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Microeconomics of customer relationships

After reading the journal article "The Microeconomics of Customer Relationships," write a 3-4 page critical evaluation of the article by answering these questions:
- Correctly identify the issue or issues addressed by the author, related to the value of customer relations.

- Evaluate the economic significance of the issue presented by the author, related to customer relations.

- Correctly identify the author's purpose or purposes related to customer relations.

- Evaluate the author's arguments and conclusions for creating value in a specific firm.

- Draw your own conclusions on value creation by applying relevant data, facts, theories, and economic principles from the article and your course readings.

NOTE: A critical evaluation provides you the opportunity to think critically about a topic presented in scholarly literature, evaluate an author's point of view, and synthesize the new information into your current paradigm of knowledge and understanding. A critical evaluation is NOT an article summary. You are expected to critically analyze what you are reading and support your analysis with appropriate citations and references to your readings and other creditable sources.

** additional sources can be used, aside from the ones provided.

1. McConnell, C. R., Brue, S. L., & Flynn, S. M. (2012). Economics (19th ed.). New York, NY: McGraw-Hill
2. Reichheld, F. (2006, Winter). The microeconomics of customer relationships. MIT Sloan Management Review, 47(2), 73-78

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- Correctly identify the issue or issues addressed by the author, related to the value of customer relations.
In his article "The Microeconomics of Customer Relationships" (Reichheld, 2006), Reichheld analysis in great detail a relatively new economic measurement called "net-promoter score" (NPS). Specifically, Reichheld examines the issues associated with the customer experience and their overall feelings for a company and how these feelings impact profitability.
NPS allows companies to breakdown the complexities involved in trying to determine consumer actions by simply asking customer's one question- "how likely is it that you would recommend us to a friend or colleague"? (Reichheld, 2006). After assessing the answers to this question, a score is given to the consumers from 0 - 10 with 10 being representing the best answer. Then, the customer base is segmented into three categories based upon their scores, detractors, passively satisfied, and promoters.
After explaining how this simplistic approach works and the science behind the NPS theory, Reichheld goes in-depth in exploring and explaining how important each segment is to the longevity of the company. The specific issue addressed is how valuable each customer segment is in terms of estimated and predictable monetary return. The key components that Reichheld examines are factors such as word of mouth, reputation, repeat business, and the negative impacts of detractors.
At issue for companies is just how important the customers perception and attitude is toward the overall performance of the organization. As an example, Reichheld explains that a negative comment by a consumer (detractor) is very difficult to overcome. In fact, Reichheld's study indicates that 80-90% of negative word of mouth activity is done by detractors. He uses the analogy of a consumer searching for a new dentist when they arrive in the community. If that person hears one negative comment about a specific dentist from a trusted friend or colleague, it will take many positive comments about the same dentist to occur ...

Solution Summary

The expert evaluates the economic significance of the issue presented by the author, related to customer relations.

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