In this provocative yet practical book, Fred Reichheld argues that loyalty provides the acid test for leadership in today's volatile business environment, and that most leaders deserve failing grades. In fact, the author is quick to highlight that less than half of today's employees believe their company deserves their loyalty. Reichheld's 1996 international bestseller, The Loyalty Effect , set out his theory and convincingly established the link between loyalty and bottom-line profits. In Loyalty Rules! , he moves from theory to practice, using vivid stories from many of today's most successful companies to illustrate how superior leaders create networks of mutually beneficial, trust-inspiring partnerships between customers, employees, suppliers, and investors. Reichheld's research demonstrates that effective leaders build relationships upon six bedrock principles of Play to win/ profiting at the expense of partners is a short cut to a dead end; Be membership is a privilege; Keep it complexity is the enemy of speed and flexibility; Reward the right worthy partners deserve worthy goals; Listen hard and talk long-term relationships require honest, two-way communication and learning; and Preach what you actions often speak louder than words but together, they are unbeatable.
A decent book on how to earn loyalty from partners, including not only customers but also employees, investors, suppliers, and dealers. It's written for large companies, but the principles apply to small and mid-size companies too. There are plenty of specific examples from Dell, Vanguard, Harley Davidson, and other recognizable companies.
I liked the section identifying loyal customers as barnacles, and flighty customers as butterflies. It told how to identify both types, and how to reach barnacles while avoiding butterflies.
I was expecting more of a focus on customer loyalty. This book does talk about customer loyalty, but also spends a lot of space on earning loyalty from employees, investors, suppliers, and dealers.
The book walks through 6 Principles of Loyalty: 1. Play to win/win. Don't profit at expense of partners. 2. Be picky. Membership is a privilege. 3. Keep it simple. Complexity is enemy of speed and responsiveness. 4. Reward right results. Worthy partners deserve worthy goals. 5. Listen hard, talk straight. Long-term relationships require honest, two-way communication and learning. 6. Preach what you practice. Actions speak louder than words, but together they're unbeatable.
The book says to measure loyalty, you must ask partners. For this, they recommend the Loyalty Acid Test Survey. Here's how to read the results: • 0-50% Agree or Strongly Agree: problem area • 50-75% combined Agree or Strongly Agree: no crisis, but room for improvement • 75-100% combined Agree or Strongly Agree: area of strength
Notes Timeless Principles Satisfaction metrics are a good first step, but satisfaction is a fleeting attitude without staying power. Better are measures such as customer and employee retention rates. But they don't tell the whole story. Loyalty is the gold standard.
Your employees must be convinced that your company deserves loyalty, or their interactions with customers will convey their misgivings.
Center of gravity for business loyalty is personal integrity of senior leadership team, and its ability to put its principles into practice. Timeless principles include truth, fairness, responsibility.
Web shoppers say the most important attribute in earning their business is "a Web site I know and trust." Trust outranked lowest cost and broadest selection.
An increase in customer retention rates of 5% increases profits by 25-95%.
Loyal customers help you not only in areas of advertising and sales, but also support. Referred customers tend to ask referrers for advice and guidance rather than company support.
Ensure that individuals are fairly rewarded for collective success they help create. People can commit themselves to serving others when they trust that their success is tied to success of others. Structure relationships to regularly reward those who treat others right.
To build loyalty, you must first be loyal to others by helping them build relationships on the right principles. Then your leadership actions must reinforce and embody principles.
Loyalty Leadership: Putting Principles into Practice Enterprise Rent-A-Car says competitors' "business is cars and ours is people. They focus on building their fleet of cars; we focus on building our employees' careers."
Nonmonetary compensation is important. Employees must believe in what they're doing and be given responsibility.
Vanguard's website is designed to educate customers so they can make better decisions, even if that means leading visitors away from a purchase. It doesn't contain sales hype. Building trust leads to more enduring relationships, and more profits. A quick sale may leave a customer feeling cheated.
"You can't buy trust with advertising or salesmanship; you have to earn it - by always acting in the best interests of customers."
Harley Davidson helped dealers organize associations of riders, rallies, tours, parties to fuel their passion for riding. At events, they listen to complaints and praise, and find inspiration for new models.
Harley credo • Tell the truth. • Be fair. • Keep your promises. • Respect the individual. • Encourage intellectual curiosity.
Dell builds loyalty through intensive 2-way communication with customers (face-to-face meetings, online surveys, online focus groups).
Dell says you must "build a company of owners" by engendering sense of personal responsibility in all employees. Do this through responsibility, accountability, shared success. Mobilize people around common goal that's genuine, special, important, to inspire passion and loyalty.
Do right by all customers. Act in their best interests. Exceed expectations. Treat all partners with care and respect. Customers must feel they have benefited from their association with you.
Loyalty leaders don't ask for loyalty. They earn it by being loyal to partners by remaining true to core principles and working in partners' best interests.
Play to Win/Win: Profiting at Your Partners' Expense Is a Shortcut to a Dead End Loyalty programs trivialize loyalty unless company founds relationships on principles and practices worthy of trust and commitment.
Partners will be loyal to you when they trust that you have the capability and commitment to build their success. "But they must see more than good intentions; they must see a rational strategy for creating superior economics."
Every loyalty leader in book has built structural economic advantages through understanding industry economics and customer segmentation and competitor capabilities.
Typical firms lose half their customers in under 5 years.
Harley Davidson continually deepens and improves experience of owning their products, often by making it more fun. They want to fulfill the dreams of customers through their motorcycle experience. They've created clothing, restaurants, insurance, financing, adventure tours, museum. These also bring publicity and new customers. Harley's core expertise is motorcycles, so they partner with field leaders for new ventures.
Dell adds value to products to make lives of core customers easier and more profitable. They help customers put computers to work more effectively.
Don't just serve your ultimate customer; help each of your company's partners succeed.
Advertising is geared primarily to attract new customers, but loyalty firms are geared primarily to providing such outstanding value to existing customers that enthusiastic references and word of mouth create free advertising.
Be Picky: Membership Is a Privilege "Loyalty leaders are extremely picky about targeting only the right customers - those for whom their firms have been engineered to deliver truly special value."
The right customers maximize sustainable growth and profits. They provide long-term cash flow, referrals, employee satisfaction. Wrong customers results in churn, diminished reputation, disillusioned employees. Every customer acquisition involves up-front investment that will be recouped only if customer's loyalty can be earned.
"Barnacles" are customers likely to stick around for life, if treated right. "Butterflies" flit around, chasing deals, fads, tech. Butterflies' loyalty is hardest to earn, and their lifetime value is lowest, often negative.
Advertising is a risky way to acquire new customers since barnacles are most influenced by referrals and real performance criteria, not advertising.
To avoid butterflies • Analyze long-term, loyal customers to determine what product or campaign attracted them. Prioritize those marketing investments. • Invest in referral programs and communication networks. • Develop product lines that appeal most to customers who tend to consolidate purchases with one supplier (butterflies often cherry-pick individual products). • Target customers interested in procuring service and parts from source of original purchase. • Be cautious about young customers, whose frequent changes make them butterflies. • Avoid price discounts to attract new customers. If you must encourage trial, distribute free samples to best target segments. • Avoid marketing to customers who frequently switch suppliers.
Maintain the most rigorous standards for all partners.
On Loyalty Acid Test Survey, focus on responses to statements: • Company attracts and retains outstanding employees and partners. • Company treats me like a real partner. • I always know where I stand with the company.
Keep It Simple: Complexity Is the Enemy of Speed and Flexibility Vanguard found that it could provide better value to customers by partnering with best-in-class outside managers rather than struggling to build capabilities in-house. Dell created a network of partners to be more flexible and responsive than doing everything themselves.
Reward the Right Results: Worthy Partners Deserve Worthy Goals Focus on front line rewards, because front line is where customer's experience can be most dramatically affected. Share with front line employees the excess value they help create. This is better than paying hourly, which doesn't treat them as partners.
Partners who create most value must receive most benefits, across business relationships.
Ensure loyal customers receive best pricing and service.
Preach What You Practice: Actions Often Speak Louder than Words, but Together They Are Unbeatable On Loyalty Acid Test Survey, focus on responses to statements: • The company values people and relationships ahead of today's profits. • I trust the company's leaders to behave with fairness and integrity. • I understand the values and principles that guide the company's leadership. • I believe that the company deserves my loyalty. • Over the past year, my loyalty to the company has grown stronger.
Most business books, except maybe a handful, can be summarised in a page or two. The exceptions are the classics, and they are indeed a handful. This book cashes in on the success of its predecessor, "The Loyalty Effect". Now while that book could have summarised in a couple of pages, I would rate it four stars, as it is full of anecdotes and examples that have entered the business canon on loyalty.
This book basically pushes a formula for "net promoter score", or NPS. It is intuitive, and has some correlation with the claimed variables of customer retention and financial success. However, research into the NPS shows up various flaws. (If you are interested, start here - http://www.van-haaften.nl/images/docu....)
Basically, the authors should have candidly proclaimed that the formula is a shortcut, and indeed not a scientific metric. Other warnings around the possibility of better metrics, and how different environmental factors would affect the efficacy of NPS, would have made this, IMO, a much more honest book.
If you haven't read Reichheld and you are in some form of leadership role, you have missed an opportunity to add to your intellectual talents. Reichheld is the leader in understanding that loyalty exists all around us. What is frequently missing in far too many business/customer relationships is a "reason" to be loyal.