Edited by V. Kumar and Denish Shah
Chapter 6: Managing customer loyalty to maximize customer equity
In the past two decades, customer loyalty has become a top priority for many companies. Motivated by the expectation that loyalty contributes positively to firm performance (Reichheld, 1996), companies have invested considerable resources in the measurement and management of customer loyalty. Despite its intuitive appeal, translating this conceptual link into managerial practice remains a challenge; the process of generating and then financially benefitting from customer loyalty is far more complex than initially believed (Anderson and Mittal, 2000), and not every loyal customer is a profitable customer (Reinartz and Kumar, 2002). Field evidence from various industries also indicates that even when returns to customer loyalty are positive, they exhibit substantial variation – ranging between 25 percent and 95 percent for a 5 percent increase in loyalty (Reichheld, 1996). A key implication of these findings is that when managing customer loyalty, care is necessary on several fronts.
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