Loyalty Rules!: How Leaders Build Lasting Relationships (Hardcover)

Many people take the financial incentive to keep customers longer as encouragement to employ all of the latest loyalty-building tools (from data-mining to loyalty incentive programs). Mr. Reichheld is correct that encouraging people to be loyal while treating them with bad service, poor products, or disloyalty in return will not work. He argues instead for a values-based orientation that will remind many people of the principles in The 7 Habits of Highly Effective People.

The essence of the concept for creating loyalty is: "Show your partners [stakeholders like customers and employees] that loyalty is a logical strategy for the pursuit of self-interest when self-interest is defined in the context of lifelong success."

His six principles for building loyalty are paraphrased as follows:

(1) Always play to provide wins for the stakeholder as well as for the company.

(2) Be selective about the employees and customers you take on and encourage to stay with you, so that they enhance your cooperative system.

(3) Keep your approach to being loyal (and earning loyalty in return) simple. For example, "Do right by the customer" was an actionable motto for Intuit when bugs cropped up in its tax software.

(4) Reward providing the right results (which usually means adjusting the way your compensate and motivate people in your organization).

(5) Listen, learn, act, and explain (communication is a two-way street if you are to improve and be reponsive).

(6) Begin with how you want to be remembered when you decide what to say and do today, and then preach with your words and actions to support that end.

The book has fairly well developed examples from Enterprise Rent-A-Car, Vanguard Group, Harley-Davidson, Cisco Systems, Dell, Northwestern Mutual, MBNA, Chick-Fil-A, USAA, the New York Times, the U.S. Marines, and Intuit. There are also references to companies like ServiceMaster, Southwest Airlines, SAS (the computer software company) and other service organizations. The book and the book's web site contain loyalty questionnaires you can use to diagnose how your organization is doing. At the end of chapters 3-8 are directions for how to use the answers you get to direct your next steps.

One big surprise in the book is that it emphasizes the dual idea of having an economic advantage and then using some of the economic benefits of that advantage over competitors to provide better results in ways that will build loyalty. The concept is that you turn a temporary economic advantage into a permanent one by building loyalty. You are directed to another Bain book, Profit from the Core, as the source for how to achieve that initial economic advantage by focusing on your core strength.

Clearly, some of the examples seemed to have as much to do with superior economic advantage (partly helped by employee loyalty) as they did with building customer loyalty. That was especially true of Dell, Cisco, Southwest Airlines, and Enterprise Rent-A-Car. I was left with the question of what to do if your economic advantage erodes faster than you can building an economic advantage from loyalty.

The book suggests that all of this applies to other stakeholders like vendors, partners, lenders, shareholders, the communities you serve, and so forth. Only vendors show up in any specific discussions. It looked to me like much of the advice would work better for a private company or governmental operation (as some of these are) than for a public company with "what have you done for me lately?" institutional shareholders.

Curiously, many companies with very high loyalty but less than perfect ethics don't make it as major cases in the book. What should we conclude about Microsoft, Coca-Cola, MTV, cable television service providers, tobacco companies, and illegal drug dealers? They certainly make outsized profits due to their high customer loyalty. I couldn't tell if Mr. Reichheld is arguing that their success is unsustainable, or socially undesirable.

After you finish enjoying this book, ask yourself what an employer or product/service provider needs to do in order to earn your loyalty. Where do you see positive models of good behavior and assistance that inspire you to reciprocate by providing your loyal support? What lessons do you draw from those experiences which should be applied to your business, consumption, and personal life?

Always start with the question, "What can I do to help you?"...

Many people take the financial incentive to keep customers longer as encouragement to employ all of the latest loyalty-building tools (from data-mining to loyalty incentive programs). Mr. Reichheld is correct that encouraging people to be loyal while treating them with bad service, poor products, or disloyalty in return will not work. He argues instead for a values-based orientation that will remind many people of the principles in The 7 Habits of Highly Effective People.

The essence of the concept for creating loyalty is: "Show your partners [stakeholders like customers and employees] that loyalty is a logical strategy for the pursuit of self-interest when self-interest is defined in the context of lifelong success."

His six principles for building loyalty are paraphrased as follows:

(1) Always play to provide wins for the stakeholder as well as for the company.

(2) Be selective about the employees and customers you take on and encourage to stay with you, so that they enhance your cooperative system.

(3) Keep your approach to being loyal (and earning loyalty in return) simple. For example, "Do right by the customer" was an actionable motto for Intuit when bugs cropped up in its tax software.

(4) Reward providing the right results (which usually means adjusting the way your compensate and motivate people in your organization).

(5) Listen, learn, act, and explain (communication is a two-way street if you are to improve and be reponsive).

(6) Begin with how you want to be remembered when you decide what to say and do today, and then preach with your words and actions to support that end.

The book has fairly well developed examples from Enterprise Rent-A-Car, Vanguard Group, Harley-Davidson, Cisco Systems, Dell, Northwestern Mutual, MBNA, Chick-Fil-A, USAA, the New York Times, the U.S. Marines, and Intuit. There are also references to companies like ServiceMaster, Southwest Airlines, SAS (the computer software company) and other service organizations. The book and the book's web site contain loyalty questionnaires you can use to diagnose how your organization is doing. At the end of chapters 3-8 are directions for how to use the answers you get to direct your next steps.

One big surprise in the book is that it emphasizes the dual idea of having an economic advantage and then using some of the economic benefits of that advantage over competitors to provide better results in ways that will build loyalty. The concept is that you turn a temporary economic advantage into a permanent one by building loyalty. You are directed to another Bain book, Profit from the Core, as the source for how to achieve that initial economic advantage by focusing on your core strength.

Clearly, some of the examples seemed to have as much to do with superior economic advantage (partly helped by employee loyalty) as they did with building customer loyalty. That was especially true of Dell, Cisco, Southwest Airlines, and Enterprise Rent-A-Car. I was left with the question of what to do if your economic advantage erodes faster than you can building an economic advantage from loyalty.

The book suggests that all of this applies to other stakeholders like vendors, partners, lenders, shareholders, the communities you serve, and so forth. Only vendors show up in any specific discussions. It looked to me like much of the advice would work better for a private company or governmental operation (as some of these are) than for a public company with "what have you done for me lately?" institutional shareholders.

Curiously, many companies with very high loyalty but less than perfect ethics don't make it as major cases in the book. What should we conclude about Microsoft, Coca-Cola, MTV, cable television service providers, tobacco companies, and illegal drug dealers? They certainly make outsized profits due to their high customer loyalty. I couldn't tell if Mr. Reichheld is arguing that their success is unsustainable, or socially undesirable.

After you finish enjoying this book, ask yourself what an employer or product/service provider needs to do in order to earn your loyalty. Where do you see positive models of good behavior and assistance that inspire you to reciprocate by providing your loyal support? What lessons do you draw from those experiences which should be applied to your business, consumption, and personal life?

Always start with the question, "What can I do to help you?"

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.