The technology for managing customer relationships has gotten fairly sophisticated. Companies can draw on databases that tell them how much each customer has purchased and how often, which they may supplement with detailed demographic profi les. By applying statistical models, they can predict not only when each customer is likely to make a future purchase but also what he or she will buy and through which channel. Managers can use these data to estimate a potential lifetime value for every customer and to determine whether, when, and how to contact each one to maximize the chances of realizing (and even increasing) his or her value.

Predicting customer behavior is so difficult that companies spend millions inundating-and alienating-customers. Here's a way to crunch the data that makes it possible to offer customers what they want, when they want it.

Stable, healthy growth is built on the profitability of customers, not on their raw numbers or their loyalty. New techniques allow companies to focus their marketing dollars precisely where the profits are. Clearly, companies that focus only on customers who are easy to acquire and retain are not allocating their resources as efficiently as they might.

Loyal customers cost less to serve! They pay more than other customers, and attract new customers through word-of-mouth. These loud claims prompted one high-tech service provider to launch a $2 million-per-year customer-loyalty program. Five years later, the company made distributing discoveries: Half of its loyal customers barely generated a profit. And half of its most profitable customers bought high-margin products once-then disappeared. What happened? As recent research reveals, the loyalty-equals-profitability equation is surprisingly weak-and complicated. Not all loyal customers are profitable and not all profitable customers loyal. Managing customer for loyalty doesn't automatically mean managing them for profits. To strengthen the loyalty-profitability link, you manage both-simultaneously.