In his most recently published book, Practice What You Preach, David Maister explains why there must be no discrepancy whatsoever between the "talk" we talk and the "walk" we walk. Reichheld agrees, noting that the "key" to the success of his own organization "has been its loyalty to two principles: first, that our primary mission is to create value for our clients, and second, that our most precious asset is the employees dedicated to making productive contributions to client value creation. Whenever we've been perfectly centered on these two principles, our business has prospered." It is no coincidence that the world's most highly admired companies are also the most profitable within their respective industries. I wholly agree with Reichheld that loyalty is critically important as a measure of value creation and as a source of profit but that it is by no means "a cure-all or a magic bullet." Loyalty is based on trust and respect. It must be earned, usually over an extended period of time and yet can be lost or compromised at any time with a single betrayal.
In Loyalty Rules!, Reichheld develops these and other ideas (the foundation of what he calls an "economic framework") in much greater depth as he explains how today's leaders build lasting relationships beyond as well as within their organizations. "Loyalty cannot begin with tools; it must begin with leaders who recognize the enormous value of building and maintaining mutually beneficial relationships....Accordingly, this book spends at least as much time on the underlying objectives for building loyalty as it does on the how-to's." He organizes his material within eight chapters which range from "Timeless Principles" (previously introduced in The Loyalty Effect) to "Preach What You Practice" in which he asserts that actions speak louder than words and together, they are "unbeatable." One of this book's greatest benefits is provided in a series of "Action Checklists" which reiterate key ideas while suggesting specific initiatives to implement them effectively. The book concludes with an appendix, "The Loyalty Acid Test," which consists of separate surveys of consumers and employees. Obviously, each reader must modify either survey to ensure that it is appropriate to her or his own organization's specific needs and objectives. However, all modifications should be consistent with the 'timeless principles" which Reichheld examines in the first chapter. I highly recommend this book, presuming to suggest that, if possible, The Loyalty Effect be read first.
The person most responsible for this turnaround is Frederick Reichheld, who published the seminal work, "TheLoyalty Effect: The Hidden Force Behind Growth, Profits and Lasting Value," in 1996. Based on studies at Bain & Co., Reichheld determined that loyalty is the primary driver of profitability. The studies found that an increase in customer retention rates of just 5% increases profits by 25%-95%. The right customers, employees and investors who stay with a firm fuel a virtuous cycle of long-term growth that increases profitability,empowers the brand and cuts marketing costs.
"Loyalty Rules!" picks up on the same themes addressed in "Loyalty Effect." It's impossible to generate superior long-term profits without superior customer loyalty. The right measurements and rewards are critical to achieving the right results. The book illustrates how loyalty has made such organizations as Harley-Davidson, Enterprise Rent-A-Car, The Vanguard Group, Southwest Airlines, Northwestern Mutual, Chick-fil-a, and others so successful.
Such success, says Reichheld, results from the emphasis corporate leaders place on six loyalty principles:
o play to win/wino be picky (membership is a privilege)o keep it simpleo reward the right resultso listen hardo talk straight, and preach what you practice
The "Loyalty Effect" was a primer on how to build loyalty. Numerous charts, graphs and even formulas illustrated the cause-and-effect relationships between loyalty and value creation. While "Loyalty Effect" sought to teach and persuade, "Loyalty Rules!" aims to inspire. Organizations should always take the high road. Vanguard employees are "proud to be part of the most ethical organization in the industry." Reichheld approvingly quotes Cisco CEO John Chambers: "Never do anything to competitors that you wouldn't want them to do to you." He encourages leaders "to assume the pulpit and preach about the values at the core of your life and your relationships."
Inspirational stories and advice are balanced by "action checklists" at the end of each chapter. These include specific tips to achieve loyalty, such as "create a golden rule for your firm," "make recruiting an executive priority," "create a customer experience council," and "turn call centers and help desks into strategic listening posts."
Reichheld concludes with a "Loyalty Acid Test." These are sample questionnaires for customers and employees that can diagnose the health of relationships.
Other excellent books on the same topic are Customer Equity: Building and Managing Relationships as Valuable Assets by Blattberg, Getz and Thomas. Also highly recommended is FusionBranding: How to Forge Your Brand for the Future by customer loyalty consultant Nick Wreden, who looks at how to apply customer equity and accountability to branding
The main rules Reichfeld sticks to and calls the "high road" are the following:1. Focus on win/win solutions with partners2. Focus only on clients which you can serve well3. Focus on simplicity to allow everyone to understand the rules4. Develop a set of principles and live by them, rewarding others who act according to those principles.
Overall, he makes a strong case to show how these principles can have a positive effect on business. By having low turnover, a fast food restaurant spends very little on HR expenses. By focusing on the bikes their customers love (and not diversifying), Harley gains lifelong customers.
The weakenesses of the book lie in the overemphasis of loyalty, in relation to other important tasks in business. Of course, being a book on loyalty, one could not expect anything different. Additionally, it would have eben useful to have some fake types of loyalty as example of weak attempts at loyalty. I am sure certain companies must have tried to gain loyalty through not-so-smart measures, so it would be nice to haev examples in order to differentiate them.
Overall, it is a very interesting book, useful to anyone involved in customer related businesses and in managing employee relationships. It is short (a benefit) and a bit too concise (a drawback), so it should not take more than a week to read for a regular reader.
