THE CUSTOMER PYRAMID: CREATING AND SERVING PROFITABLE CUSTOMERS Zeithaml, Valarie A.; Rust, Roland T.

; Lemon, Katherine N. California Management Review ummer!""#, Vol. $% &ssue $, '##( &nnovative servi)e )om'anies toda* re)ogni+e that the* )an su'er)harge 'rofits ,* a)-nowledging that different grou's of )ustomers var* widel* in their ,ehavior, desires, and res'onsiveness to mar-eting. .ederal /0'ress Cor'oration, for e0am'le, has revolutioni+ed its mar-eting 'hiloso'h* ,* )ategori+ing its ,usiness )ustomers internall* as the good, the ,ad, and the ugl*11,ased on their 'rofita,ilit*. Rather than mar-eting to all )ustomers in a similar manner, the )om'an* now 'uts its efforts into the good, tries to move the ,ad to the good, and dis)ourages the ugl*.2n#3 imilarl*, the )ustomer servi)e )enter at .irst 4nion, the si0th1largest ,an- in the 4. ., )odes )ustomers ,* )olor s5uares on )om'uter s)reens using a data,ase te)hnolog* -nown as 6/instein.6 7reen )ustomers are 'rofita,le and re)eive e0tra )ustomer servi)e su''ort while red )ustomers lose mone* for the ,an- and are not granted s'e)ial 'rivileges su)h as waivers for ,oun)ed )he)-s. 8roviding different servi)e to )ustomers de'ending on their 'rofita,ilit* is ,e)oming an effe)tive and 'rofita,le servi)e strateg* for firms li-e .ed/0, 4. . 9est, .irst 4nion, :allmar-, 7/ Ca'ital, ;an- of Ameri)a, and The Limited. These firms have dis)overed that the* need not serve all )ustomers e5uall* well11man* )ustomers are too )ostl* to do ,usiness with and have little 'otential to ,e)ome 'rofita,le, even in the long term. 9hile )om'anies ma* want to treat all )ustomers with su'erior servi)e, the* find it is neither 'ra)ti)al nor 'rofita,le to meet 2and )ertainl* not to e0)eed3 all )ustomers< e0'e)tations. .urther11and 'ro,a,l* more o,=e)tiona,le to 5ualit* +ealots11in most )ases it is desira,le for a firm to alienate or even 6fire6 at least some of its )ustomers. 9hile 5ualit* advo)ates ma* ,e offended ,* the notion of serving an* )ustomer in less than the ,est 'ossi,le wa*, in man* situations ,oth the )om'an* and its )ustomers o,tain ,etter value. 4nderstanding the needs of )ustomers at different levels of 'rofita,ilit*, and ad=usting servi)e ,ased on those differen)es, is more )riti)al to the enter'rise than has ,een 'reviousl* held. 'e)ifi)all*, in e0amining )ustomers ,* 'rofita,ilit*11and understanding the -e* elements of the )osts and revenues as'e)ts of the 'rofit e5uation11it is 'ossi,le to a)tuall* in)rease the )urrent and future 'rofita,ilit* of all )ustomers in the firm<s )ustomer 'ortfolio. The Customer 8*ramid is a tool that ena,les the firm to utili+e differen)es in )ustomer 'rofita,ilit* to manage for in)reased )ustomer 'rofita,ilit*. .irms )an utili+e this tool to strengthen the lin- ,etween servi)e 5ualit* and 'rofita,ilit* as well as determine o'timal allo)ation of s)ar)e resour)es. Com'anies )an develo' )ustomi+ed 'rodu)ts and servi)es that are more )losel* aligned with individual )ustomer<s underl*ing utilit* fun)tions, there,*

ena,ling the firm to )a'ture more value from levels of )ustomers, resulting in higher overall )ustomer 'rofita,ilit*. Beyond a General Relat on!" # $et%een Ser& 'e ()al ty and Pro* ta$ l ty 8rior to the #>>"s, the general lin- ,etween servi)e 5ualit* and 'rofita,ilit* was still ,eing 5uestioned, ,ut sin)e the earl* #>>"s, it has ,een 'ersuasivel* esta,lished.2n!3 The eviden)e to su''ort the lin-age )ame from a variet* of sour)es and is now )onvin)ing enough to lead e0e)utives to ,elieve that a 'ositive relationshi' does e0ist. The lin- was first esta,lished through industr*1wide, )ross1industr*, or )ross1fa)ilit* studies su)h as the 8&M 28rofit &m'a)t of Mar-et trateg*3 'ro=e)t, whi)h demonstrated a )orrelation ,etween 5ualit* and 'rofits a)ross ,oth manufa)turing )om'anies and servi)e )om'anies.2n%3 &n more re)ent studies, 5ualit* im'rovement and )ustomer satisfa)tion have ,een lin-ed to sto)- 'ri)e shifts, the mar-et value of the firm, and overall )or'orate 'erforman)e.2n$3 ;e)ause firms are managed at the individual level and not the industr* level, e0e)utives still )lamored for eviden)e that im'roved servi)e 5ualit* resulted in in)reased firm 'rofita,ilit*. A growing num,er of studies ,ear this out, showing that? + servi)e im'rovement efforts 'rodu)e in)reased levels of )ustomer satisfa)tion at the 'ro)ess or attri,ute level,2n@3 + in)reased )ustomer satisfa)tion at the 'ro)ess or attri,ute level leads to in)reased overall )ustomer satisfa)tion,2nA3 + higher overall servi)e 5ualit* or )ustomer satisfa)tion leads to in)reased ,ehavioral intentions, su)h as greater re'ur)hase intention,2nB3 + in)reased ,ehavioral intentions lead to ,ehavioral im'a)t, in)luding re'ur)hase or )ustomer retention, 'ositive word1of1mouth and in)reased usage,2n(3 and + ,ehavioral im'a)t then leads to im'roved 'rofita,ilit* and other finan)ial out)omes.2n>3 9hat is still missing in this resear)h eviden)e is the re)ognition that the lin,etween servi)e 5ualit* and 'rofita,ilit* )an ,e stronger if it is re)ogni+ed that some )ustomers are more 'rofita,le than others. ervi)e investments a)ross all )ustomer grou's will not *ield similar returns and are not e5uall* advantageous to the firm. Cifferent 'rofita,ilit* segments are li-el* to ,e sensitive to different servi)e em'hases and are li-el* to deserve different levels of resour)es. As a small num,er of 'rogressive )om'anies have dis)overed, the* )an ,e)ome more 'rofita,le ,* a)-nowledging the differen)e

in 'rofit 'otential among )ustomer segments, then develo'ing tailored a''roa)hes to serving them. T"e L , t! o* Trad t onal Se-,entat on The idea of identif*ing homogenous grou's of )ustomers, assessing these segments for si+e and res'onsiveness, and then more 're)isel* )reating offerings and mar-eting mi0es to satisf* them is not new. Traditional segmentation is most effe)tive when it leads to more 're)ise targeting that results in higher revenues or res'onsiveness to mar-eting 'rograms. :owever, traditional segmentation is not t*'i)all* grounded in -nowledge of the different 'rofita,ilit* of segments. To ,uild and im'rove u'on traditional segmentation, ,usinesses have ,een tr*ing to identif* segments11or, more a''ro'riatel*, 'rofita,ilit* tiers of )ustomers11that differ in )urrent andDor future 'rofita,ilit* to a firm. This a''roa)h goes ,e*ond usage segmentation ,e)ause it tra)-s )osts and revenues for grou's of )ustomers, there,* )a'turing their finan)ial worth to )om'anies. After identif*ing 'rofita,ilit* tiers, the firm offers 'rodu)ts, servi)es, and servi)e levels in line with the identified tiers. The a''roa)h has to date ,een effe)tivel* used 'redominantl* in finan)ial servi)es, retail firms, and ,usiness1to1,usiness firms ,e)ause of ,oth the amounts of data e0isting in those firms and the a,ilit* to asso)iate data with individual )ustomers. Ene e0am'le of an innovator in the field is ;an- Ene, whi)h re)ogni+ed that finan)ial institutions were grossl* over)harging their ,est )ustomers to su,sidi+e others who were not 'a*ing their -ee'. Cetermined to grow its to'1 'rofit )ustomers, who were vulnera,le ,e)ause the* were ,eing under1served, the ;an- im'lemented a set of measures to fo)us resour)es on their most 'rodu)tive use. The )om'an* used the data resulting from the measures to identif* the 'rofit drivers in this to' segment and sta,ili+ed their relationshi's with -e* )ustomers.2n#"3 &n another e0am'le, .irst Commer)e Cor'oration -new that )ustomer segmentation )ould im'rove the effe)tiveness of all of its o'erations. After dividing )lients into mutuall* e0)lusive grou's of individuals ,ased on demogra'hi)s, the )om'an* then identified the reasons for 'rofita,ilit* swings 2in)luding ,alan)es, 'rodu)t mi0, and transa)tion ,ehavior3. The firm then defined three uni5ue segments? the smart mone* segment, the small ,usiness segment, and the )onvenien)e segment. Tailoring its mar-eting efforts differentiall* to those segments made the )om'an*<s 'rograms far more effe)tive.2n##3 Cond t on! Ne'e!!ary *or C)!to,er T er!: An E,# r 'al E.a,#le &n our view, four )onditions are ne)essar* for )ustomer tiers to ,e used in a )om'an*.

+ Tiers have different and identifia,le 'rofiles. 8rofita,ilit* differen)es in )ustomer tiers are most useful when other varia,les )an identif* the tiers. As with )ustomer segmentation, it is ne)essar* to find wa*s in whi)h )ustomers var* a)ross tiers, es'e)iall* in terms of demogra'hi) )hara)teristi)s. These des)ri'tions )an hel' understand the tier<s )ustomers and identif* a''ro'riate mar-eting a)tivities. + Customers in different tiers view servi)e 5ualit* differentl*. Customers in different tiers )an also have different needs, wants, 'er)e'tions, and e0'erien)es. 4nderstanding the fa)tors that affe)t the )ustomer<s de)ision to 'ur)hase a new 'rodu)t or servi)e from an e0isting 'rovider as well as the fa)tors that affe)t the de)ision to in)rease the volume of 'ur)hases from an e0isting 'rovider are )ru)ial for managing )ustomers for 'rofita,ilit*. &f )ustomers in different tiers have different e0'e)tations or 'er)e'tions of servi)e 5ualit*, these differen)es will allow the )om'an* to offer different grou's of attri,utes to the tiers. + Cifferent fa)tors drive in)iden)e and volume of new ,usiness a)ross tiers. Cifferen)es in )hara)teristi)s, needs, wants, and definition of servi)e 5ualit* are li-el* to result in different drivers for the in)iden)e and volume of new ,usiness. &f this )ondition is met, a )om'an* )an target )ustomers that are li-el* to end u' in higher tiers. + The 'rofita,ilit* im'a)t of im'roving servi)e 5ualit* varies greatl* in different )ustomer tiers. Fust as dire)t mar-eters routinel* 5ualif* lists to test for 'otential 'rofita,ilit*, )om'anies need to 5ualif* their )ustomer tiers for 'otential 'rofita,ilit*. &f )ustomer tiers are a''ro'riate, the wa* )ustomers res'ond to servi)e and mar-eting should differ among tiers. :igher tiers should 'rodu)e a mu)h higher res'onse to im'rovements in servi)e 5ualit* that will ,e evident in in)reases in new ,usiness, volume of ,usiness and average 'rofit 'er )ustomer. Ta-en together, the dis'ro'ortionatel* greater res'onse to )hanges in servi)e 5ualit* in ea)h of these areas will result in an overall greater return on servi)e 5ualit* im'rovements for the higher tiers of )ustomers. An E,# r 'al Te!t o* t"e Cond t on! n a T%o/T er S t)at on Virtuall* all firms are aware at some level that their )ustomers differ in 'rofita,ilit*, in 'arti)ular that a minorit* of their )ustomers a))ounts for the highest 'ro'ortion of sales or 'rofit. This has often ,een )alled the 6("D!" rule611twent* 'er)ent of )ustomers 'rodu)e eight* 'er)ent of sales or value to the )om'an*. 9e re)entl* )ondu)ted an em'iri)al stud* to e0amine this sim'le 6("1!"6 s)heme. A ma=or 4. . ,an- 'rovided 'rofita,ilit* information a,out retail 'rodu)ts and )ustomer information files with des)ri'tive information in)luding average a))ount ,alan)e, average 'rofit from a))ount, and average age, gender, and in)ome. Cata on a random sam'le of B>A of these )ustomers were merged

with res'onses to a servi)e 5ualit* surve* from the same set of )ustomers. /ight months later, information regarding the amount of new ,usiness, in)luding ,oth the in)iden)e and volume of new ,usiness 2revenue from new a))ounts3, was added to the data file ,* e0amining ,ehavior following the surve*. &n this wa*, servi)e 5ualit* measures )ould ,e used to 'redi)t future ,ehavior using a )ross1se)tional, time1series a''roa)h. De,o-ra#" ' D **eren'e! 9e e0amined differen)es in )ustomer des)ri'tive statisti)s, servi)e 5ualit* 'er)e'tions, drivers of in)iden)e of new ,usiness, and drivers of volume of new ,usiness a)ross tiers using various statisti)al anal*ses.2n#!3 9e also 'ro=e)ted ,oth the in)rease in the 'er)entage of )ustomers who would o'en a new a))ount and the in)rease in the average a))ount ,alan)e. Multi'l*ing the 'ro=e)ted average a))ount ,alan)e ,* the average 'rofit 'er a))ount ,alan)e for ea)h tier *ielded an estimate for the 'ro=e)ted in)rease in average 'rofit 'er a))ount. Multi'l*ing that ,* the num,er of a))ounts *ielded the total 'ro=e)ted new 'rofits from ea)h tier. 9e then divided the )ustomer ,ase into two )ustomer tiers? the most 'rofita,le !"G 2to' !"G3 and the least 'rofita,le ("G 2lowest !"G3. The results met all the )onditions des)ri,ed a,ove. .irst, )ustomers in different 'rofita,ilit* tiers had different )ustomer )hara)teristi)s. The to' tier had a higher 'er)entage of women than the lower tier, an average a))ount ,alan)e a,out five times as ,ig, and average 'rofit a,out #( times as mu)h. The to' !"G was also older than the lowest !"G, had more u''er1in)ome )ustomers, and had far fewer lower1in)ome )ustomers. The to' !"G 'rodu)ed more 'rofit 'er volume of ,usiness, with an average 'rofit 'er a))ount ,alan)e of !.@%G, versus ".B#G for the lowest !"G. .inall*, the to' !"G 'rodu)ed (!G of the ,an-<s retail 'rofits, an almost 'erfe)t )onfirmation of the ("D!" rule in this 'rofit setting. V e%! o* Ser& 'e ()al ty e)ond, )ustomers in different tiers viewed 5ualit* differentl*. The to' !"G viewed servi)e 5ualit* in terms of three fa)tors? attitude, relia,ilit*, and s'eed. ;* )ontrast, the lower !"G had a less so'histi)ated view of servi)e 5ualit*, viewing servi)e as onl* two fa)tors, attitude and s'eed, with slightl* different inter'retations of the fa)tors. The relia,ilit* fa)tor was not a driver for the lowest !"G. A 'arti)ularl* )om'elling finding emerged from these data. 9hen we )om,ined all )ustomers into a single grou', all a''ear to want the same fa)tors and the fa)tors meant the same thing to ,oth grou's. The im'ortant insight here is that ,lending )ustomer tiers resulted in an im're)ise view of what servi)e 5ualit* meant to the )ustomer ,ase. Dr &er! o* In' den'e and Vol),e o* Ne% B)! ne!!

Third, we found that different tiers had different drivers of in)iden)e and volume of new ,usiness. in)e we measured what )ustomers did after the* re'orted what was im'ortant to them, we )a'tured what a)tuall* drove )ustomers to ma-e 'ur)hases, rather than what the* thought would ma-e them do so. .or the to' !"G, s'eed was -e* to driving in)iden)e of new ,usiness whereas attitude was the -e* driver for the lower tier. As ,efore, anal*+ing the entire )ustomer ,ase as a single grou' would have ,een misleading. ;oth the )om,ined attitudeD relia,ilit* fa)tor and the s'eed fa)tor were -e* drivers for the grou' as a whole, ,ut the )om,ined anal*sis would not reveal the fa)t that different strategies should ,e used for different 'rofita,ilit* levels. Pro* ta$ l ty I,#a't .inall*, the 'rofita,ilit* im'a)t of im'roving servi)e 5ualit* varied greatl* in different )ustomer tiers. An a)ross1the1,oard servi)e 5ualit* im'rovement of the -e* drivers 2a''ro0imated ,* a ".# in)rease in average satisfa)tion with ea)h driver in ea)h tier3 resulted in a 'ro=e)ted %.A@G in)rease in in)iden)e of new a))ounts in the to' !"G, ,ut onl* a !.""G in)rease in the Lower tier. This result suggests that the To' !"G was almost twi)e as res'onsive to the )hanges in servi)e 5ualit* than the lowest !"G. 9hen e0amining the 'ro=e)ted in)rease in average a))ount ,alan)e, the results were even more en)ouraging. The 'ro=e)ted in)rease in average a))ount ,alan)e was HA.#> in the to' !"G, ,ut a meager H".A> in the Lower tier. :ere, the To' !"G a''eared to ,e almost #" times as res'onsive to )hanges in servi)e 5ualit*. .inall*, the 'ro=e)ted in)rease in average 'rofit 'er )ustomer was #@.B )ents in the to' !"G, ,ut ".@ )ents in the lowest !"G. Again, the to' !"G 'rovided a su,stantiall* greater return on the servi)e 5ualit* im'rovement. Ef 'arti)ular interest was that simultaneous im'rovement of the -e* drivers for ,oth tiers 'rodu)ed a 'ro=e)ted (>G of the new 'rofits in the to' !"G, while onl* ##G of the new 'rofits )ould ,e attri,uted to the lower !"G. This was an even higher 'er)entage than the )urrent 'er)entage. T"e Need *or More T er! The 6("D!"6 two1tier s)heme that man* )om'anies use assumes that )onsumers within ea)h of the two tiers are similar to ea)h other. 9e )ontend, however, that this 6,est6 and 6rest6 )ustomer division is rarel* suffi)ient. Fust as we showed a,ove the dangers in )om,ining data from two tiers11the results were muddied and the average did not re'resent either tier well11we )ontend that the la)- of distin)tion among the 6rest6 of the levels misses im'ortant differen)es in )onsumers. &n the two1tier anal*sis we )ondu)ted and in the strategies of )om'anies that distinguish onl* ,etween two grou's, the )ustomers in the large lower tier are indistinguisha,le from ea)h other. This li-el* mas-s differen)es in demogra'hi)s, 'er)e'tions and e0'e)tations of servi)e 5ualit*, drivers of new ,usiness, and the 'rofita,ilit* im'a)t of im'roving servi)e 5ualit*. 'e)ifi)all*,

if we had o,served the demogra'hi) differen)es a)ross four tiers, rather than two, we would most li-el* have seen that the lower the tier, the *ounger the )ustomer and the lower the average a))ount ,alan)e. Man* ,an-s reali+e that their least 'rofita,le )ustomers are students who have no in)ome and are e0'ensive to serve ,e)ause the* ,oun)e )he)-s and re5uire e0tra handling. &n the two1tier s)heme a,ove, however, this grou' was not e0'li)itl* arti)ulated and we therefore )annot tell the differen)e ,etween them and the rest of the ("G. .urthermore, in our e0am'le we )annot tell whether this lowest1tier grou' views 5ualit* differentl*. ;an-s are )oming to understand that )onvenien)e is the )riti)al fa)tor drawing the *oungest )ustomers to ,an-s. .ortunatel*, a ,an- that -nows this need fo)us onl* on that element of 5ualit* with that segment, there,* redu)ing )osts that would ,e s'ent if the* were grou'ed into the rest of the ("G who also wanted the attitude fa)tor. 9e might also have o,served differen)es in drivers and in)iden)e of new ,usiness, and11most im'ortantl*11in the 'rofit im'a)t of investing in different tiers. Most )om'anies reali+e that their )ustomer set is heterogeneous ,ut 'ossess neither the data nor the anal*ti) )a'a,ilities to distinguish the differen)es. 9e suggest that it is highl* worthwhile to do so, and to distinguish more than =ust the traditional two levels of )ustomers. T"e C)!to,er Pyra, d Large data,ases and ,etter anal*ti)s are li-el* to reveal greater distin)tion among the tiers. En)e a s*stem has ,een esta,lished for )ategori+ing )ustomers, the multi'le levels )an ,e identified, motivated, served, and e0'e)ted to deliver differential levels of 'rofit. &n this se)tion, we illustrate a framewor- )alled the Customer 8*ramid 2see .igure #3 that )ontains 2for 'ur'oses of illustration3 four levels. 9hile different s*stems and la,els )an ,e useful, our framewor- in)ludes the following four tiers. + The 8latinum Tier des)ri,es the )om'an*<s most 'rofita,le )ustomers, t*'i)all* those who are heav* users of the 'rodu)t, not overl* 'ri)e sensitive, willing to invest in and tr* new offerings, and are )ommitted to the firm. + The 7old Tier differs from the 8latinum Tier in that 'rofita,ilit* levels are not as high, 'erha's ,e)ause the )ustomers want 'ri)e dis)ounts that limit margins. The* might not ,e as lo*al to the firm even though the* are heav* users in the 'rodu)t )ategor*11the* might minimi+e ris- ,* wor-ing with multi'le vendors rather than =ust the fo)al )om'an*. + The &ron Tier )ontains )ustomers that 'rovide the volume needed to utili+e the firm<s )a'a)it* ,ut whose s'ending levels, lo*alt*, and 'rofita,ilit* are not su,stantial enough for s'e)ial treatment.

+ The Lead Tier )onsists of )ustomers that are )osting the )om'an* mone*. The* demand more attention than the* are due given their s'ending and 'rofita,ilit*, and the* are sometimes 'ro,lem )ustomers11)om'laining a,out the firm to others and t*ing u' the firm<s resour)es. Note that this )lassifi)ation is ver* different from usage segmentation done ,* airlines su)h as Ameri)an Airlines ,e)ause it is ,ased on numerous varia,les other than sales that are res'onsi,le for 'rofita,ilit* of the tiers. The s'e)ifi) fa)tors var* a)ross industries, ,ut the Customer 8*ramid is a ri)h and ro,ust )on)e't a)ross most industries and )ategories. .or e0am'le, it )an ,e used su))essfull* ,* )om'anies selling dire)tl* to )onsumers, to intermediaries 2su)h as retail, wholesale and 'rofessional )hannels of distri,ution3, and to other ,usinesses. Plat n), t"ro)-" Lead n t"e Reta l Real E!tate Ind)!try A to'1twent* real estate and relo)ation fran)hiser has identified the varia,les that a))ount for 'rofita,ilit* in the retail housing mar-et. &n addition to the )ost of the home 2for whi)h the fran)hiser and the ,ro-er share a AG )ommission3, other varia,les in)lude? + the amount of time it ta-es to ,u*Dsell a home 2whi)h re'resents the o''ortunit* )ost of time and other )ommissions to the realtor3; + mar-eting )osts 2,ro)hures, o'en houses, advertisements3; + )ustomer motivation to 'ur)haseDsell 2es'e)iall* high with relo)ations3; + 'ri)e sensitivit* of ,u*ers, whi)h ma* lead them to negotiate a lower rate with the realtor; + li-elihood of re'ur)hase; and + referral 'otential. ;ased on these fa)tors, the )om'an* defined its 8latinum )ustomers as those who? 'a* full )ommission on a home )osting H@"",""" or more; are motivated to 'ur)hase within the ne0t si0 months; have 'ur)hased more than two homes in the 'ast; and are mem,ers of so)ial or 'rofessional networ-s that ma-e them )andidates to refer other high1end ,u*ers. 7old )ustomers 'ur)hase homes in the H!@","""1HA"",""" range ,ut are more 'ri)e sensitive than the to' tier. .or e0am'le, some 7old )ustomers want to negotiate on the )ommission or have the realtors 'a* 'oints at )losing. Noti)e that some of these )ustomers ,u* homes that are in the same 'ri)e range as 8latinum )ustomers ,ut their 'ri)e sensitivit* redu)es their 'rofita,ilit*. 7old )ustomers are li-el* to refer others, ,ut the t*'es of )ustomers to ,e referred will are not as valua,le to the firm as those the 8latinum )ustomers refer.

&ron )ustomers ,u* homes in the H#"","""1H!@",""" range, and in)lude retirees, *oung 'rofessionals, and families. The )om'an* -nows that the *oung 'rofessionals have higher lifetime value 'otential and therefore mar-et to them differentl* than the* mar-et to others in this grou', who are li-el* to sta* in the homes the* ,u*. &n fa)t, *oung 'rofessionals who 'ur)hase homes at the u''er end are tagged as 'otential 7old )ustomers and moved to that )ategor* a''ro0imatel* five *ears after the 'ur)hase of a home 24. . )onsumers move, on average, ever* five *ears3. Man* &ron )ustomers are relo)ations from other areas and are 'ressed to ,u* homes 5ui)-l*, ma-ing them good 'ros'e)ts for the )om'an* des'ite home 'ri)es that are lower than the to' two tiers. Lead )ustomers are high maintenan)e )ustomers who are sho''ers rather than ,u*ers. ome Lead )ustomers s'end as long as two *ears loo-ing at homes, )alling u'on realtors to show them homes when the* have free time 2man* realtors )om'lain a,out the 6m*1hus,and1is1wat)hing1 foot,all6 aturda* sho''er, who is merel* loo-ing to ,e entertained rather than to ,u*3. 9hile the* might ,e loo-ing at homes in all 'ri)e ranges, the homes the* ,u* are li-el* to ,e under H#"",""". These )lients are often dissatisfied with what the* see, ma-ing them less li-el* than other tiers to send 5ualified referrals to the )om'an*. 9hile the real estate )om'an* is still refining the )riteria for the tiers. The* view the sorting into levels as invalua,le in 5ualif*ing )urrent and 'otential )lients, and are develo'ing different 'rograms for rea)hing and serving them differentiall*. The* have re)entl* develo'ed an 6e0'e)tations assessment tool6 that attem'ts to de)ide the a''ro'riate )ustomer tier u'on ma-ing the )ontra)t with the ,u*er or seller. D **erent at n- B)! ne!! C)!to,er! n t"e Mar0et n- Re!ear'" Ind)!try Ene of the most res'e)ted mar-eting resear)h firms in the )ountr* learned in the mid1nineties that it didn<t 'a* to treat all )lients ali-e. &n addition to a,solute dollar amount )lients s'ent, the* )ould ,e differentiated on a num,er of other fa)tors, nota,l* the willingness to ,e a resear)h 'artner and )ommit to an annual ,udget. .irms that were willing to do so re5uired ver* low selling )osts while firms that ,ought resear)h on a 'ro=e)t1,*1'ro=e)t ,asis re5uired selling )osts as high as !@G of the sales dollars the* ,rought in. 8latinum )ustomers for this firm were defined as large a))ounts that were willing to 'lan a )ertain amount of resear)h during the *ear. The timing and nature of this resear)h )ould ,e anti)i'ated, ma-ing it eas* for the resear)h firm to smooth su''l* and demand. The 8latinum )lients tended to sta* with the )om'an* and were willing to tr* new servi)es and a''roa)hes develo'ed ,* the resear)h firm. Therefore, the* ,ought a)ross resear)h servi)e t*'es 2e.g., field and ta, servi)es, statisti)al studies, e0'lorator* studies3 and had minimal sales )osts averaging onl* !1@G. ;est of all, the* were willing to serve as referen)es for the firm, allowing the firm to give their names to new )lients wanting re)ommendations a,out the )om'an*. The* were lo*al to the firm

and used other mar-eting resear)h )om'anies onl* when the* needed something the firm )ould not 'rovide. 7old )ustomers had similar 'rofiles e0)e't that the* were more 'ri)e sensitive, in)lined to s'read their resear)h ,udgets a)ross several firms. 9hile the* were large a))ounts and had ,een )ustomers for multi'le *ears, the* were not willing to 'lan for a *ear in advan)e even though the mar-eting resear)h firm would give them ,etter 5ualit* if the* did. The* 'rovided referrals ,ut on an ad ho) ,asis. &ron )ustomers were moderate s'enders and )ondu)ted resear)h on a 'ro=e)t ,asis, sending out re5uests1for1'ro'osals whenever the* were )ondu)ting studies. The* were loo-ing for the lowest 'ri)e and often did not allow suffi)ient time to 'erform the =o,s. ;e)ause the* had no overall 'lan, 'ro=e)ts )ame in at an* time, sometimes in the off season 2whi)h hel'ed the firm use their )a'a)it*3 ,ut sometimes during 'ea- season 2whi)h )reated diffi)ulties in allowing the firm to servi)e its ,est )ustomers well3. elling )osts were high ,e)ause the firm )ontinuall* -e't in 'ersonal and mail )onta)t ho'ing to move these &ron )ustomers u' the 8*ramid. Lead )ustomers s'ent little on resear)h, )ondu)ted isolated 'ro=e)ts that were usuall* of a 65ui)- and dirt*6 nature. elling )osts were highest in this grou', for most advertising and almost all s'e)ulative 'resentations were targeted to these a))ounts and sales'eo'le had to s'end multi'le visits to get them. .urthermore, on)e the* ,e)ame )lients, Lead )ustomers were 6high maintenan)e6 )lients that )ost the firm mone* ,e)ause the* didn<t understand the 'ro)ess of resear)h. The* often )hanged 'ro=e)ts mid1stream and e0'e)ted the firm to a,sor, the )osts. Re'o-n 1 n- t"e D **eren'e! a,on- Do'tor! 8harma)euti)al )om'anies de'end on do)tors to 'res)ri,e their ,randed drugs over )om'etitive or generi) drugs. Rarel* do end )onsumers ma-e these de)isions for themselves. .a)ed with environmental threats su)h as :MEs, hos'ital 'ur)hasing allian)es, and 'harma)* )onsortiums11all of whi)h lowered 'harma)euti)al 'rofits11a ma=or 'harma)euti)al firm strove to redu)e its )osts and im'rove the effi)ien)* of its mar-eting. The first ste' it too- was to re)ogni+e through )areful anal*sis that all do)tors were not e5uall* 'rofita,le )ustomers. The )om'an* de'arted from industr* 'ra)ti)e and ,egan to view 'h*si)ians as long1term strategi) assets and thereafter targeted them ,ased on 'otential 'rofita,ilit* a)ross the )om'an*<s drug 'ortfolio 2rather than on )urrent sales within a single thera'euti) )ategor*3. &n addition to the )ross1'rodu)t fo)us, the firm also was a,le to )al)ulate with some degree of a))ura)* the selling )osts 'er 'h*si)ian 2e.g., H#!@ for a )all from a sales re'resentative, H!@ for 'rodu)t sam'les, H@ for share of advertising materials3. The -e* in'uts to their anal*sis were?

+ the volume of 'res)ri'tions a 'arti)ular 'h*si)ian generated 2measured ,* data from a sour)e )alled 9alsh Ameri)a, whi)h )a'tures 'h*si)ian1level 'res)ri,ing data at the retail 'harma)* level3; + value of a 'res)ri'tion 2from a sour)e )alled &M Ameri)as3; + )ost of a sales )all; + )ost of 'rodu)t sam'les; + 'rodu)t gross margins, re,ates, and dis)ounts. Mar-et growth rates and share fore)asts were 'rovided ,* the mar-eting de'artment. Two other varia,les 'er)eived ,* sales'eo'le were also fa)tored in11the 'h*si)ian<s )a'a,ilit* of having an im'a)t on a territor* through word of mouth )ommuni)ation, and the 'h*si)ian<s 'er)eived res'onsiveness to sales efforts. 8otential 'rofit )al)ulations were made for all 'h*si)ians, and then these )al)ulations were used to sort the do)tors into tiers. The to' tier )onsisted of the do)tors most li-el* to give the greatest return on the )om'an*<s sales investment. Contri,ution margins for the 'h*si)ians were highest in this grou' and )osts were low enough that 'rofits e0)eeded that of the other grou's. &m'ortantl*, these were 'h*si)ians who were willing to see sales re'resentatives 2and thus were 6sales sensitive63. Enl* #"G of the 'h*si)ians fell into this to' tier. The 7old 'h*si)ians were high1'rofit 'h*si)ians that were relativel* ina))essi,le, either ,e)ause the* were unres'onsive to sales efforts, at the end of their )areers 2hen)e their 'otential was not as high3 or lived in geogra'hi)all* distant areas. 9hile this grou' a))ounted for almost %@G of 'h*si)ians, the )om'an* did not allo)ate sales'eo'le to them ,e)ause of the low 'a*,a)-; instead, the* handled this grou' through mar-eting efforts using the tele'hone or mail. ;e)ause the mar-eting a''roa)hes were less e0'ensive than 'ersonal selling, the 'rofit margins were sometimes )lose to those of 8latinum do)tors although the sales volumes were lower. Co)tors in the 8latinum and 7old level tended to ,e the influen)ersDo'inion leaders among their 'eers. The &ron do)tors were new 'h*si)ians that were vital to the future of the )om'an*. T*'i)all*, the* were evaluated as su)h ,ased on =udgments of their sales re'resentatives. &f the re'resentatives thought the do)tors had 'otential to influen)e others or would ,e res'onsive to sales efforts, the* were )lassified as &ron. &f not, the* were )lassified as Lead. ales managers reviewed the )lassifi)ation of the two lower grou's on an annual ,asis to assure that sales'eo'le were a))urate in their assessments. The )om'an*<s efforts to target 'h*si)ians 'aid off 5ui)-l*. ales'eo'le from territories high in 8latinum do)tors tended to have ,onuses #"1!@G higher than average, while those from territories heav* with Lead )ustomers re)eived ,onuses $1BG ,elow average. 8rior to the targeting, the ,onus s'read was

signifi)antl* smaller11than !1@G higher in 8latinum and less than #G ,elow average in the Lead grou'. 2"en S"o)ld a F r, U!e t"e C)!to,er Pyra, d3 .rom the firm<s 'oint of view, the Customer 8*ramid is desira,le whenever the )om'an* has )ustomers that differ in 'rofita,ilit* ,ut is delivering the same levels of servi)e to all )ustomers. &n these situations, the firm is using limited resour)es to stret)h a)ross a wide grou' of )ustomers, 'ossi,l* under1serving its ,est )ustomers. &n ea)h of the following )onditions, it ma-es finan)ial and 'ra)ti)al sense to im'lement the Customer 8*ramid a''roa)h. + 9hen servi)e resour)es, in)luding em'lo*ee time, are limited. Ene of the most im'ortant reasons for as)ri,ing to the Customer 8*ramid is to 'revent the undesira,le situation in whi)h a )om'an*<s ,est )ustomers do not o,tain the servi)e the* re5uire ,e)ause the )om'an* is e0'ending too mu)h time and effort on its least 'rofita,le )ustomers. A restaurant would not want to fill u' all its ta,les with students 'ur)hasing )offee with endless refills when )ustomers who 'ur)hase sou'1to1dessert dinners are -e't waiting. 9henever an* resour)e, su)h as em'lo*ee time, is limited, a firm must identif* the ,est use of the limited resour)e. This situation o))urs fre5uentl* in 'rofessional servi)es su)h as )onsulting, a))ounting, advertising, and ar)hite)tural design. A firm has onl* so mu)h 'rofessional time availa,le and its allo)ation must ,e done )arefull* so that the ,est )ustomers are not -e't waiting for their =o,s while smaller and less 'rofita,le )ustomers are served. + 9hen )ustomers want different servi)es or servi)e levels. &n man* industries, 'arti)ularl* those with high te)hnolog* or information te)hnolog* offerings, )ustomers have divergent re5uirements and a'titudes for servi)e. Ene tele'hone )om'an*, for e0am'le, viewed its ,usiness )ustomers as ,eing )om'rised of three grou's? so'histi)ated C&Es who wanted to )onfigure their own s*stems and needed minimal servi)e assistan)e from the vendor; middle managers of large firms who wanted to 'ur)hase )om'le0 s*stems ,ut needed )onsidera,le )onsulting to develo' the ,est )onfiguration; and C/Es of small firms who wanted sturd*, )om'etent s*stems that were eas* to understand and that in)luded ,asi) maintenan)e servi)e. The three de)ision ma-ers had )om'letel* different re5uirements; treating them with the same levels of servi)e at the same high 'ri)e would not onl* ,e ineffi)ient, ,ut ineffe)tive as well. erving these different )ustomers involves widel* different )osts that are wasted if all )ustomers are treated the same wa*. + 9hen )ustomers are willing to 'a* for different levels of servi)e. 8a)-age deliver* servi)es su)h as .ederal /0'ress )harge var*ing rates ,ased on the t*'e of deliver* and the s'eed with whi)h a 'a)-age is delivered. The different t*'es of deliver* in)lude e0'ress 'a)-age servi)e 2under #@" 'ounds3, e0'ress freight servi)e 2over #@" 'ounds3, .ed/0 Letter, .ed/0 8a-, .ed/0 ;o0, and .ed/0 Tu,e, all of whi)h have different 'ri)es asso)iated with them. 'eeds of deliver* in)lude .ed/0 8riorit* Evernight, .ed/0 tandard

Evernight, and .ed/0 !1da*, ea)h with different 'ri)es. A )ustomer )an also 'ur)hase aturda* deliver* and s'e)ial handling11as e0'e)ted11at additional )ost. Customer sensitivit* to these different servi)es is high, leading to a willingness to 'a* )onsidera,l* more or less de'ending on the desired deliver* and s'eed. + 9hen )ustomers define value in different wa*s. Customers define value in one of four wa*s? value is low 'ri)e; value is whatever a )ustomer wants in a 'rodu)t or servi)e; value is 5ualit* divided ,* 'ri)e; and value is all that a )ustomer gets for all that he or she gives.2n#%3 &n addition to monetar* 'ri)e, )ustomers also )onsider non1monetar* 'ri)es su)h as time, effort, )onvenien)e, or 's*)hi) )osts. 9hen a servi)e )om'an* has )ustomers with all of these definitions of value, tiers of servi)e )an ,e designed to )a'ture the ,est finan)ial returns for the )om'an* de'ending on what the )ustomer e0'e)ts in terms of value. 8erha's the first value definition 2value is low 'ri)e3 would )over the )om'an*<s lowest level or Lead )ustomers; this segment would ,e willing to a))e't less in e0)hange for 'a*ing less. Customers with the se)ond value definition 2value is whatever & want in a 'rodu)t or servi)e3 might ,e 8latinum )ustomers ,e)ause the* are not 'ri)e sensitive. &f their needs mesh with high1margin servi)es the firm )an 'rovide, ,oth ,u*er<s and seller<s needs are met. &n ,etween these two levels fall the 7old and &ron segments with value definitions that are ,oth servi)e1 and 'ri)e1sensitive, leading them to ,e more 'rofita,le than the Lead tier ,ut less 'rofita,le than the 8latinum tier. + 9hen )ustomers )an ,e se'arated from ea)h other. .irms are and should ,e sensitive to the fa)t that )ustomers in the lower tiers of the '*ramid will ,e angr* if the* see other )ustomers re)eiving ,etter treatment than the* re)eive. 4nless the reason is readil* a''arent for servi)e differentials 2su)h as a #@G dis)ount for seniors at a restaurant3, the )ustomers in different )ategories should not -now that those in other tiers are viewed as different or are re)eiving different levels of servi)e. As an e0am'le, tele'hone )om'anies su)h as ATIT now have state1of1the1art )ustomer servi)e )enters that )an immediatel* identif* whi)h tier )ustomers fit in when their )all )omes in to the )ustomer servi)e )enter. These automati) s*stems immediatel* route )ustomer )alls to different )enters ,ased on the value of the )ustomer to the )om'an*. En)e there, servi)e standards su)h as length of time s'ent on a )ustomer )all differ de'ending on the tier of )ustomer. + 9hen servi)e differentials )an lead to u'grading )ustomers to another level. En the other hand, there are su,stantial ,enefits in some servi)es for )ustomers )learl* seeing what other )ustomers re)eive. .or e0am'le, main )a,in airline )ustomers note that the servi)es in the first1)lass )a,in are ,etter than what the* re)eive ,ut the differen)e is su,stantiated ,* the o,vious fa)t that those )ustomers 'aid more for their seats. Another reason wh* )ustomers are in first )lass is that the* re)eive )om'limentar* u'grades for ,eing fre5uent travelers. Armed with this -nowledge, otherwise non1lo*al airline

travelers ma* ,e motivated to )onsolidate their airline tri's on a s'e)ifi) airline to ,e a,le to ta-e advantage of these ,enefits. + 9hen the* )an ,e a))essed either as a grou' or individuall*. The traditional mar-eting strategies of 'rodu)t, 'ri)e, 'romotion, and 'la)e need to ,e ada'ted for the different tiers. &nstead of viewing the mar-et as a uniform grou' of )ustomers with similar 'otential, the firm needs to view them as distin)t grou's with differing 'otential. At its ,est, this means develo'ing different mar-eting strategies for ea)h tier, es'e)iall* different strategies for 'ri)e and offering. To do so, the firm must ,e a,le to a))ess the )ustomers sele)tivel*. C)!to,er Al'"e,y Customer al)hem* is the art of turning less 'rofita,le )ustomers into more 'rofita,le )ustomers. &t )an ta-e 'la)e at an* tier along the Customer 8*ramid, ,ut is more diffi)ult at some levels than at others. .or e0am'le, it is ver* diffi)ult to move Lead )ustomers u' to 7old or 8latinum tiers, and it is often ne)essar* to 6get the Lead out6 rather than tr* to move those )ustomers u'. &f the de)ision is made to -ee' Lead )ustomers, the strategies used are t*'i)all* different than those used at other tiers. T)rn n- Gold nto Plat n), The most im'ortant re5uirement for turning 7old )ustomers into 8latinum )ustomers is to full* understand them and their individual needs. 9ith an industrial or ,usiness1to1,usiness firm and a dedi)ated sales for)e, this need is often met ,e)ause the sales'erson -nows the ,usiness well enough to sta* )onstantl* in tou)h with the )lient and to anti)i'ate his or her needs. This )ustomer intima)*, when effe)tive, allows the )om'an* to move the )ustomer to a higher tier ,e)ause the firm )an develo' offerings that satisf* the )lient<s needs, identif* e0isting wa*s to serve the )lient ,etter, and )ommuni)ate in the right wa* at the right times to )lients. 9hen a )om'an* has a larger num,er of )ustomers, the 'ro)ess of turning 7old into 8latinum ma* seem more daunting ,ut still involves the same ,asi) foundation? ,uilding information 'rofiles of )ustomers that form the ,asis for ,e)oming a full1servi)e 'rovider of whatever the firm )an offer. ;uilding these 'rofiles ma* involve )olle)ting and )onsolidating e0isting information a,out the )ustomer<s histor* with the firm, in)luding usage and )ustomer satisfa)tion information. Alternativel*, 'rofiles ma* involve )ondu)ting ver* individuali+ed )ustomer resear)h su)h as 'ersonal interviews or )ustomer e0'e)tation sessions. Enl* when )om'an* full* understands its 7old )ustomers )an it design strategies to turn them into 8latinum )ustomers. The following strategies are re)ommended for turning 7old )ustomers into 8latinum )ustomers.

Be'o,e a F)ll/Ser& 'e Pro& der :ome Ce'ot, the 4. . hardware giant, has a strateg* for ma-ing its good 27old3 )ustomers into great 28latinum3 )ustomers. The highl* su))essful hardware su'erstore, whi)h sells to virtuall* all levels in the Customer 8*ramid, has a new strateg* for two grou's of high 'otential )ustomers11 traditional )ustomers who want to ma-e ma=or home renovations and housing 'rofessionals su)h as managers of a'artment and )ondominium )om'le0es and hotel )hains. Together, these grou's s'end a,out H!#A ,illion ever* *ear and :ome Ce'ot wants )ustomers to s'end all of it in its stores ,* ,e)oming a full1servi)e 'rovider, offering ever*thing these )ustomers )ould 'ossi,l* need to do their =o,s. The )ornerstone of its strateg* is the )reation of /0'o Cesign Centers. The design )enters not onl* show off the e0'anded line of 'h*si)al 'rodu)ts the )om'an* offers ,ut )onfigure the 'rodu)ts into finished and 'olished showrooms. Rather than =ust having row u'on row of nails, hammers, and tile, the store is )reating a show'la)e for u's)ale renovation, in)luding )om'lete -it)hens with state1of1the1art a''lian)es, finished ,aths, and anti5ues.2n#$3 /0'o is a one1sto'1sho''ing lo)ation for ma=or renovations, whi)h usuall* re5uire homeowners to assem,le a grou' of )ontra)tors and designers, then ma-e se'arate tri's to ,u* tiles, materials, dra'es, a''lian)es, and the li-e. All of these are now availa,le at an /0'o, ma-ing it unne)essar* for a mem,er of their target segments to ,u* from an* other store to do their renovations. &ndustr*1)ertified designers and 'ro=e)t managers oversee the entire 'ro=e)t from ,eginning to end, ma-ing even general )ontra)tors e0'enda,le. 9ith this strateg*, 7old )ustomers ,e)ome 8latinum )ustomers, getting ever*thing the* want from their full1servi)e su''lier, :ome Ce'ot. Pro& de O)t!o)r' nEne of the ,est e0am'les of moving )ustomers from 7old to 8latinum levels involves outsour)ing, ta-ing on an entire fun)tion that a )ustomer firm used to 'erform for itself and 'roviding it for them. .rom 'a*roll and a))ounting to 'ersonnel and even strateg*,2n#@3 outsour)ing firms are doing for their )lients what is either too )ostl* or s'e)iali+ed for them to do themselves. &n these situations, the nonmonetar* )osts to the )lient firms of engaging in these a)tivities redu)e their a,ilit* to 'erform their )ore )om'eten)ies. The effort involved, for e0am'le, in sta*ing a,reast of new information te)hnolog*, maintaining s*stems, fi0ing hardware and software 'ro,lems, and -ee'ing 5ualified staff all ,e)ome an interferen)e with the firm<s true 'ur'ose. &n these and other )ases of outsour)ing, a su''lier firm )an 'erform these fun)tions for a )ustomer, there,* t*ing the )ustomer to the organi+ation and ma-ing the )ustomer<s ,usiness 'redi)ta,le, in)reasing their value to the )om'an*. In'rea!e Brand I,#a't $y L ne E.ten! on!

9omen<s )lothing is an area where few )om'anies 6own6 )ustomers in the sense that )ustomers ,u* 'redominantl* one ,rand and would therefore ,e )onsidered 68latinum6 )ustomers. Li+ Clai,orne, the world<s largest women<s a''arel ma-er and mar-eter, however, has )hanged this )ustomer ,ehavior in its -e* segments. The )om'an* ,onded with the female ,a,* ,oom generation, ,eing one the first )om'anies to target them and trul* understand them and their needs. Re)ogni+ing that ,a,* ,oomers were a 'h*si)all* fit generation that didn<t want to a''ear to age, the )om'an* )reated )lothing that allowed )ustomers to )ontinue to a''ear slim des'ite a few added 'ounds. &t )onvin)ed its target grou' that it reall* -new them, there,* esta,lishing a fit with them ,oth literall* and emotionall*. Then the )om'an* ver* su))essfull* e0tended its 'rodu)t lines? Li+ Colle)tion for 'rofessional )lothing, Li+ 9ear for )asual )lothes, /li+a,eth for large women, Cana ;u)hman for women who )an afford designer )lothing. The )om'an* was so su))essful in its strateg* that it e0tended its lines into 'o)-et,oo-s, shoes, ,elts, =ewelr*, and even 'erfume. Create Str)'t)ral Bond! tru)tural ,onds 2or learning relationshi's3 are )reated ,* 'roviding servi)es to the )lient that are fre5uentl* designed right into the servi)e deliver* s*stem for that )lient. Eften stru)tural ,onds are )reated ,* 'roviding )ustomi+ed servi)es to the )lient that are te)hnolog*1,ased and serve to ma-e the )lient more 'rodu)tive. Allegian)e :ealth)are Cor'oration, a s'in1off of ;a0ter :ealth)are, 'rovides an e0am'le of stru)tural ,onds in a ,usiness1to1,usiness )onte0t. The )om'an* has develo'ed wa*s to im'rove hos'ital su''l* ordering, deliver*, and ,illing that have greatl* enhan)ed their value as a su''lier. The* )reated 6hos'ital1s'e)ifi) 'allet ar)hite)ture6 that means that all items arriving at a 'arti)ular hos'ital are shrin-1wra''ed with la,els visi,le for eas* identifi)ation. e'arate 'allets are assem,led to refle)t the individual hos'ital<s storage s*stem, so that instead of mis)ellaneous su''lies arriving in ,o0es sorted at the )onvenien)e of Allegian)e<s needs 2the t*'i)al a''roa)h used ,* other hos'ital su''liers3, the* arrive on 6)lient1friendl*6 'allets designed to suit the distri,ution needs of the individual hos'ital. ;* lin-ing the hos'ital through its ValueLin- servi)e into a data,ase ordering s*stem, and 'roviding enhan)ed value in the a)tual deliver*, Allegian)e has stru)turall* tied itself to its over #@" a)ute1)are hos'itals in the 4nited tates. &n addition to the enhan)ed servi)e ValueLin- 'rovides, Allegian)e estimates that the s*stem saves its )ustomers an average of H@"",""" or more ea)h *ear.2n#A3 An e0)ellent e0am'le of stru)tural ,onds in ,usiness1to1)onsumer mar-ets is :allmar-<s 7old Crown Card 'rogram that identifies what ea)h )ustomer values a,out his or her relationshi' with :allmar- as a 'latform for turning him or her into a 8latinum )ustomer. After enrolling at an* :allmar- store, )ustomers are immediatel* mailed high15ualit* 'lasti) )ards that )an ,e used within a month to earn ,onus 'oints. Thereafter, for ever* dollar s'ent and for ever* :allmar- )ard 'ur)hased the* earn 'oints that a))umulate and turn into dollar savings. At %"" 'oints 'er 5uarter, a )ustomer =oins the e5uivalent of a

7old tier, re)eiving a 'ersonali+ed 'oint statement, a newsletter, Reward Certifi)ate, and individuali+ed news of new 'rodu)ts and events at lo)al stores. &n #>>A, :allmar- )reated its 8latinum level for the ver* to' #"G of )ustomers who ,u* more )ards and ornaments than others. The* are sent ela,orate mailing 'ie)es with gold seals and new mem,ershi' )ards )learl* identif*ing them as 'referred mem,ers. Along with amenities 2su)h as longer ,onus 'eriods and their own 'rivate 'riorit* toll1free num,er3, the )om'an* )ommuni)ates with them individuall* a,out the s'e)ifi) 'rodu)ts the* )are a,out. ;u*ers of Christmas Kee'sa-e ornaments re)eive s'e)iali+ed information a,out them, whereas heav* ,u*ers of )ards re)eive free )ards to introdu)e new lines. ;e)ause these )ommuni)ations are not 'rogrammed, )ustomers e0'erien)e sur'rise and delight.2n#B3 Results have ,een im'ressive. &n addition to over @" )onse)utive months of share gains sin)e in)e'tion of the 'rogram, the revenue re'resented ,* 7old Crown 8rogram 2in our terminolog* 8latinum3 mem,ers was more than a ,illion dollars in #>>B and over H#.@ ,illion in #>>(. Mem,er sales re'resent %@ 'er)ent of total store transa)tions and $@ 'er)ent of total store sales.2n#(3 O**er Ser& 'e G)arantee! ;e)ause servi)e 'ro,lems and dissatisfa)tion lead to )ustomer defe)tions, )om'anies must use the most 'owerful methods to find out when servi)e 'ro,lems o))ur and then to resolve them 5ui)-l* and )om'letel*. 8ossi,l* the most effe)tive strateg* for a))om'lishing this is the servi)e guarantee, where,* a )om'an* assures )ustomers that the* will ,e satisfied or else the* re)eive some form of )om'ensation )ommensurate with their 'ro,lem. 9hile man* forms of servi)e guarantees e0ist, and )over different as'e)ts of servi)e 2meeting deadlines, delivering a smile, a)hieving relia,ilit*3, the t*'e of servi)e guarantee most relevant for the ver* ,est )ustomers is a )om'lete satisfa)tion guarantee. This )an ta-e several forms, ,ut the form that is ,est for the )ustomer assures satisfa)tion and, la)-ing satisfa)tion, 'romises the )ustomer that an* 'ro,lems that o))ur will ,e fi0ed immediatel*. trategies e0ist for effe)tive guarantees11the* should, for e0am'le, ,e eas* to invo-e and have a )lear 'a*off11and these should ,e followed to )reate the ver* ,est guarantee 'ossi,le. That wa*, 7old )ustomers will have no reason to leave and will want to sta* and ,e)ome 8latinum )ustomers. T)rn n- Iron nto Gold Customer al)hem* )an also )hange something ordinar* 2a less 'rofita,le &ron )ustomer3 into something valua,le 2a more 'rofita,le 7old )ustomer3. There are man* wa*s to turn &ron )ustomers into 7old )ustomers. The foundation involves finding out what is most im'ortant to the &ron )ustomers11not assuming that it is the same thing that is im'ortant to 7old )ustomers11and then attending to the s'e)ifi) fa)tors that drive the &ron )ustomers<

satisfa)tion and ,ehavior. 9ith this lower level of )ustomers, it is rarel* ne)essar* to find out what ma-es ea)h individual )ustomer satisfied. &nstead, it is )riti)al to find the -e* drivers of the relationshi's a)ross the )ustomers in the tiers. &n our e0am'le, we saw how im'roving the -e* driver of the lower ("G 2attitude3 )ould in)rease ,oth in)iden)e of new ,usiness and volume of new ,usiness, there,* turning some lower1tier )ustomers into u''er1tier )ustomers. En)e we identif* these fa)tors, we )an use one of the following strategies to in)rease usage and 'rofita,ilit* of those )ustomers. Red)'e t"e C)!to,er4! Non,onetary Co!t! o* Do n- B)! ne!! in)e the idea in the Customer 8*ramid is not to redu)e 'ri)e and there,* lower 'rofit margins, a )om'an* should )onstantl* ,e loo-ing for wa*s to lower the nonmonetar* )osts of doing ,usiness with )ustomers. An e0)ellent a''roa)h to this strateg* involves redu)ing the hassle and sear)h )osts that )ustomers asso)iate with ma-ing 'ur)hases in man* high1te)hnolog* )ategories toda*. mall ,usinesses, for e0am'le, have tremendous diffi)ult* de)iding what forms of )ommuni)ation te)hnolog* to ,u* and from whi)h su''liers. o man* offerings and )om,inations of offerings e0ist and a 'lethora of 'roviders )onstantl* ,esiege )ustomers with differen)es that are diffi)ult for them to dis)ern. Alltel, a full1servi)e high1te)hnolog* )ommuni)ations firm, offers an answer that wor-s ver* well for small ,usinesses and individuals. A )ustomer )an o,tain all three )om'onents11 'aging, wireless, and long distan)e11from the )om'an*, have it all a''ear on the same ,ill, and deal with all servi)e 'ro,lems easil* ,* having onl* one )ustomer servi)e de'artment for all three servi)es. &n doing so, the )om'an* has also in)reased its ,usiness with the )ustomer, as it now o,tains not =ust the )ustomer<s 'aging ,usiness or long distan)e ,usiness or wireless ,usiness, ,ut all three. The )osts of dealing with the )ustomer are redu)ed as well, ,e)ause handling a single )ustomer with three servi)es )osts less internall* than handling three different )ustomers, ea)h with a single servi)e. The )ustomer is now a 7old )ustomer rather than an &ron )ustomer and is far more strongl* lin-ed into the firm ,e)ause its asso)iations )ross servi)e )ategories. Add Mean n-*)l Brand Na,e! Ene of the most effe)tive strategies some dis)ount retailers have used re)entl* to turn &ron )ustomers into more 'rofita,le 7old )ustomers is to )reate a ,rand1within1a1,rand image in their stores. T*'i)all*, this involves asso)iating 'rodu)t lines in the stores with more favora,le ,rand images than those of the store itself. .or e0am'le, when K1mart was wor-ing to im'rove its image and 'rofita,ilit*, it affiliated with Martha tewart to manufa)ture and mar-et an entire line of household soft goods su)h as sheets and towels. The line )arried Martha tewart<s name and was 'ri)ed )onsidera,l* higher than other goods in the same )ategor* in K1mart. Rather than ma-ing small 'rofit margins on these items, the )om'an* ,egan to ma-e mu)h larger margins. &t also generated lo*alt* and multi'le 'ur)hases ,e)ause the line of 'rodu)ts was )olor1)oordinated. Customers wanted to ,u* these 'rodu)ts not ,e)ause

the* were asso)iated with K1mart ,ut ,e)ause the* were affiliated with a ver* favora,le and well1-nown 'erson. ;* asso)iating with this favora,le ,rand, the store )reated a ,rand 'ersonalit* where none e0isted in the 'ast and was a,le to im'rove the 'rofita,ilit* of that 'rodu)t )ategor* in the store. As it ,e)ame )lear that the ,randing was su))essful, the )om'an* e0tended it ,e*ond its original ,ounds to in)lude other 'rodu)ts. Be'o,e a C)!to,er E.#ert t"ro)-" Te'"nolo-y Ene of the ,est e0am'les of turning &ron )ustomers into 7old )ustomers involves the ,atter* of strategies used ,* Ama+on.)om, the online ,oo-store. &nitiall*, the )om'an* fo)used on ,eing a,le to get virtuall* an* ,oo- that the )ustomer wanted. En)e it esta,lished this a,ilit*, it re)ogni+ed that develo'ing 'rofiles of individual )ustomers was a winning strateg*. En)e a )ustomer had 'ur)hased something from Ama+on.)om, the )om'an* started to ,uild its information data,ase a,out the )ustomers< 'referen)es. 9henever a )ustomer ordered a ,oo-, the data,ase 'rodu)ed a list of ,oo-s from the same author and on similar to'i)s that )ould e0'and the 'ur)hase. These suggestions were often ver* wel)ome to the )ustomer, who might not have ,een aware of the other ,oo-s. After multi'le 'ur)hases, the data,ase was designed to ma-e suggestions as soon as the )ustomer signed on, again in)reasing 'ur)hases. ;efore long, the )om'an* dis)overed that )ustomers who ,ought ,oo-s also ,ought CCs and movies, and it e0'anded its 'rodu)t lines to satisf* these other needs of its )ustomers. To to' the strateg* off, the )om'an* as-ed )ustomers if the* wanted to re)eive information a,out 'rodu)ts that were new and dealt with their interests. 4sing the )ustomer<s e1 mail address, Ama+on.)om there,* )reated ongoing )ommuni)ation with )ustomers a,out their 'ersonal interests, ma-ing it so eas* to deal with the )om'an* that )ustomers ,egan s'ending all their ,oo- dollars11as well as CC and movie dollars11at Ama+on. Be'o,e a C)!to,er E.#ert $y Le&era- n- Inter,ed ar e! Cater'illar, the world<s largest manufa)turer of mining, )onstru)tion, and agri)ulture heav* e5ui'ment, owes 'art of its su'eriorit* and su))ess to its strong dealer networ- and 'rodu)t su''ort servi)es offered throughout the world. Knowledge of its lo)al mar-ets and )lose relationshi's with )ustomers ,uilt u' ,* Cater'illar<s dealers are invalua,le. 6Eur dealers tend to ,e 'rominent ,usiness leaders in their servi)e territories who are dee'l* involved in )ommunit* a)tivities and who are )ommitted to living in the area. Their re'utations and long1term relationshi's are im'ortant ,e)ause selling our 'rodu)ts is a 'ersonal ,usiness.62n#>3 De&elo# Fre5)en'y Pro-ra,! Most retail firms )an ,enefit from fre5uen)* 'rograms that en)ourage )ustomers to s'end more with the )om'an* in order to re)eive s'e)ial ,enefits. Convenien)e1item retailers li-e VCR rental )om'anies )an effe)tivel*

use fre5uen)* 'rograms. ;lo)-,uster, for e0am'le, develo'ed a 'rogram )alled ;lo)-,uster Rewards. .or a one1time 'a*ment of H>.>@, a )ustomer is a,le to get ,enefits that in)lude? rent five videos, get one free ever* month; two free video rentals a month =ust for =oining; and one free video rental with ea)h 'aid movie or game rental ever* Monda* through 9ednesda*. Noti)e that it is not the one1time fee that ma-es the ;lo)-,uster Rewards )ustomer a 7old )ustomer11it is the fre5uent use of the servi)e. The firm is motivating the use of )a'a)it* that it )annot otherwise sell, and en)ourages )ustomers to turn to ;lo)-,uster for all their video rental needs. ;lo)-,uster did not dro' the 'ri)e on its video rentals, whi)h would lower its 'rofits. &n fa)t, the )om'an* in)reased 'ri)es and redu)ed the num,er of da*s a new video )ould ,e rented from two to one. Create Stron- Ser& 'e Re'o&ery Pro-ra,! A strong servi)e re)over* s*stem11one that )at)hes all 'ossi,le servi)e errors and )orre)ts them 'rom'tl* and a''ro'riatel*11is )riti)al to turning &ron into 7old. The ,est re)over* s*stems 'roa)tivel* identif* when )ustomers who ma-e 'ur)hases are let down ,* a )om'an*<s 'rodu)t or an intera)tion with someone from the )om'an*. A )om'an* must have 'ro)esses in 'la)e to re)tif* these situations, whether the* involve ,illing, deliver*, or an* other )om'an*1)ustomer interfa)e. Gett n- t"e Lead O)t Allo)ating more effort to )ustomers that are more valua,le im'lies allo)ating less effort to )ustomers that are less valua,le. &n 'arti)ular, Lead )ustomers weigh the )om'an* down. The* are the )ustomers who don<t 'a* their ,ills. The* are the )ollege students who ,oun)e )he)-s. The* are the tele'hone )ustomers who run u' large long distan)e ,ills that re5uire the )om'an* to 'a* agen)ies to )olle)t. The* are the industrial firms who ma-e 'ur)hases and then, in dis'utes over deliveries or 5ualit*, let their invoi)es go A" or >" da*s or longer. Lead )ustomers are also those who ,u* so little that dealing with them )osts more than the* are worth. Mar-eting and 'ersonal selling e0'enses ma* e0)eed the 'rofit on small ,usiness a))ounts. Transa)tion )osts for )ustomers who 'la)e orders for one or two items in a *ear ma-e them un'rofita,le. As is sometimes the )ase, the smallest )ustomers also e0'e)t the most in terms of servi)e, ma-ing the )ost of handling them far higher than the 'rofits re)eived from them. Attem'ting to move )ustomers from Lead to higher )ategories is not an eas* tas-, and it is not alwa*s re)ommended. Enl* if the future 'otential of a Lead )ustomer is -nown to ,e high 2for e0am'le, the M;A student who is )urrentl* an un'rofita,le ,an-ing )ustomer3 is enduring a 'eriod of )ustomer un'rofita,ilit* =ustified. Curing this time, the firm )ould attem't to ma-e these

)ustomers more 'rofita,le, something that )an ,e a))om'lished in two ,asi) wa*s? 'ri)es )an ,e raised or )osts to serve the )ustomers )an ,e redu)ed. Ra !e Pr 'e! Ene effe)tive a''roa)h is to in)rease 'ri)es to Lead )ustomers ,* )harging for servi)es the* have ,een re)eiving ,ut not 'a*ing for. A software )om'an* that has ,een giving free te)hni)al hel' to Lead )ustomers 2who, ,* definition, t*'i)all* a,use the 'rivilege3 )an ,egin to )harge for the servi)e. True Lead )ustomers will leave rather than 'a*; others ma* )hoose to sta* and there,* =oin the &ron )ategor* ,e)ause of the added revenue the* )ontri,ute to the firm. An e0)ellent e0am'le of this strateg* is ,eing used ,* a num,er of ,oth large and small tele'hone )om'anies with )ustomers who don<t 'a* their ,ills. T*'i)all*, this segment of )ustomers owes one of the larger )om'anies a )onsidera,le amount of mone* 2greater than H%""3 in long distan)e )harges and has not made 'rogress in 'a*ing it off. Their 'hone servi)e has ,een )an)elled and the* no longer )an get even lo)al servi)e. /nter )om'anies li-e /1Z Tel of Callas and Anno0 of 8leasant View, Tennessee, who offer 're1'aid lo)al servi)e. To get the servi)e, a )ustomer has to go to a lo)al 'awnsho' and 'lun- down H$> in )ash 'lus H! for a mone* order 2)om'ared to H#B for a regular )ustomer3. The )ustomer then re)eives lo)al 'hone and >## servi)e for the ne0t month, des'ite owing a de,t to a long distan)e )om'an*. This ni)he mar-et, )onsisting of a,out A million households that go unserved ,e)ause of un'aid 'hone ,ills, offers )onsidera,le 'rofit at these higher 'ri)es. The small )om'anies that serve this mar-et ,u* servi)e from a lo)al 'hone )om'an* at a !"G dis)ount and resell it at a %""G 'remium. To these )ustomers, giving u' more in terms of 'ri)e is not the issue11having the tele'hone servi)e is of most value to them. 9hile the e0am'les we 'rovide here are small inde'endent )om'anies, man* large tele'hone )om'anies are starting to offer the servi)e to )om'ete in this mar-et ,e)ause it is 'rofita,le. &n most )ases, the* are )hanging the ,rand name that the* sell the servi)e under to avoid undermining their image in other tiers.2n!"3 Red)'e Co!t! The alternative to raising 'ri)es among Lead )ustomers is to redu)e )osts and find wa*s to serve the segment more effi)ientl*. ;an-s have a))om'lished this ,* redu)ing the num,er of full1servi)e ,ran)hes with tellers and staff and re'la)ing them with ATMs that are a,le to servi)e )ustomers for far less mone*. Man* ,an-s have identified the )ustomer grou' that is on the ,ottom tier of the Customer 8*ramid as )ollege students. These )ustomers have ver* little mone* of their own, )annot afford savings a))ounts, and often sho' for and o,tain free )he)-ing a))ounts. 9hile ,an-s reali+e that these )ustomers ma* someda* ,e good )ustomers11and therefore do not want to alienate them11the* also re)ogni+e that serving them is e0'ensive. The* therefore are develo'ing strategies for dealing with these )ustomers in ine0'ensive wa*s.

.or e0am'le, the* en)ourage the students to ,an- ,* tele'hone, ATM, or the 9e,, sometimes going so far as to re5uire a fee if the* visit tellers more than two or three times a month. The* re5uire the students to have overdraft )he)-ing, a mone* ma-er for ,an-s, to avoid the high )ost and in)onvenien)e 2to the ,an-3 of ,oun)ed )he)-s. The* )harge high fees when monthl* 'a*ments are not on time. Man* ,usiness1to1,usiness firms that 'reviousl* served all )ustomers with 'ersonal sales'eo'le now handle onl* 8latinum or 7old )ustomers that wa*, serving &ron and Lead )ustomers with inside sales'eo'le. &;M made a revolutionar* swit)h from its histori)al wa* of dealing with )ustomers when it reali+ed in the earl* #>>"s that it was highl* ineffi)ient to serve all small )ustomers with the 'ersonal servi)e that had )hara)teri+ed the firm in the 'ast. Rather than have )ustomer engineers 'ersonall* fi0 old ma)hines for un'rofita,le )ustomers for free, the )om'an* started to )harge for these re'airs as well as develo' wa*s to fi0 ma)hines remotel*, there,* saving mone*. Get t"e Lead O)t &t is ver* diffi)ult to move most Lead )ustomers from the low tier to a higher tier ,e)ause the* have )hara)teristi)s that ma-e them less desira,le )ustomers. The* either don<t 'a* their ,ills, don<t have mu)h mone* to s'end, don<t need what the )om'an* offers, or don<t have the 5ualities that ma-e them lo*al to )om'anies. &f either or ,oth of the two a''roa)hes dis)ussed a,ove are not effe)tive, then the wisest solution is often for the )om'an* to tr* to free itself of them. The firm must do this )arefull* so that )ustomers do not s'read negative word of mouth that )ould defle)t 'otentiall* 'rofita,le )ustomers from )hoosing the firm. Ser& n- C)!to,er! A''ord n- to T"e r T er! En)e the tiers have ,een esta,lished, various elements of servi)e strateg* )an ,e ad=usted to the tiers. .or e0am'le, the need for )ustomer information varies ,* tier. 9ith 8latinum and 7old )ustomers, it is desira,le to -now individuall* what ea)h )ustomer wants so as to develo' a )ustom 'rofile of ea)h )ustomer<s histor*, 'referen)es, usage, and e0'e)tations. .or &ron )ustomers, on the other hand, segment 'referen)es and 'er)e'tions are usuall* ade5uate. Lead )ustomers ma* ,e studied for different 'ur'oses altogether, su)h as to e0amine wa*s that the* ma* ,e served more effi)ientl* and with less )ost. The most im'ortant mar-eting tas- im'lied ,* the Customer 8*ramid is to serve the most 'rofita,le )ustomers in wa*s that e0tend and enri)h their relationshi's with the )om'an*. Careful )onsideration should ,e given to the 'rodu)t and servi)e needs of these )ustomers and to their value 'ro'ositions. :owever, if the firm is to maintain 'rofita,ilit* among these tiers, it must ,e )areful not to fo)us on im'roving the value 'ro'osition mainl* ,* dis)ounting

and other 'ri)e1related strategies. Lowering 'ri)es redu)es the 'rofita,ilit* of the segment, often unne)essaril*, for 'ri)e ma* not ,e high on the list of re5uirements for this segment. Pro* t I,#l 'at on! o* Mo& n- C)!to,er! U# t"e Pyra, d The use of the Customer 8*ramid )an su'er)harge a )om'an*<s 'rofits as it eliminates un'rofita,le )ustomers and )onverts lower1tiered )ustomers to higher1tiered )ustomers using targeted and effi)ient strategies. A ma=or automotive manufa)turer has used a four1tier Customer 8*ramid a''roa)h to identif* its dealers< ,est )ustomers, their average num,er of servi)e visits, and their s'ending 'er visit. &n one of its ma=or dealershi's, the servi)e revenue differen)es a)ross these grou's 2when num,er of visits and average amount s'entDvisit are )onsidered3 are stri-ing? H%,B$% for 8latinum 2A,@@$ )ustomers3, H!,B#% for 7old 2!,A"> )ustomers3, HA!" for &ron 2!,B!" )ustomers3 and H!A% for Lead 2#>,@$> )ustomers3. &n s'ea-ing to the CRM manager at this glo,al automotive )om'an* we have learned that the* are still wor-ing on the 'rofit and CLV im'li)ations of this anal*sis, ,ut have not a)hieved it *et. :owever, even e0amining revenue shifts 'rovides insight into the 'ower of the model. The im'li)ation of moving even !"G of the Lead )ustomers to the &ron )ategor* is an im'rovement of HA>B,(>> in revenue. Moving #"G of the &ron to 7old im'roves revenue ,* H@A@,##". This same manufa)turer has also e0amined the gross 'rofit 2at another dealershi'3 from distin)t 'rofit tiers of )ustomers11those )ustomers who have no servi)e 'erformed at the dealershi' 2&ron3, those who have some servi)e 27old3 and those who have all of their servi)e 'erformed at the dealershi' 28latinum3. &n a )om'arison of their 7old and 8latinum )ustomers, the )om'an* found that 7old )ustomers generate H#AB$ in gross 'rofit to the dealershi', while 8latinum )ustomers generate H!,!@>. 9e )an see that ea)h 7old )ustomer who is motivated to have all of hisDher servi)e 'erformed at the dealershi' 2moved to 8latinum3 results in an additional H@(@ in gross 'rofit to the dealershi'. &f we )an motivate #"1!"G of su)h )ustomers to )hange their ,ehavior in this wa*, we have the o''ortunit* to in)rease gross 'rofit ,* almost H# million11not a trivial amount for an automo,ile dealershi'. As these real1life e0am'les illustrate, there is a tangi,le ,enefit to understanding what motivates )ustomers at ea)h tier of the '*ramid and to )rafting mar-eting strategies to motivate )ustomers to move 6u' the 8*ramid.6 S),,ary Customer 'rofita,ilit* )an ,e in)reased and managed. ;* sorting )ustomers into 'rofita,ilit* tiers 2a Customer 8*ramid3, servi)e )an ,e tailored to a)hieve even higher 'rofita,ilit* levels. :ighl* 'rofita,le )ustomers )an ,e 'am'ered a''ro'riatel*, )ustomers of average 'rofita,ilit* )an ,e )ultivated to *ield higher 'rofita,ilit*, and un'rofita,le )ustomers )an ,e either made more 'rofita,le or weeded out. Tailoring servi)e to the )ustomer<s 'rofita,ilit* level

)an ma-e a )om'an*<s )ustomer ,ase more 'rofita,le, in)reasing its )han)es for su))ess in the mar-et'la)e. Note! 2n#.3 R. ;roo-s, 6Alienating Customers &sn<t Alwa*s a ;ad &dea, Man* .irms Cis)over,6 9all treet Fournal, Fanuar* B, #>>>, ''. A# and A#!. 2n!.3 V. Zeithaml, 6 ervi)e Jualit*, 8rofita,ilit*, and the /)onomi) 9orth of Customers,6 Fournal of the A)adem* of Mar-eting )ien)e, !(D# 29inter !"""3? AB1(@. 2n%.3 R. ;u++ell and ;.7ale, The 8&M 8rin)i'les? Lin-ing trateg* to 8erforman)e 2New Kor-, NK? The .ree 8ress, #>(B3. 2n$.3 Zeithaml, o'. )it. 2n@.3 R.N. ;olton and F. Crew, 6A Longitudinal Anal*sis of the &m'a)t of ervi)e Changes on Customer Attitudes,6 Fournal of Mar-eting, @@D# 2Fanuar* #>>#3? #1 >. 2nA.3 R.T. Rust, A.F. Zahori-, and T.L. Keiningham, Return on Jualit*? Measuring the .inan)ial &m'a)t of Kour Com'an*<s Juest for Jualit* 2;urr Ridge, &L? &rwin, #>>$3. 2nB.3 V.A. Zeithaml, L.L. ;err*, and A. 8arasuraman, 6The ;ehavioral Conse5uen)es of ervi)e Jualit*,6 Fournal of Mar-eting, A"D! 2A'ril #>>A3? %#1 $A. 2n(.3 R.N. ;olton, 6A C*nami) Model of the Curation of the Customer<s Relationshi' with a Continuous ervi)e 8rovider? The Role of atisfa)tion,6 Mar-eting )ien)e, #BD# 29inter #>>(3? $@1A@. 2n>.3 A.F. Zahori- and R.T. Rust, 6Modeling the &m'a)t of ervi)e Jualit* on 8rofita,ilit*? A Review,6 in Terri wart+ et al., eds., Advan)es in ervi)es Mar-eting and Management 27reenwi)h, CT? FA& 8ress, #>>!3, ''. !$B1!BA. 2n#".3 7. :artfeil, 6;an- Ene Measures 8rofita,ilit* of Customers, Not Fust 8rodu)ts,6 Fournal of Retail ;an-ing ervi)es, #(D! 2#>>A3? !$1%#. 2n##.3 C. Connell*, 6.irst Commer)e egments Customers ,* ;ehavior, /nhan)ing 8rofita,ilit*,6 Fournal of Retail ;an-ing ervi)es, #>D# 2#>>B3? !%1!B. 2n#!.3 R. Rust, V. Zeithaml, and K. Lemon, Criving Customer /5uit*? :ow Customer Lifetime Value is Resha'ing Cor'orate trateg* 2New Kor-, NK? The .ree 8ress, !"""3.

2n#%.3 V. Zeithaml, 6Consumer 8er)e'tions of 8ri)e, Jualit* and Value? A Means1/nd Model and *nthesis of /viden)e,6 Fournal of Mar-eting, @!D% 2Ful* #>((3? !1!!. 2n#$.3 F. . Fohnson, 6:ome Ce'ot Renovates,6 .ortune, Novem,er !%, #>>(, ''. !""1!"$L. 2n#@.3 Fames ;rian Juinn, 6 trategi) Eutsour)ing? Leveraging Knowledge Ca'a,ilities,6 loan Management Review, $"D$ 2 ummer #>>>3? >1!!. 2n#A.3 Ro,ert :ie,eler, Thomas ;. Kell*, and Charles Ketteman, ;est 8ra)ti)es? ;uilding Kour ;usiness with Customer1.o)used olutions 2New Kor-, NK? imon and )huster, #>>(3, ''. #!@1!B. Cis)ussed in V. A. Zeithaml and M. F. ;itner, ervi)es Mar-eting and Management 2New Kor-, NK? M)7raw1:ill, !"""3. 2n#B.3 .. Newell, Lo*alt*.)om? Customer Relationshi' Management in the New /ra of &nternet Mar-eting 2New Kor-, NK? M)7raw1:ill, !"""3, ''. !%!1!%A. 2n#(.3 &,id., '. !%A. 2n#>.3 C.V. .ites, 6Ma-e Kour Cealers Kour 8artners,6 :arvard ;usiness Review, B$D! 2Mar)hDA'ril #>>A3? ($1>@. 2n!".3 K. )hill, 6Cial1a1Ceal,6 The News and E,server, Fanuar* %#, #>>>, '. /#1 %. California Management Review ummer!""#, Vol. $% &ssue $, '##(