E-Loyalty: Your Secret Weapon on the Web (HBR OnPoint Enhanced Edition)

Rating:
Summary: The old loyalty rules in a new context
Review: Frederick F. Reichheld is a Director Emeritus of Bain & Company. He is author of several books and articles on loyalty-based management. Phil Schefter is a Vice President of Bain's Boston office. This article, published in Harvard Business Review's July-August 2000 issue, reports on a two year study into the strategies and practices of leading Internet companies. (Yes, of course, including Amazon.com!)

"Loyalty is still about earning the trust of the right kinds of customers ... The Web does, however, raise new questions and open new opportunities: it places the old rules in a new context." Ten years ago, Reichheld (together with Earl Sasser of Harvard Business School) analyzed the costs and revenues derived from serving customers over their entire life cycle. This research showed that in most industries the high cost of acquiring customers renders many customer relationships unprofitable during their early years. Only in later years, do relationships generate big returns. This pattern is exaggerated on the Internet, which means that the losses in the early stages of relationships are larger. However, profit growth accelerates at a faster rate in future years: loyal customers purchase more, frequently refer new customers to a supplier, and often take the function of a help desk. In order to gain the loyalty of customers, you have to gain their trust first. "Price does not rule the Web; trust does." This website serves as an example. Organizations also need to make a careful customer selection. "The way a site is designed and marketed has a large impact on the types of customers it attracts." The Internet also offers companies unprecedented opportunities for getting to know their customers in depth and for customizing offerings to meet their preferences by providing rich data (tracking of customers, purchase histories, preferences on-line vs. off-line). The authors found that the five primary determinants of loyalty are old-fashioned customer-service basics: (1) quality customer support, (2) on-time delivery, (3) compelling product presentations, (4) convenient and reasonably priced shipping and handling, and (5) clear and trustworthy privacy policies. Many companies have been tempted to split their on-line operations from their off-line operations, but this is likely to erode customer loyalty. After all, when customers do business with a company, they do not distinguish between a transnaction on the Web and one in a physical store or branch.

Great article comparing on-line loyalty with the old-fashioned off-line loyalty rules. The article is written in clear US-English and the authors use great, simple examples to describe the different on-line strategies available to organizations. The authors seem to pack a lot information into such a short article. I recommend this article to 'bricks-and-mortar' managers thinking about creating a 'virtual' extension.

Rating:
Summary: The old loyalty rules in a new context
Review: Frederick F. Reichheld is a Director Emeritus of Bain & Company. He is author of several books and articles on loyalty-based management. Phil Schefter is a Vice President of Bain's Boston office. This article, published in Harvard Business Review's July-August 2000 issue, reports on a two year study into the strategies and practices of leading Internet companies. (Yes, of course, including Amazon.com!)

"Loyalty is still about earning the trust of the right kinds of customers ... The Web does, however, raise new questions and open new opportunities: it places the old rules in a new context." Ten years ago, Reichheld (together with Earl Sasser of Harvard Business School) analyzed the costs and revenues derived from serving customers over their entire life cycle. This research showed that in most industries the high cost of acquiring customers renders many customer relationships unprofitable during their early years. Only in later years, do relationships generate big returns. This pattern is exaggerated on the Internet, which means that the losses in the early stages of relationships are larger. However, profit growth accelerates at a faster rate in future years: loyal customers purchase more, frequently refer new customers to a supplier, and often take the function of a help desk. In order to gain the loyalty of customers, you have to gain their trust first. "Price does not rule the Web; trust does." This website serves as an example. Organizations also need to make a careful customer selection. "The way a site is designed and marketed has a large impact on the types of customers it attracts." The Internet also offers companies unprecedented opportunities for getting to know their customers in depth and for customizing offerings to meet their preferences by providing rich data (tracking of customers, purchase histories, preferences on-line vs. off-line). The authors found that the five primary determinants of loyalty are old-fashioned customer-service basics: (1) quality customer support, (2) on-time delivery, (3) compelling product presentations, (4) convenient and reasonably priced shipping and handling, and (5) clear and trustworthy privacy policies. Many companies have been tempted to split their on-line operations from their off-line operations, but this is likely to erode customer loyalty. After all, when customers do business with a company, they do not distinguish between a transnaction on the Web and one in a physical store or branch.

Great article comparing on-line loyalty with the old-fashioned off-line loyalty rules. The article is written in clear US-English and the authors use great, simple examples to describe the different on-line strategies available to organizations. The authors seem to pack a lot information into such a short article. I recommend this article to 'bricks-and-mortar' managers thinking about creating a 'virtual' extension.