Microeconomics of Customer Relationships

schooling Microeconomics of customer Relationships ? Reading Microeconomics of Customer Relationships The fol low-toned 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 take in 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 terce categories based on the simple question, How likely is it that you would recommend us to a friend or workfellow? (Reichheld, 2006, pg. 73) Customers at the lavishly end are labeled promoters, because of their likelihood of loyalty and positive word-of-m come forwardh promotion. The low end of the spectrum is the opposite of the promoter and labeled a detractor. By quantifying the value the customers defy the com pany eject then devise action plans to solve problems, or expatiate growth. Evaluation of the AuthorFred 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 Reichhelds Microeconomics of Customer Relationships. (2006, pg. 76) Reichheld came to the conclusion that the upper right was the sink long-term priority. I completely agree with this conclusion. He then put the upper right and the start right as the next highest priority. He does make some good points, such as disconsolate word-of-mouth and high profits that could pick up ship and move on elsewhere.I, however, would put a higher(prenominal) 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 ratt afford the risk of losing base. In a large corporation, volume is vas t and needs to be satisfied. If you can find a way to get the middle column to the right, your NPS would rise. Conversely, if you male parentt satisfy the middle, or large volume customers, they could move to the left causing havoc. Netflix recently make a bold move of raising its prices 60% and split its services into dickens separate entities.This angered that middle column of subscribers that used Netflix, but didnt have strong opinions toward it. Netflixs stock prices have plummeted 26 percent this year(Randall, 2011). Netflix was counting on customer loyalty to prevail everyplace the increase in prices, but instead had a huge backlash. An example of a company that focuses on the right and the middle of their NPS is Apple. Apple has created a company with an almost cult like following. Apples NPS is 79% with only 2% detractors based on a 2008 survey by Satmetrix (Schofield, 2008).Apple has been genius at getting customers to the upper right section of the customer grid. It de veloped products to appeal to the hoi polloi. Criticism toward Apple has been their overleap of Adobe flash integrated into their iphones(Chen, 2008). This causes anger to the left sections of customer who want flash enabled devices. Apple could slowly try to appease this group and enable Flash, but because it views it as an unstable platform, it refuses to use it. Apple isnt as concerned about the haters as it is about those loyal to Apple, or those who are on the fence.Recent commercials have depicted Apple as more stable and fun to used than PCs, in an attempt to snap at that market with no brand loyalty. Economic Theories I do realize my examples for my discord with Reichheld on priority placed on the NPS is not for all market conditions and companies. There are many factors that can sway priority away from where focus was previously. The Netflix example, for instance, was based on a company who thought it had moderately of a monopoly, yet after it made its decision to rais e prices realized costumers left for opposite options such as Hulu plus and Blockbusters DVD by mail service.Netflix is now laboured to have its main focus on the left and pacify those who were angered. There is also supply and beseech to consider. When there is a high demand for a product and a limited supply, a higher priority needs to be set on the upper right because holding a high percentage of the market share when supply is low will keep customers when or if the supply is increase and you will need customer loyalty when new competitors are able to enter due to a lower cost of entry. ConclusionFred Reichheld wrote an excellent article breaking down NPS and applying it to business. I had a slight disagreement over his priority placement mainly because it is flexible to the situation and I would focus on the masses rather and a select few. The article was well written and very practical with easy to meet data. References Chen, B. (2008, November 17). Why apple wont allow ado be flash on iphone. Retrieved from http//www. wired. com/gadgetlab/2008/11/adobe-flash-on/ Randall, D. 2011, family 19). Nflx tumbles on qwikster announcement are netflixs best days behind it?. Retrieved from http//www. huffingtonpost. com/2011/09/19/nflx-netflix-stock-qwikster_n_970879. html Reichheld, F. (2006). The microeconomics of customer relationships. MITSloan circumspection Review, 47(2), 73-78. Schofield, M. (2008, April 10). Satmetrix benchmarks net promoter scores in four key industry sectors. Retrieved from http//www. reuters. com/article/2008/04/10/idUS191482 10-Apr-2008 BW20080410