Implications of Reichheld’s Virtuous Circle with Regards to Customer Relationship Management Essay

Introduction

In this essay, I am going to evaluate the implications of Reichheld et al.’s Virtuous Circle, sometimes colloquially referred to as closing the loop, with regards to Customer Relationship Management (CRM). I will also provide an example to illustrate my observations.

In today’s competitive world, perhaps the only way in which a firm can have an advantage over its competitors is though customer loyalty. Frederick Reichheld states that every five years a typical US company loses half of its customers. Companies should try to retain their existing customer base rather than spending only on attracting new customers. Increasing the number of loyal customers by 5 percent will translate into profitability of 25 to 100 percent. Loyal customers make repeat purchases and provide word-of-mouth referrals.

            Customer loyalty depends on providing satisfaction to not only the customers, but also to employees and partners who can positively or negatively impact customer relationships. Increased customer loyalty and repeat customers makes the employees’ jobs more profitable and provides more satisfaction to them. Satisfied employees are able to provide better customer service to customers. This results in a virtuous circle. A dissatisfied employee is not likely to provide good service to the customer. Thus, companies should invest in their employees as a part of their customer relationship programs (Customer Loyalty).

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            Employees who are given better training and resources are likely to remain at their jobs for a longer time. Increased customer contact, experience, and ongoing trainings will enable them to serve customers better, resulting in increased customer satisfaction and loyalty. This will make the virtuous circle stronger (Customer Loyalty).

            Let’s look at the example of Barclays Bank UK, with 14.5 million customers. The bank encourages enhanced interactions of staff and customers so that they have a pleasant visit. It has developed processes that are flexible to suit customer feelings. To achieve this, it has provided many opportunities for development to its staff. Staff are provided awards, perks, and trainings which has kept their turnover at 3%, less than the industry average of 50%. Employee retention has led to more loyal customers (Barclays Bank).

References

Customer Loyalty: The New Competitive Advantage. (August 2006). Retrieved August 3, 2008 from http://www.oracle.com/applications/crm/siebel/resources/customer-loyalty-white-paper.pdf

Barclay’s Bank: Case Study. Retrieved August 3, 2008 from http://www.fujitsu.com/uk/news/insights/s4b/23-customerloyalty-casestudies.html

 

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