The Loyalty Effect: Why customer loyalty is deeply connected to value creation of your business!

Monday: MicroBusiness and Marketing Marvels FROM THE DESK OF MILES EVERSON: Fred Reichheld is a Bain & Company consultant best-known for his in-depth research and publications on the loyalty business model and loyalty marketing. Some of his most notable publications have been his subject matter on customer loyalty and the Net Promoter System. A particular one that has sparked my eye and the eyes of others is his publication of The Loyalty Effect. Keep reading to learn more about what it means to have loyalty-based management within your firm or organization. CEO, MBO Partners Chairman of the Advisory Board, The I Institute

The Loyalty Effect: Why customer loyalty is deeply connected to value creation of your business! Fred Reichheld: Author of The Loyalty Effect In his book, “The Loyalty Effect,” author Fred Reichheld identified some problems experienced by a few companies. These include: Losing 50% of customers every 5 years. Losing 50% of employees every 4 years. Losing 50% of investors in less than a year. According to Reichheld, disloyalty stunts a company’s growth by at least 25% to 50%. So… what’s his solution for this? It’s for firms and organizations to think that their fundamental mission is not simply to generate lots and lots of profit, but to create value. Here’s how and why Reichheld suggested that businesses do that: Customer retention → measures how well a company creates value → creating value for customers builds loyalty → loyalty builds growth and profit. See? When enterprises do that, it’s a win-win situation for customers, employees, and business leaders! Here are some of the benefits of customer loyalty, according to Reichheld: It helps increase revenues and market share. Sustainable growth attracts and keeps the best employees. Long-term employees reduce costs and improve a company’s overall performance and quality. Long-term customer relations exclude competitors. Meanwhile, below are some key points included in Reichheld’s Loyalty Management Strategy: Build a superior customer value proposition. Develop a value proposition that offers superior value compared to the competition. How? Through better quality products and services!   Find the right customers. Target inherently “loyal” customers, profitable customers, and customers that value offerings more than that of the competition.   Earn customer loyalty. Aim to retain customers to increase lifetime value. Manage loyalty by designing customer value into the product offer, pricing policies, employee incentives and bonuses, and service level delivery.   Find the right employees. Be selective in choosing employees. Look for people who have good character, share the company’s values, and have skills to achieve high productivity in long-term careers. Likewise, policies must be in place to hold, attract, motivate, recognize, reward, and serve people who deliver customer value.   Earn employee loyalty. “Loyal employees build loyal customers.” For this reason, companies must invest heavily in developing and training employees, provide career paths and organizational structures that enable staff to make the most of their abilities, and share the “productivity surplus” with staff.   Gain cost advantage through superior productivity. Reduce costs by making it possible for employees to earn more by providing higher levels of customer service and value. According to Reichheld, companies and business leaders should strive to create so much value for customers that there are plenty of leftovers for employees and even investors. By doing so, businesses will not only increase their loyal customer base but also generate wealth, value, and even good opportunities to strengthen their networks. Hope you’ve found this week’s insights interesting and helpful. Follow us on LinkedIn. Stay tuned for next Monday’s Marketing Marvels! Learn more about “ultimate entrepreneur for the information age” Seth Godin on next week’s MicroBusiness and Marketing Marvels!