MBA 6008 Unit 1 Assignment 1
The Microeconomics of Customer Relationships
MBA 6008-Global Economic Environment
Capella University
Holding on to the customers that are the most profitable is just plain good business. The retaining of current customers is less expensive than acquiring new ones. Current customers represent the path for growth, only if you know how to expand a relationship with them. Jeffery R. Immelt chairman and CEO of General Electric Company recently announced an extraordinary goal to increase the organic rate of G E from 5% a year to 8%. This 60% increase would be tremendous for a company of this magnitude, who already has the ninth largest revenue in the world.
The strategy for reaching this target encourages many of G E divisions to apply a simply customer-relationship metric known as “net-promoter score.” The idea of the NPS is relatively simply. A company begins by asking its customers just one question, “How likely is it you would recommend us to a friend or colleague?” The Company then proceeds to score the results on a zero-to-10 scale with 10 representing “extremely likely” and zero representing “not likely.” The Customers responses are then clustered in groups of threes.
These groups are associated with a set of behaviors. One group is of customers who gave the company a rating of nine or ten. This group is known as “promoters” for they behave as if they were joined to the company’s sale team. Their repurchase rate are the highest and account for 80% of referrals by word of mouth. The next group rates the company with seven or eight and is considered as the “passively satisfied” or passives. Passives referral rates and repurchases are lower than the promoters by 50% or more. Last are those who gave the company ratings from zero to six. They are the “detractors” which are least likely to repurchase or refer, and account for more than 80% of negative word-of-mouth.
NPS for a company are the percentage of promoters minus the percentage of detractors, a metric
MBA 6008-Global Economic Environment
Capella University
Holding on to the customers that are the most profitable is just plain good business. The retaining of current customers is less expensive than acquiring new ones. Current customers represent the path for growth, only if you know how to expand a relationship with them. Jeffery R. Immelt chairman and CEO of General Electric Company recently announced an extraordinary goal to increase the organic rate of G E from 5% a year to 8%. This 60% increase would be tremendous for a company of this magnitude, who already has the ninth largest revenue in the world.
The strategy for reaching this target encourages many of G E divisions to apply a simply customer-relationship metric known as “net-promoter score.” The idea of the NPS is relatively simply. A company begins by asking its customers just one question, “How likely is it you would recommend us to a friend or colleague?” The Company then proceeds to score the results on a zero-to-10 scale with 10 representing “extremely likely” and zero representing “not likely.” The Customers responses are then clustered in groups of threes.
These groups are associated with a set of behaviors. One group is of customers who gave the company a rating of nine or ten. This group is known as “promoters” for they behave as if they were joined to the company’s sale team. Their repurchase rate are the highest and account for 80% of referrals by word of mouth. The next group rates the company with seven or eight and is considered as the “passively satisfied” or passives. Passives referral rates and repurchases are lower than the promoters by 50% or more. Last are those who gave the company ratings from zero to six. They are the “detractors” which are least likely to repurchase or refer, and account for more than 80% of negative word-of-mouth.
NPS for a company are the percentage of promoters minus the percentage of detractors, a metric