THE MISMANAGEMENT OF CUSTOMER LOYALTY
by Werner Reinartz and V. Kumar

Loyal customers cost less to serve! They pay more than other customers, and attract new customers through word-of-mouth. These loud claims prompted one high-tech service provider to launch a $2 million-per-year customer-loyalty program. Five years later, the company made distributing discoveries: Half of its loyal customers barely generated a profit. And half of its most profitable customers bought high-margin products once-then disappeared.

What happened? As recent research reveals, the loyalty-equals-profitability equation is surprisingly weak-and complicated. Not all loyal customers are profitable and not all profitable customers loyal.

Managing customer for loyalty doesn't automatically mean managing them for profits. To strengthen the loyalty-profitability link, you manage both-simultaneously.

                                                    Harvard Business Review (HBR); Vol. 1407 (July, 2002)