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THE BEST CUSTOMERS, we're told, are loyal ones. They cost less to serve, they're usually willing to pay more than other customers, and they often act as word-of-mouth marketers for your company. Win loyalty, therefore, and profits will follow as night follows day. Certainly that's what CRM software vendors--and the armies of consultants who help install their systems--are claiming. And it seems that many business executives agree. Corporate expenditures on loyalty initiatives are booming: The top 16 retailers in Europe, for example, collectively spent more than $1 billion in 2000. Indeed, for the last ten years, the gospel of customer loyalty has been repeated so often and so loudly that it seems almost crazy to challenge it.
But that is precisely what some of the loyalty movement's early believers are starting to do. Take the case of one U.S. high-tech corporate service provider we studied. Back in 1997, this company set up an elaborate costing scheme to track the performance of......

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