No. 339, January 20, 1997

Loyalty means profitability

"Business must run at a profit… else it will die. But when anyone tries to run a business solely for profit… then also the business must die, for it no longer has a reason for existence ." This quote is from Henry Ford. The basis for a profitable business is creating customer value and by earning their loyalty keeping them as customers.

This is the main message in Frederick Reichheld’s book, The Loyalty Effect. Reichheld shows through his own research how businesses who actively work at creating lasting loyal relationships with customers, employees, investors and suppliers make considerably higher profits than others, in the long run.

Reichheld points out that education in economics misses the point by its emphasis on maximizing profit and stock dividends rather than creating real value for customers and in this way keeping the customers for a longer period of time.

According to Reichheld the problem with maximizing profit is that it is short term and can damage relationships with customers and employees in the long term. Loyalty and good relationships must be integrated as a part of the business plan.

Reichheld gives the example of a highly profitable insurance company who rebuilt their policy holders real estate, after a hurricane, more thoroughly than needed according to the policy. Why? They were saving on future repairs as they expected to keep their customers for decades.

In Reichheld’s view many company leaders are so into profit that they do not understand examples like these.

If you want loyal customers you must have loyal employees, says the author. It is not possible to control the loyalty of your employees, you have to earn it through good personnel management.

Here are a few topics of discussion on how to achieve more loyalty in your business:

• How can we offer our customers superior products and services in accordance with their wants?
  
  
• How can we keep listening to our customers and keep meeting or exceeding their expectations?
  
  
• How can we keep our employees motivated to create and sustain these long term loyal relationships?
  
  
• What are we doing today which counteracts loyal long term relationships with customers and employees? How can we do this differently?

This is exciting! Reichheld’s research shows that a good personnel policy, customer care and ethics is not only good hearted humanism but also highly profitable.

Best of luck! Jonas Himmelstrand

© 1997 Strategies to Learn & Grow Newsletter • Printable version