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Is Customer Revenue a Good Predictor of Profitability?
Most firms treat customer revenue and customer profitability as synonymous. Revenue is a measure of purchase volume and, therefore, correlated to customer loyalty. As a result, firms tend to expend a great deal of effort on their highest-revenue customers. But revenue is typically not a good predictor of profitability. Some of the largest customers are the most unprofitable. As Professors Kaplan and Narayanan of the Harvard Business School observe: "A company cannot lose large amounts of money with small customers. It doesn't do enough business with a small customer to incur large (absolute) losses. Only a large customer, working in a particularly perverse way, can be a large loss customer. Large customers tend to be either the most profitable or the least profitable in the entire customer base. It is unusual for a large customer to be in the middle of the total profitability rankings."

There is no substitute for knowing the profitability of customers. Chasing revenue may expand market share, which is someŽtimes a valid strategy, as Apple discovered in its early battles with Microsoft, but it is definitely not a profit maximizing strategy—at least in the near term.

You can download excellent powerpoint slides on Marketing Strategy and Marketing Management HERE.

Is Customer Loyalty Easy to Measure?
There is no universally agreed-upon definition of loyalty. Instead, there are three popular underlying theories of customer loyalty, summarized here:

1. Loyalty is expressed as an attitudinal commitment that leads to a relationship with a brand.
2. Loyalty is defined as a pattern of repeat purchases.
3. Loyalty is a combination of attitude and behavior moderated by a customer's individual characteristics, circumstances, and/or the purchase situation.

Since there is no consensus on what loyalty is, there is no easy measurement system, although several have been proposed. And, as we are about to discover in our next debunked myth, industry and sector influence what is meant by customer loyalty.

Because loyalty enjoys many varied definitions and likely is influenced by many factors, the lack of any universal measure is understandable. How pundits could claim its easy measurement and not be challenged is unclear. Operationally, many firms have defaulted to the use of attitudinal measures to potentially identify loyal customers. A common approach is to use a combination of three questions claimed to identify loyal or secure customers.

The three questions measure:

1. Overall satisfaction with the brand.
2. Likelihood of repurchasing the brand.
3. Willingness to recommend the brand to others.

Customers exhibiting "top-box" scores on all three of these measures are considered loyal customers. Though used frequently, there are no published, empirical proofs of this system, especially relating scores to actual purchase behavior. And, note that the system is not only totally attitudinal but as administered in one questionnaire or interview is likely highly intercorrelated.

Is The Concept of Loyalty Same Across Industries and Sectors?
Perusing some of the more than. 40,000 books espousing customer loyalty as an appropriate business strategy, one would conclude that most firms operate in a high-involvement, high personal identity category similar to that of Harley Davidson. Such companies do exist, but the number of categories where people would consider tattooing a brand name onto their arm is quite small. Loyalty to a toothpaste brand is unlikely to result in customers becoming walking billboards.

The degree of customers' loyalty is strongly mitigated by the category in which a product competes. Attitudinal and relationship approaches to loyalty work, although they are not universally applicable. They work particularly well when customers are making high-risk or important decisions. Relationship approaches do not work particularly well, however, with low-risk, frequently purchased brands. And they rarely work when customers buy the product on impulse or as a means of seeking variety. These scenarios represent a substantial number of product categories.

Research shows that only a few brands have earned relationŽship status with their customers. A 2001 study of more than 40 brands in seven major categories found that only 35 percent of customers claimed to have a solid, growing relationship with any of the brands studied. So for all of the talk about customer relationship management, customers have not been overly impressed. Given the difference in the concept of loyalty across categories, it is easy to understand why.

Source :
Timothy L. Keiningham, Terry G. Vavra, Lerzan Aksoy and Henri Wallard, Loyalty Myths: Hyped Strategies That Will Put You Out of Businessand Proven Tactics That Really Work, . You can find this excellent book here