Loyalty As Part Of Strategy

As we are entering an uncertain 2009, sometimes it is better to reduce complexity and embrace the simplicity of using loyalty, both internally and externally to drive business. News of massive layoffs predominates the airwaves and with those layoffs comes loss of employee loyalty which will affect customer loyalty. Rather than the traditional Balance Sheet Analysis to cut jobs, another approach may be to measure the effects that losing key employees will have on employee and customer/brand loyalty.

Recently, a friend of mine was laid off after 31 years of service in over 14 countries for a large multinational company. He gladly accepted relocation 14 times and has now accepted his final relocation and an early and unplanned retirement. This was a manager that dealt directly with customers for the past 31 years and in many cases, he was the only consistent point of contact. This is not the way to build brand in uncertain times.

Companies have been thinking up inventive ways to retain their customers for generations, and this is a good thing. Programs from airlines, coffee houses, restaurants, etc.. tied customers to these brands as they were achieving greater benefits the more they used the product or service. Long-term customers should be valued, partly because the longer they stay the lower the amortized cost of acquiring them and the less likely they are to leave. In addition, they are more likely to spread positive recommendations about the company and purchase ancillary products. Also, since they know the system, they become easier to deal with.

In the 21st century this loyalty will need to be extended to employees and investors. They have been linked in the past, but not consistently. For example, companies that have disloyalty issues, typically deal with 10-30% of their customers defecting each year, employee turnover above 20% and an investor churn rate of 50%.

Problem: How could a manager be expected to grow a profitable business when 20-50% of the company’s most valuable inventory vanishes without a trace each year?

Answer: Once a company understands the ways in which customer, employee and investor loyalty are linked, its management team can use loyalty to shine a new light on its process of value creation.

Revenues and market share grow as the best customers are kept and acquired, so the firm can afford to be more selective in choosing new customers. Sustainable growth means it can attract the best employees. They get satisfaction from delivering superior value and, as they get to know their long-term customers, can deliver still more value, reinforcing loyalty on both sides.

These loyal employees learn on the job how to reduce costs and improve quality, enriching value and raising productivity. The productivity surplus funds better pay, tools and training and more productivity and pay rises mean more loyalty. Spiralling productivity and increased efficiency of dealing with loyal customers mean a cost advantage that is hard for competitors to match. Sustainable cost advantage and steady customer growth generate the kind of profits that attract and retain the right kind of investors, loyal ones.

Loyal investors behave like partners, which doesn’t mean they are not demanding. However, they do help to stabilize the system, lower the cost of capital and ensure that appropriate cash is put back into the business to fund investments that will increase the company’s value creation.