...The Microeconomics of Customer Relationships MBA 6008-Global Economic Environment Capella University Theresa Patterson November 27, 2011 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...
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...Critical Review: “The Microeconomics of Customers Relationships” Robert Morgan Capella University 03/25/2015 Unit 1 – Assessment 2 Reichheld, F. (2006). The Microeconomics of Customer Relationshops. MIT Soan Management Review, 47(2), 73. Retrieved from http://search.proquest.com.library.capella.edu/docview/224965299?accountid=27965 This review evaluates “The Microeconomics of Customers Relationships” by Fred Reichheld. The article presents a method to raise a company’s net-promoter score (NPS). The review will show that the NPS is a simplistic but valuable tool that has to be used with caution. Summary Reichheld (2006) starts his article by defining NPS and poses these five questions: “Why is the connection as strong as it is?”, “How does the quality of customer relationships affect the economics of a business?”, “Can the microeconomics of NPS itself ultimately be quantified and managed?”, and “How does a company raise its NPS — and on which customers should it focus its efforts”. In answering these questions, the author quantifies the value of the customer by giving value to word-of –mouth, retention rate, margins, annual spends, and cost efficiencies. In the second main section, Reichheld (2006) discusses how to Increase the NPS Strategically. The strategy promotes three priorities for increasing the NPS. The first priority is to invest in the company’s core customers (promoters). These customers are return customers which have a positive effect on the business...
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...Considering the elements of microeconomics, create a list of three (3) best practices that would benefit any small business or start-up. Explain your rationale. Microeconomic show how new businesses have determined the competitively successful or unsuccessful pricing of their goods and services based on consumer needs and choices, market competition and other financial and economic formulas. Microeconomics also studies supply-demand ratios and its effect on consumer spending and business decision-making Supply and Demand An easy way to think about t supply and demand is to think of demand as marketing, and supply as production. It is the job of marketing to create demand from their practices and programs. Marketing must produce advertisement campaigns, sales initiatives and motivation for the sales force to excel. Set Up Your Business Location Setting up your place of business is important for the operation of your business, whether you will have a home office, a shared or private office space, or a retail location. You will need to think about your location, equipment, and overall setup, and make sure your business location works for the type of business you will be doing. Research your competition Although accurate, detailed information about your potential consumers and competitors may be difficult to obtain, first-hand observation of activity in your competitor's establishment, talking to potential customers and watching customer traffic and volume through the...
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...Macroeconomic and Microeconomic environment Macroeconomics looks at aspects of economies as a whole instead of the individual markets, basically a study looking at the bigger picture of the economy. Offering a broader focus is probably the most important difference between microeconomics and macroeconomics. This branch of economics is one of the two most general fields, particularly looking at the structure, behaviour, decision-making and performance of national, regional and global economies. Through the study of aggregated indicators, macroeconomists understand the functioning of whole economies. By using GOP, unemployment rates and price indices an explanation can be made in regards to the relationships between national income, current unemployment levels, changes in employment, pricing levels, inflation, savings, investment, international trade and the rate of growth. Even though there is a broad field of study where macroeconomics is concerned, two areas of research are of utmost importance: * Understanding the causes and consequences of the business cycle, which include fluctuations in trade, economic activity and trade during periods of rapid economic growth and periods of decline. * Understanding the demands of a particular product, service or commodity during a long period of time in which national income increases. Macroeconomics enables large corporations and governments to analyse variables and behaviour's to find answers to questions such as...
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...November 27, 2011 Monique S. Webster Reichheld, Fred (2006). The Microeconomics of Customer Relationships. MIT Sloan Management Review. Vol. 47, No. 2 Article Summary The purpose of this article author, Fred Reichheld discusses the microeconomics of customer relationships. How customer relationships affect a company's growth rate and the financial performance. Various companies like, General Electric Company uses "net-promoter score" as a metric tool to determine the customer relationships in its company. The NPS system is based on one key question, "How likely is it that you would recommend us to a friend or colleague?" and then divided into three main cluster groups: promoters, passives, and detractors. Each of these cluster groups help to determine the impact of customer relationships. Promoters have the highest repurchase accounting for more than 80% of referrals for new customers. Passives the second cluster group accounting for more than 50% of referrals for new customers and detractors account for 80% negative referrals for new customers. The article discusses the value of a promoter or a detractor and learning how to understand the values numerically of why and how customer relationships impact a company's financial performance. The article provides two diagrams one to briefly demonstrate the value of promoters and detractors and illustrates how a company can identify with customers who can help benefit the company as well as those who can harm the...
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...Demand, Supply and Prices in the Housing Industry F. Hill ECO/365 Principles of Microeconomics July 30, 2014 Mr. Keith Watts Abstract The slowdown in the housing market in the US has been accompanied by a sharp fall in house prices and a glut of homes for sale in the market. While the idea that this high number of dwellings for sale should place downward pressure on house prices is intuitive, little empirical work has been done in this area to assess the factors affecting house prices. This paper explicitly models the relationship between changes in prices of houses and various measures of housing demand and supply. A simulation model has been included to help explain the evolution of the housing market and enable one determine the equilibrium price, quantity and prices. The company under consideration is GoodLife management- a property management company that manages seven communities in the city of Atlantis. Keywords: Housing market, supply and demand, price elasticity and economics. Introduction From the demand and supply curve of the firm, various microeconomics and macroeconomics can be identified. Microeconomics looks at the behaviors of individual people and companies within an economy. It is based on the idea of a market economy, in which forces of demand and supply are behind prices and production levels of goods and services. Microeconomics is concerned with supply and demand in individual markets, individual consumer behavior and individual labor markets...
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...Supply and Demand Daniel P. Velasquez ECO 365 May 15, 2014 Dr. Emmanuel Ogunji Supply and Demand Supply and demand are the basis of economics. When discussing economics the terms supply, demand, and equilibrium price are at the forefront. Why are these terms so important when discussing economics, because they are the key components of the subject of economics? Demand can be described as the relationship between price and quantity demanded for a good or service. Each price provided will have a demand relationship that tells the quantity that the customers will purchase at a certain price. The quantity demanded is the number related to the quantity the customers are willing to purchase at a particular price. So it is important to decipher the difference between demand and quantity demanded. Demand is referred to the willingness and ability of customers to buy the good or service in the market. Supply can mean the willingness to sell, also the supplier must be willing to sell the good or service at a price that the customers will demand it. In economics the relations ship between supply and demand is understood as the equilibrium. The equilibrium price is when the supply and demand equal out and there is no rise or fall in cost of a good or service. The equilibrium is a point on a diagram where the demand and supply curve intersect. In the simulation with good life it provides several scenarios to try and explain the shifts, and how it affects the equilibrium...
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...Macroeconomics (from Greek prefix "macr(o)-" meaning "large" + "economics") is a branch of economics dealing with the performance, structure, behavior, and decision-making of the entire economy. This includes a national, regional, or global economy.[1][2] With microeconomics, macroeconomics is one of the two most general fields in economics. Macroeconomists study aggregated indicators such as GDP, unemployment rates, and price indices to understand how the whole economy functions. Macroeconomists develop models that explain the relationship between such factors as national income, output, consumption, unemployment, inflation, savings, investment, international trade and international finance. In contrast, microeconomics is primarily focused on the actions of individual agents, such as firms and consumers, and how their behavior determines prices and quantities in specific markets. While macroeconomics is a broad field of study, there are two areas of research that are emblematic of the discipline: the attempt to understand the causes and consequences of short-run fluctuations in national income (the business cycle), and the attempt to understand the determinants of long-run economic growth (increases in national income). Macroeconomic models and their forecasts are used by both governments and large corporations to assist in the development and evaluation of economic policy and business strategy. Physical science is an encompassing term for the branches of natural science and...
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... | | |Microeconomics |In the natural gas market, gas is in supply all year round. |Microeconomics is a measure of | |The branch of economics that analyzes the |Natural gas to heat people’s homes is in increases in demand |specific economic units, which are an | |market behavior of individual consumers and|in the winter time. The supply could eventually run low |individual industry, firm, or | |firms in an attempt to understand the |depending upon where Shell gets its gas from. Natural gas is |household. | |decision-making process of firms and |in less demand in the summer time. There is no control over if| | |households. It is concerned with the |the price of a therm may go up anytime with People’s Gas. I |We measure | |interaction between individual buyers and |worked for Just Energy for one week last year in June and quit|The price of a specific product, the | |sellers and the factors that influence the |because they wanted to charge customers’ .79 per therm and |number of workers employed by a single| |choices made by buyers and sellers. In |lock customers’ in a five year contract when it costs less to |firm, the revenue or income of a | |particular, microeconomics focuses on |remain on a flexible plan with People’s Gas. The electricity...
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...Loyalty = Dependence? In business, marketing has the tightest relationship with customers, the driving force of business. The relationship is based on consumer’s values and satisfaction, making the aim of marketing to identify needs of customers and provide them successfully. Successful marketing campaign results in gaining loyal, satisfied customers, which makes marketing an art of retention and development. Companies strive to maximize profit, which can be achieved by retaining loyal customers. Oxford Dictionary describes loyalty as strong commitment or allegiance. Additionally, in marketing, it means that the customer is not willing to switch to alternatives despite the marketing efforts of the competitors (Keller & Kotler, 2012). Companies need strategies to sustain loyal customers. Many believe that the amount of truth consumers place in companies might be abused, as loyalty sometimes equals strong dependence on suppliers. However, government’s role is to protect their citizens and prevent any actions that might violate ethics, but otherwise, the economy will be better off without intervention, referring to the belief of “Laissez-Faire” (Frank & Cartwright, 2013). The essay will aim to prove that loyalty does not cause overly-dependence if it does not influence ethics, and that consumers will seek for better option for themselves. The rational choice theory, which is the base of the microeconomic studies, states that individuals act rationally and choose the option...
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...Principles of Microeconomics ECO/365 December 17, 2015 Robert Dratwa In this simulation several scenario were presented. It was the student’s responsibility to use the information learned from assigned reading material to apply the learned concepts to make the correct decisions. The housing market in Atlantis comprises of both detached homes and apartments. The simulation explains the supply and demand of 2 bedroom rental apartments in Atlantis. The three subjects demand curve, the supply curve, and equilibrium are explained. The impact of a price ceiling on quantity demanded and quantity supplied of two bedroom rental apartments are discussed. The closest substitute to a two bedroom apartment provided by GoodLife is a detached rental home provided by Oakridge Builders. First, the appropriate rental rate had to be chosen to bring down the vacancy rate from 28% to 15% while maximize revenue. Second, if leasing out all 2,500 apartments, the rental rate had to be decided to profitable. Though GoodLife is the monopoly in the market. The company has been able to fix the market rental rate at the company’s discretion. Simply by lowering the rental rate, it increases the quantity demanded. More quantity is demanded at a lower price. When rental rates are reduced there will be more potential tenants willing to rent apartments leading to a lower vacancy rate. As the rental rate is lowered, revenue initially increases, reaches a maximum at a particular rental rate and quantity...
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...of other goods * Expectations of future pricing * Number of Suppliers | I have worked for a wireless telephone company for the last 13 years. I worked in retail for several years, where we had to keep inventory of the mobile phones in stock to have availability or supply as needed. Phones are usually decreased in price, versus the actual retail price, to increase sales/customer growth.Currently in the financial services dept, I can see the results of price rising due to quantity rising, based on the customers rate plans and monthly packages. This is the way the company increase is guaranteed revenue each month. | “There is a direct relationship that prevails between price and quantity supplied. As price rises, the quantity supplied rises; as price falls, the quantity supplied falls.”(McConnell-Brue, 2004, p. 45) | Microeconomics is the process of looking at the details or very small segments of the economy.Ex: analyzing the price of a specific product or service, the number of lawyers working at a single firm, or the income of a certain household | In my department, a good example of microeconomics would be the revenue generated for the company by a specific department, Financial Services. Our assertive collections skill set assists in the success of the department, and the company consistently, without fail.Another example would be how I have to analyze daily reports on the specific dollar amounts collected from...
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...| Supply and Demand Simulation Nivea E. Martinez Ramirez University of Phoenix ECO/365 Principles of Microeconomics April 1st, 2014 Professor Evaristo Medina-Irizarry The assignment will analyze and summarize the Supply and Demand simulation from the student website. The purpose is to recognize two microeconomic and two macroeconomic principles included in the simulation and to explain why these principles are categorized as macroeconomic or microeconomic. The paper will also identify at least one shift of the supply curve and one shift of the demand curve from the simulation, including an explanation of why these shifts happen. In addition, analyzed for each shift, their impact on the equilibrium price, quantity, and decision making. Subsequently, it will mention different ways in which concepts about supply and demand can be useful in the workplace and in real life-situations. The paper will also discuss ways in which models of microeconomics and macroeconomics benefit in understanding aspects that affect changes in supply and demand on the equilibrium price and quantity. Finally, the paper will include an explanation on how the price elasticity of demand affects the consumer’s purchasing and on the firm’s pricing strategy. Microeconomics models presently in the simulation are: supply and demand. The simulation refers to the supply and demand of rentals apartments in a small city of Atlantis, including the factors. At the same time, it shows the impact...
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...5Frederick E. Webster, Jr. The Changing Role of Marketing in the Corporation New organization forms, including strategic partnerships and networks, are replacing sinnple market-based transactions and traditional bureaucratic hierarchical organizations. The historical marketing management function, based on the microeconomic maximization paradigm, must be critically examined for its relevance to marketing theory and practice in the 1990s. A new conception of marketing will focus on managing strategic partnerships and positioning the firm between vendors and customers in the value chain with the aim of delivering superior value to customers. Customer relationships will be seen as the key strategic resource of the business. .^ ., OR the past two decades, some subtle changes in the concept and practice of marketing have been fundamentally reshaping the field. Many of these changes have been initiated by industry, in the form of new organizational types, without explicit concern for their underlying theoretical explanation or justification. On the academic side, prophetic voices have been speaking (Amdt 1979, 1981, 1983; Thorelli 1986; Van de Ven 1976; Williamson 1975) but seldom heard because, representing several different disciplines, they did not sing as a chorus. More basically, perhaps, few listeners were ready to hear the message or to do the intellectual work necessary to pull the several themes together. Like the Peruvian Indians who thought the sails of Ihe Spanish...
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...ECO/365 Version 4 Principles of Microeconomics IndividualSupply and Demand Simulation | Complete the Supply and Demand Simulation located on the student website. Write 700 - 1,050-word paper of no more than summarizing the content. Address the following: Identify two microeconomics and two macroeconomics principles or concepts from the simulation. Explain why you have categorized these principles or concepts as macroeconomic or microeconomic. Identify at least one shift of the supply curve and one shift of the demand curve in the simulation. What causes the shifts? For each shift, analyze how it would affect the equilibrium price, quantity, and decision making. How may you apply what you learned about supply and demand from the simulation to your workplace or your understanding of a real-world product with which you are familiar? How do the concepts of microeconomics help you understand the factors that affect shifts in supply and demand on the equilibrium price and quantity? Relating to the simulation, explain how the price elasticity of demand affects a consumer’s purchasing and the firm’s pricing strategy.Format your paper consistent with APA guidelines. | Supply and Demand Simulation Supply and Demand is an economic model of price determination in a market and possibly one of the most fundamental concepts of economics. It is the backbone of a market economy. According to Colander, D. (2010) “Prices are...
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