debate on how companies should measure customer loyalty. I wanted to formally write my thoughts on this topic to get feedback from this community of users. Much of what I will present here will be included in the third edition of my book, Measuring Customer Satisfaction. I welcome your thoughts and critiques. Due to the length of the present discussion, I have broken down the entire discussion into several parts. I will post each of them weekly. Below is Part 6 of the discussion. If you missed the prior posts, read Part 1,Part 2, Part 3, Part 4, and Part 5.
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Customer Loyalty 2.0, Part 5: Measurement and Meaning of Customer Loyalty: Drivers of Advocacy Loyalty and Purchasing Loyalty
0 comments | 6156 reads
Posted on Dec 30, 2007
The measurement of customer loyalty has been a hot topic lately. With the latest critiques of the Net Promoter Score coming in from the both practitioners and academic researchers, there is much debate on how companies should measure customer loyalty. I wanted to formally write my thoughts on this topic to get feedback from this community of users. Much of what I will present here will be be included in the third edition of my book, Measuring Customer Satisfaction. I welcome your thoughts and critiques. Due to the length of the present discussion, I have broken down the entire discussion into several parts. I will post each of them weekly. Below is Part 5 of the discussion. If you missed them, read Part 1, Part 2, Part 3 and Part 4. Read more »
Customer Loyalty 2.0, Part 4: Measurement and Meaning of Customer Loyalty; Advocacy Loyalty and Purchasing Loyalty
0 comments | 2924 reads
Posted on Dec 23, 2007
The measurement of customer loyalty has been a hot topic lately. With the latest critiques of the Net Promoter Score coming in from the both practitioners and academic researchers, there is much debate on how companies should measure customer loyalty. I wanted to formally write my thoughts on this topic to get feedback from this community of users. Much of what I will present here will be be included in the third edition of my book, Measuring Customer Satisfaction. I welcome your thoughts and critiques. Due to the length of the present discussion, I have broken down the entire discussion into several parts. I will post each of them weekly. Below is Part 4. Here is Part 4 of the discussion. If you missed them, read Part 1, Part 2 and Part 3.
Validity of Loyalty Indices
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Customer Loyalty 2.0, Part 3: Reliability of Loyalty Indices
1 comments | 3338 reads
Posted on Dec 17, 2007
The measurement of customer loyalty has been a hot topic lately. With the latest critiques of the Net Promoter Score coming in from the both practitioners and academic researchers, there is much debate on how companies should measure customer loyalty. I wanted to formally write my thoughts on this topic to get feedback from this community of users. Much of what I will present here will be included in the third edition of my book, Measuring Customer Satisfaction. I welcome your thoughts and critiques. Due to the length of the present discussion, I have broken down the entire discussion into several parts. I will post each of them weekly. Here is Part 3 of the discussion. If you missed them, read Part 1 and Part 2.
Loyalty Indices
The results of the factor analyses support the use of composite scores, each representing one of the loyalty dimensions. These composite scores are referred to as scales/indices/metrics. This process of calculating these scales/indices/metrics is done by averaging the items that load on the same factors. Based on the results of the present analyses, we can calculate three indices:
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Customer Loyalty 2.0, Part 2: Advocacy, Purchasing and Defection Loyalty
4 comments | 2722 reads
Posted on Dec 10, 2007
The measurement of customer loyalty has been a hot topic lately. With the latest critiques of the Net Promoter Score coming in from the both practitioners and academic researchers, there is much debate on how companies should measure customer loyalty. I wanted to formally write my thoughts on this topic to get feedback from this community of users. Much of what I will present here will be included in the third edition of my book, Measuring Customer Satisfaction. I welcome your thoughts and critiques. Due to the length of the present discussion, I have broken down the entire discussion into several parts. I will post each of them weekly. Here is Part 2 of the discussion. Read Part 1 and Part 3.
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Customer Loyalty 2.0, Part 1: Measurement and Meaning of Customer Loyalty
6 comments | 7908 reads
Posted on Dec 03, 2007
The measurement of customer loyalty has been a hot topic lately. With the latest critiques of the Net Promoter Score coming in from both practitioners and academic researchers, there is much debate on how companies should measure customer loyalty. I wanted to formally write my thoughts on this topic to get feedback from this community of users. Much of what I will present here will be included in the third edition of my book, Measuring Customer Satisfaction. I welcome your thoughts and critiques. Due to the length of the present discussion, I have broken down the entire discussion into several parts. I will post one each week. (Read Part 2 and Part 3).
Background
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