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E-Loyalty

Your Secret Weapon on the Web
In the rush to build Internet businesses, many executives concentrate all their attention on attracting customers rather than retaining them. That's a mistake.
The unique economics of e-business make customer loyalty more important than ever.

by Frederick F. Reichheld and Phil Schefter

L

OYALTY MAY NOT BE THE FIRST

* idea that pops into your head when you think ahout electronic commerce. After all, what relevance could such a quaint, oldfashioned notion hold for a world in which customers defect at the click of a mouse and impersonal shopping hots scour databases for ever hetter deals? What good is a small-town virtue amid the faceless anonymity of the Internet's

HARVARD BUSINESS REVIEW

July-August 2000

glohal marketplace? Loyalty must he on a fast track toward extinction, right?
Not at all. Chief executives at the cutting edge of e-commerce-from
Dell Computer's Michael Dell to eBay's Meg Whitman, from Vanguard's Jack Brennan to Grainger's
Richard Keyser-care deeply about customer retention and consider it vital to the success of their on-line operations. They know that loyalty

105

E-Loyalty: Your Secret Weapon on the Web

is an economic necessity: acquiring customers on the Internet is enormously expensive, and unless those customers stick around and make lots of repeat purchases over the years, profits will remain elusive. They also know it's a competitive necessity: in every industry, some company will figure out how to harness the potential of the Weh to create exceptional value for customers, and that company is going to lock in many profitable relationships at the expense of slow-footed rivals. Without the glue of loyalty, even the best-designed e-business model will collapse.
Over the past two years, we have been studying e-loyalty with our colleagues at

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