Not long ago, loyalty was out of fashion. Tom Peters said, "Forget loyalty. Try loyalty to your Rolodex." The magazine Fast Company incited everyone to join the "free-agent nation." Now, loyalty is a hot topic.
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/win
o be picky (membership is a privilege)
o keep it simple
o reward the right results
o listen hard
o 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