FC NOW: The Fast Company Weblog
February 25, 2004
The Lowering of Loyalty
Frederick F. Reichheld is a director emeritus and fellow at Boston-based strategy consultancy Bain & Co. He's also one of the preeminent thinkers about customer loyalty. Now, just like Thomas Davenport reconsidered the wisdom of reengineering, Reichheld is having a crisis of confidence about loyalty.
The early work I did on loyalty was powerful but useless. We've taken loyalty from its grave and put it back on the radar of most CEOs. But I am frustrated in that retention rates have not progressed over the last decade. Customers are not demonstrating loyalty.
Chicken meets egg. The interview in Direct magazine suggests that, "While his theories were valid, industries were not applying them." Is it that customers are disloyal? Or that companies don't engender loyalty? Reichheld isn't sure that matters -- and has turned his attention to something else entirely: turning people into promoters rather than steady customers. Companies can calculate profitable customers but not happy customers -- and Reichheld hopes promoters can cross that chasm.
Is this another take on idea viruses and word-of-mouth marketing? Or is it a step toward measuring brand affiliation even if the "affiliate" isn't a customer?
Posted by Heath Row at February 25, 2004 4:06 PM | Category: sales + marketing |
3 Comments
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I am involved in four different businesses - yet all are the same in that they serve a specific customer segment.
What I've noticed is that most companies have focused on reducing costs, expiditing communications, speeding service through the latest technology, etc., and maximizing shareholder equity.
That's all well and good, but along the way we've forgotten to walk in the shoes of our customers. I don't see many entities asking "what does our customer really want," or "how can we maximize our customer's experience with our firm."
One of the businesses I'm involved with is the bar/restaurant/hospitality industry. In this industry the number one customer complaint - tothe tune of 74% of customer complaints - deals with service. That tells me there is a lack of training. Training comes from the top down in this industry. You - as an owner, manager, etc., - have to walk the talk and set the example. If owners focus too much on profits and not on nurturing and training staff, the profits won't last.
My own feeling is that every business is somewhat like the hospitality industry in that what we strive for is what I call the "Wow" factor. When a guest comes into our establishment, I want them, to have 3 "wows," Within the first 10 minutes in our establishment I want the to say "wow" about something. Usually this cannot be accomplished by lavis decor - it has to come from the excitement of our staff and how the customer is treated. I want them to say a second "wow" during their meal - the service and food should be so good they say "wow." Then, as they leave, I want the customer to say the third "wow," that says "wow, we had such a great experience, when do we want to come back again and who do we want to bring with us."
I believe if we fulfill these three "wows," we'll never have to worry about profits and growth.
Sure, you also have to pay attention to the daily mundane things such as inventory and cost controls, but if you fulfill the customer's experience in a positive way, you can overcome short-term problems.
I also understand the "global economy" and outsoursing of jobs. But when a major company outsources their customer service dept. to a firm in India they must realize that - as a customer - they also have the responsibility to make sure those answering the phones in India can speak English reasonably well. I recently had to make a call to a major cell phone company for service and found myself speaking to an Inian women - that
s all well and good, except that she could barely understand me and I could barely understand her. That meant the solution to my problem took the better part of an hour, instead of the 15 minutes it should have required. I don't have time for that kind of negligence and will never buy a product from this particular manufacturer again.
It's called customer service and this big corp. doesn't get it.
Perhaps it's as a good friend of mine - who has made many millions in the hospitality industry - said when I asked him his secret to success: "If you can manage lettuce and people, you can manage anything."
CEO's have proclaimed that shareholder value is their only mission. As a consequence, companies have shown no concern to customers, employees, suppliers, or local communities--even as a strategy to increase shareholder value.
Loyalty is a reciprocal relationship. When it is not, one party begins to feel like a chump.
With customer service being as poor as it is, with a jobless recovery and and job outsourcing, with predatory negotiating tactics, with relocation from small communities with little notice, guess who those people might be?
A key point of Reichheld's article and comments comes in the power of measuring these promoters over time. Adding the dimension of time coupled with looking at these trends as they apply to specific segments (attitudinal and by profitability) is incredibly powerful. Combining these factors and benchmarking against others in the industry serves as a strong predictor of a businesses future profitability. The clients we've been working with at Loyalty Matrix (www.loyaltymatrix.com) are investing significant energy understanding at these metrics. These are thecompanies who are leading the industry in trying to get better and better at understanding customers based on segmentation, attrition & migration, and value & growth analysis.
Many thanks to Fred Reichheld to his continued dedication to this field!