The Harvard Business Review has a reputation for being the source of the best new ideas for people creating, leading, and transforming business. Since its founding in 1922, the Harvard Business Review has a proud tradition of being the world's preeminent business journal, being on the publishing cutting edge, and having authoritative thinking on the key issues facing business managers. The Harvard Business Review carries on that tradition today with more vigor and conviction than ever, providing its readers with engaging articles that provoke both thought and action.
However, even this august journal occasionally misses the mark. In an article titled "The Mismanagement of Customer Loyalty," published in the Harvard Business Review in July of 2002, authors Werner Reinartz and V. Kumar claimed:
Much of the common wisdom about customer retention is bunk.
The link between loyalty and profit is weaker than expected.
The gospel of customer loyalty has been repeated so often and so loudly that it seems almost crazy to challenge it. But that is precisely what some of the loyalty movement's early believers are starting to do.
These writers confused behavior with attitude and customer management with customer loyalty. They made their evaluation based on the attitudes of customers rather than on the behavior of the customer returning to do business on a repeat basis. They further judged the profitability of repeat customers by measuring revenue rather than true costs or profits.
Customer loyalty isn't about opinions, beliefs, or attitudes. Customer loyalty is about behavior. It is the specific behavior of buying again and again from the same business while telling the world why everyone else should also buy from them. The three benefits to dealing with loyal customers are the same for every business:
Loyal customers are predictable. Your staffing, inventory, growth, and hours of operation become easier to manage when you can predict your customers' buying habits. Customer predictability reduces operational expenses.
Loyal customers are already doing business with you, so you don't have to attract them. The expense of attracting customers is canceled or reduced.
Loyal customers are easier to do business with. You already know their buying habits and preferences. They know your credit terms, locations, what you sell, and a million other things. Doing business with loyal customers takes less time.
Predictability, reduced cost of attraction, and ease of doing business are advantages to every business. It doesn't matter if you are selling McDonalds hamburgers or a McDonald-Douglas aircraft.
I hear business and sales professionals say that customers who had dealt exclusively with them for many years are now doing business with their competitors. These folks have come to the conclusion that "people just aren't loyal anymore."
Human nature is the same today as it has been throughout human history. Today people are just as loyal or disloyal as they have always been. The good news is that your behavior as a sales professional, healthcare provider, business owner, or entrepreneur is what determines their behavior as a customer. You can create loyalty.
I am blessed with the opportunity of working with people from all different walks of life and endeavors. Invariably after one of my presentations someone will say, "I have worked very hard to provide a quality service to my customers. I have bent over backwards to serve some of my clients and then they do business with someone else. People just aren't loyal anymore."
I gently respond, "Providing quality service is an admirable thing to do. Bending over backwards to help a customer is admirable. But quality service and bending over backwards are not one of the five principles. If you want to create loyalty you must tailor your activities around the five principles."
I recently addressed a group of businesspeople in the Southwest. After my presentation an accountant said, "People in this part of the country are different. They move here to retire. Their allegiances are back where they came from. They'll pat you on the back one day and the next day use somebody else's services. You can't create loyalty with someone like that."
I told this accountant, "The folks you're talking about are loyal. They are loyal to another accountant. People do business with people. If you consistently do the specific activities that support the five principles, they will be patting the other accountant on the back and doing business with you." The five principles can work for you just as they have worked for many others.
In an effort to bolster profits, some companies reduce their workforce, close divisions, or sell off assets. These methods are at best temporary fixes for lagging profits. They make the balance sheet look better this quarter or this year but when you lay off workers, close divisions, and sell off assets, you are also laying off, closing, and selling off productivity. These tactics usually mark the beginning of a long spiral downward. Companies that rely on the tactic of downsizing will either eventually save their way out of business or will have to turn their ship around and become more productive. Customer loyalty is the answer. Loyal customers create profit and reduce expenses.
Throughout history, captains of industry have said it was their people or workforce or employees that made a difference. They have all claimed that their people were special. Henry Ford said, "Take away the buildings and the money, but leave me with my workers and I'll have everything back in five years." Tom Watson of IBM, Alfred Sloan of General Motors, and Jack Welch of General Electric have basically said the same thing. I think they are wrong; well, at the very least I think they misspoke.
If their people were so special they would have been special someplace else before they ever arrived at Ford, General Motors, IBM, or General Electric. What made these companies great and allowed their personnel to be successful were the systems and processes used by these companies. These companies teach the activities that create success.
No company has a claim on better people. The pool of people to recruit from is the same or similar for everyone. Great companies teach their people how to improve their skills. Great companies, through their workforce activities, earn excellence and success. Wherever you are currently working, you have the ability to substantially improve your performance by learning and using the activities that create customer loyalty. It doesn't matter if you are the top dog or just starting out. The five principles that create customer loyalty are supported by activities you can use at any stage of your business maturity.
The law of life is the law of belief. People don't always get what they want, but they do always get what they truly expect. Your belief in your own success will determine your success. Some people say, "I'll believe it when I see it." You will, in fact, "see it when you believe it." This isn't a word game or a mind trick. Those that only "believe when they see" are actually "seeing only what they believe." (We will discuss more about this phenomenon of the law of life in Chapter 7.) You will see loyal customers when you truly understand and believe in the five principles and the activities that support them. There are perhaps very few truly special people in business today. Most of us are no better or worse than those we compete against. The thing that determines our individual success is our belief in ourself and our willingness to take action on those beliefs.