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"Business must be run at a profit ... else it will die. But when
anyone tries to run a business solely for profit ... then also the business
must die, for it no longer has a reason for existence."
Like loyalty. Loyalty is a quaint idea from the past. It's now about as relevant as the stagecoach. That's the ay it is Or is it? On average, a company in the United States loses half of its customers in five years, half its of employees in four years and half of its investors in less than a year. This is a trend you can't sweep under the carpet. In fact, it shows every promise of becoming worse around the world. And South Africa isn't an exception. So let's look at the new rules of the game you're playing for high stakes -
business survival, growth and profits:
Corporations that downside to stop profit and customer-base erosion haven't turned things around. Instead, they find themselves forced to launch another round of downsizing a year later. They slash costs, re-engineer and restructure. And they continue to lose customers.
True or false? Let's find out. One of the world's largest advertising agencies, Leo Burnett, grosses $600-million a year, although the professionals it employs are the industry's highest paid and its prices the most competitive. How does Leo Burnett do it? Frederick Reicheld and his colleagues at Bain & Company studied the profits, strategies and tactics of different advertising agencies, including Leo Burnett, and found that some generated "mystifying" levels of free cash flow.. The key, as the Bain study found, is customer loyalty.
In advertising, the study showed, customer retention rates - the percentage of customers per year that continue doing business with the same company - and employee productivity were directly correlated. The higher the customer retention rate, the higher the level of productivity. Leo Burnett leads the industry in both categories with a near-perfect 98% customer-retention rate and a productivity rate that maintains a level 20% above the industry average. So what sort of profits does the agency report? It doesn't because it's a private company. But one can estimate that in advertising, a 20% advantage in productivity probably increases profit potential by 50 to 100%. That's what customer loyalty can do for you. And don't forget about the benefits of employee loyalty. While most brokerage firms plunder each others' employees systematically, A G Edwards has the highest employee retention rate in the business. It also has the highest profitability rates. So loyalty isn't dead. On the contrary, it's alive and kicking. You'll find it at the heart of every company that boasts a high level of productivity, solid profits and sustained growth. To keep your company veering towards the bright side of business:
If you want to ensure customer loyalty, you don't have a lot of choices. In fact you don't have any. The only route to follow is to make virtuous profits Virtuous profits? Profits that result from creating customer value, not destroying it. Even in the United States, the international shrine of capitalism, top business people subscribe to Peter Drucker's theory that making huge profits isn't a company's most important responsibility. In The Practice of Management, first published more than 40 years ago, Drucker said: "Profit is not the explanation, cause or rationale of business behaviour and business decisions, but the test of their validity." Ninety percent of the 250 executives in Fortune 1000 companies who responded to a recent survey agreed with the statement: "A corporate leader's responsibility is to ensure the greatest good for the greatest number of stakeholders, which include shareholders, employees, customers and local communities in which the company is based or does significant business." This represents a significant change of attitude in a country where business people have hitherto been obsessed with improving efficiency and cutting costs - often at the expense of employees and customer service.
The true goal of any business is to create customer value. It's the core activity from which sales, profits and long-term success will flow. Philip Reed, former chairman of that long-time American business giant, General Electric, believes that people who give and get the most out of live have several qualities in common.. One of these qualities is "the rather special satisfaction, the deep-down joy they get out of a very simple thing - being helpful to other people."
Just to be able, in the course of their everyday lives, you do something a little extra for a friend, a client, a patient, a customer, or perhaps a complete stranger is, they have found, a most rewarding experience." In more ways than one.
There's method in their madness. The insurers figure that customers with solid, well-constructed homes will suffer from fewer losses in the future. By taking their eyes off the bottom line and concentrating on customer value, these insurance companies lay the foundations for future success.
Many companies inadvertently target people of the wrong type as customers - people who are inherently disloyal. In the marketing industry, choosing customers of this ilk is known as "adverse selection". How can you tell if a customer falls into the adverse selection category? Red lights should start flashing if you can easily persuade them to abandon their current suppliers and move into your business orbit. If you can induce them without much trouble, a competitor is unlikely to experience any difficulty in persuading them to abandon you. Price-off coupons and price discount offers attract these people like syrup attracts flies. Sure, they're an inexpensive way of reeling in new customers. But you won't necessarily land them. A customer easily hooked by a minimal price discount will just as easily abandon you at the slightest hint of a discount offer from your competitor. Your first step in building the loyalty-based cycle is finding the right customers. The next step is keeping those customers who will remain loyal and, therefore, become more profitable with each passing year. One desperate store I came across in London tried to attract long-term customers by prominently displaying a large placard in its main window. The inscription read: "This is a non-profit organisation. Please help us change!" Begging obviously isn't the answer. Apart from a couple of dejected looking assistants, the store was deserted. While on a trip to Los Angeles, I was taken to a popular restaurant that tried a bit of reverse psychology. A prominently displayed notice proclaimed: "Please don't insult our waiters. Customers we can get." Last I heard, the restaurant boasted a band of happy waiters with no diners to serve. I subsequently folded. So how do you attract the right type of business? Step One...
Not only the external customers, but also the internal ones, and segment them into niches. Target customer categories that are most likely to be loyal. The trick: to find the criteria that tie into loyalty. You do this by asking yourself
To find the answers, do some in-depth research or commission a specialist to carry it out for you. When you know the type of customers you want to attract, devise a marketing strategy - distribution channels, product lines, etc. - that is likely to lure those customers. Consider the case of a life assurance company - let's call it Ajax - which couldn't understand why it was consistently losing customers while customers at its main competitor remained stuck to it like glue. In an attempt to halt the erosion of its customer base, Ajax conducted its own customer satisfaction surveys and increased the quality of its products. But the customer exodus continued.
Then the persistent probing brought something to light: Certain customer segments were far more loyal to Ajax than others. For example, while urban policyholders tended to desert the company, those in rural areas continued to offer it their support. Were rural customers inherently loyal, or were there other explanations? Perhaps the company had better agencies in some areas. Or was the competition fiercer in others? The powers-that-be at Ajax decided to delve deeper. Confining the investigation to its own customers, they felt, left too much room for distortion, so they expanded research to include competitors' customers. This industry-wide research helped them identify inherently loyal customers segments. In its next move, Ajax targeted these customers. To do so, it placed agents in areas identified as high-loyalty geographic regions. It also changed its product line to appeal to loyal customer segments. And it altered compensation practices to encourage agents to keep customers rather than concentrate on signing up new ones. After exhaustive field trials, they found that these measures were more effective than enhancing the quality of the product. Step two ...
What do your customers want to achieve by doing business with you? All people are different so, obviously, their specific needs will vary. Some will want to be fully protected in the face of adversity. Others may want to build a rock-solid home and yet others will want to keep perishable products cold.. When you've identified your customer bases, ask yourself this question: "What results do your customers want to achieve by doing business with us?"
Many companies simply categorise their customers into segments of profitability, or spend segments only. Don't. Also categorise your customers in terms of loyalty. To do this, conduct and audit to determine:
Update your findings every six months. To identifying potentially loyal customers and targeting them successfully, you'll have t structure your marketing effort, big or small, to elicit enquiries from those people who are genuinely interested in purchasing what you have to sell. For example, if you sell Porsche sports cars, design your advertising, public relations and other promotional efforts to deliberately discourage nuisance calls from people who obviously can't afford the luxurious, Teutonic motorised chariot. If you're vending popular household appliances and basic necessities, your marketing effort will obviously take a different tack in which price will probably play an important role. Once you've enticed a person through the door and made a sale, you face the problem of getting him or her to return. Again and again. A lot of South African companies don't seem to care a hell of a lot about repeat business. They're too busy wrestling with their competitors for new one-time customers. They're wrong.
So ... Customer satisfaction fattens profits. But how do you get your customers to come back for more? What's the big secret? Australian consultant John Harle clears up the mystery: "If there's a secret to successful customer relations, it's simply to treat each customer the way he wants to be treated." Speaking as a customer, I want fast, efficient service. It's important, but it's not everything. I also want to be treated as a human being. I want to be treated with care and respect, not an inconvenience to your staff.
The more you know about me, the more you'll learn about my requirements and how to satisfy them. And the more I'll return and spread the good word about your business to my friends and acquaintances. Former and existing customers can be a gold mine, which a lot of local business people think is played out. Your access to the rich pickings of this mine is through a database of your current and past customers.
Look at it this way. When I walk into your business premises and place an order with you or make a purchase the first time, you've convinced me that your company is one that I should do business with. In addition to the immediate sale, I'm inviting you to establish an ongoing relationship - a relationship that will encourage me to buy from you repeatedly. To develop this type of profitable relationship, develop a Customer Contact Programme. This is nothing more than a computerise database in which you store the names of all your customers and pertinent personal details as well as an inventory of their purchases. This will become the most valuable asset of your business. Yet it's amazing how many businesses let this prize possession slide into oblivion and become obsolete. Update your customer database every six months. After all, people change companies ... companies change people ... staff numbers change as do addresses. All of these changes need to be tracked and meticulously recorded to increase the value of your database
Use the information in your Customer Contact Programme to communicate with me regularly. Publicise your new ideas. There's no point whatsoever in creating a whole new spectrum of ideas every month if you don't tell me and your other customers what you're doing. How can we possibly appreciate your efforts, if you don't keep us in the picture? Send me a mailing at least four times year to keep abreast of the latest developments of direct interest to me in your business and changes to your product range. Examples of the Customer Contact Programme at work include airline frequent flier programmes and hotel frequent guest programmes. If your business isn't that big, your constant quest for customer retention may take the form of a chatty but informative letter or, perhaps, a newsletter. But make it personal. And ensure that it addresses my self-interest, not yours as my supplier. Customer loyalty isn't dished out on a plate. You have to earn it by giving me added value by providing superior service. So ...
Summon all the members of your team. et into a huddle. Organise a bosberaad if necessary. Examine ways in which you can add value to my experience of doing business with you. Hold a team meeting once a month. And don't be afraid of inviting me and your customers to meeting, where you can ask us: "What can we do for you that we're not doing at the moment?" Brainstorm at least 10 ideas at each meeting - that's 10 ideas a month. Give your brainstorming meetings a name. Call then Bright Ideas sessions. Encourage each of your employees to come up with a fantastic, remarkable idea to add value to your customers' experience. and reward them. "What a wonderful idea ! Here's R50. Do it. Try it. Make it happen.. And if it works ... if we can run with it, you get R250." Generate enthusiasm. Beware of management put-downs like: "We've tried that idea before and it didn't work." Or the more subtle variation: "Mmmm! That idea does have some merit, but I think it's a bit way out."
Remember this: the more ways you can add value to your product or service, the more you're differentiating it in the face of competitive products and services that become more and more similar in terms of pricing. offers. looks, etc. Therefore. it's important to somehow stand apart from the herd. Differentiation can mean the difference between runaway success and abject failure. But, as always, be specific. " We offer better quality" and "We offer better service" are pointless statements. They're nebulous. Because they cannot be measured, they cannot be achieved. Write this down and stick it somewhere that you cannot fail to see it: What gets measured gets done. Here are two examples of meaningful statements:
The benefits to your business of retaining my loyalty include:
All the ingredients that make up excellent customer service won't mean a thing unless you get your employees' support and commitment, according to Helen Schultz, a lecturer in Human Resource Management at the Port Elizabeth Technikon. "Many international companies are now equating staff development with customer satisfaction," she says. Shultz, who was one of four delegates to represent South Africa at a world human resources congress in Hong Kong in 1996, points out that globalisation will force South African companies to compete against organisations which have adopted the philosophy that "serving customers is the sole reason for being in business". Urging local companies to realign their thinking and practices if they want to survive, she adds: "Training and development of employees must be based on the needs of the employee, the company, and on the needs of the customer. "Customer service is related directly to employee satisfaction. Staff loyalty and satisfaction are the foundation for customer service."
Like customer loyalty, employee loyalty has to be earned. You don't hire people who arrive at your workplace with built-in loyalty to your cause. This is a lesson that many companies don't heed today. They dump workers when earnings dip, not to mention when earnings go up. They reason that every employee made redundant adds the content of his or her pay packet to the corporate bottom line. This is myopic. It lays the foundation of medium and long-term failure. Let's face it, when the going gets rough business-wise, key employees who have developed a bond of loyalty to the company will do their damnedest to see it through the storm. But if you, as the owner or manager, don't give the members of your workforce your unstinting support, they'll abandon ship just when you need them most. In particular. carefully scrutinise your sales people, sometimes described as "priests in the temple of business," - especially those who get paid commission for luring new customers through your door. They're also adverse-selection traps. These smooth-talking operators naturally concentrate on prospects who can most easily be persuaded to switch companies. These flighty customers, as I've already noticed, can just as easily be persuaded to switch companies again, by which time the sales person will have already pocketed to commission. Like some insurance industry, these sales people often stop at nothing to get a prospect to sign on the dotted line. Like the insurance salesman who was getting nowhere in his efforts to sell a life policy to Van der Merwe, a Free State farmer. "Look at it this way," said the desperate salesman, resorting to the oldest trick in the book. "How will your wife carry on if you should die before she does?" "Well," answered the wilely farmer after a moment's thought, "it's none of my bloody business - as long as she behaves herself while I'm alive." Then there's the story, reputedly true, about Jason who sold toothbrushes for a small basic plus commission in East London area for a major manufacturer. The going was tough. Sales for the region had dropped well below the projected level. The sales manager summoned Jason to his office and told him he would be made redundant if sales didn't show a dramatic improvement. A month later records showed that Jason's sales had soared. The sales manager called him in again to congratulate him and explain how he'd engineered sensational turnaround. Jason told his boss he'd shunned the pharmacies, department stores and supermarkets - his usual customers. "Instead," he said, "I set up a small outside the entrance to the docks. On it I put some dry snack biscuits and little containers of a new dip. I then invited people going into and out of the station to try my dip. Man people did. When the asked me about the ingredients, I told them 'garlic and chicken droppings'. "The all went 'Aaaargh!' and spat it out. "I then offered to sell each of them a toothbrush." While Jason may have shown initiative, most of his customers probably reverted to their old brands as soon as they got home. Attracting the right customers, who buy from you on a regular basis over a long time period generates a cash-flow surplus. Reinvest it in continuing to deliver and prove the kind of value that will keep your customers loyal by acquiring and keeping loyal employees. The skills, knowledge and experience acquired by long-time employees make them more efficient and productive. This ultimately saves you money but, more importantly, offers the customer better value. Higher productivity, lower training and recruitment costs plus greater customer retention all contribute to make employee loyalty beneficial to you, an employer, and your customers. So ...
If you want to keep customers and your star employees, reward members of your staff who have kept customers in your fold. Single out any employee who has kept a customer happy for three or more years for a special accolade and reward. And don't be stingy with it either. I don't for one moment suggest that you must necessarily keep all the employees who clog your company's payroll. They key is to separate the wheat from the chaff, and keep only the wheat. Keeping unproductive or under-performing employees on board drains value, not to mention costly resources. Deadwood in terms of loyalty is a negative. Now is a good time to take a closer look at one of the key benefits of customer loyalty. Customer retention. Recent studies show that companies with high levels of employee loyalty consistently boast the highest levels of customer loyalty. In a survey of the car service business, for example, neighbourhood garages had the best employee retention, followed by regional chains, national chains and car dealers. Customer retention followed the same pattern. The survey, conducted by Reichfeld, found that people went to local garages precisely because they knew that the same mechanic would work on their cars. These customers believed that the mechanics employed by chain outlets and car dealers had better training and access to more sophisticated equipment. But for them, dealing with the same mechanic - one whom they knew was familiar with their car - was more important than dealing with an employee who might be better trained and equipped. As with customers, the benefits of employee loyalty increase with each passing year. So think long and hard before you embark on a downsizing, rightsizing or re-engineering programme that could send your business down the tubes.
One way of getting your best-performing employees to stay with you is by encouraging entrepreneurship. Give your staff some room. Allow them to imagine that they own the business. Get them to ask themselves two questions:
An entrepreneurial performance index was launched in 1996 by the University of Cape Town's Graduate School of Business. It's designed to monitor a company's entrepreneurial performance in terms of its willingness to encourage creativity, flexibility and risk support. The index guides management in the development of strategies to promote entrepreneurship within their corporations. Professor Mike Morris, the driving force behind the venture, points out that empirical evidence shows that entrepreneurship is closely related to improved levels of company performance. According to Morris, competitive advantage in the marketplace involves adaptability, flexibility, speed, aggressiveness and innovation - all key factors in change wrought by entrepreneurship. Another way that can pay handsome dividends in term of customer and employee loyalty is education. Consider on-the-job training for everyone on your payroll a "must". In addition, insist that all your employees do at least one course a year. Any course the choose. From flower arranging, scuba diving and computer programming to public speaking. And the company must foot the bill, providing they pass.
When profits dip in business, something is wrong. Before you can correct the fault, you have to find it. You can do this with the aid of value-creation measurements. Your company's level of customer retention points to one of the most powerful you have to identify the cause of your business' failure - and that's customer defection. To take effective remedial action, get to the root cause. This is not as simple as it sounds. When asked, most customers who have switched allegiance, will give the answers that come easiest to them. Bank customers, for example, may say low rates of interest prompted them to move their accounts. However, the underlying reason may have been poor customer service, which started them thinking about switching. And that's when they noticed the lower interest rates. When interviewing defecting customers to find out why they're abandoning you, remember the five "why" rule. Ask why they're leaving five times in a row will get you to the root cause of your failure to satisfy them. But finding out the true reasons for customer defection will be an exercise in futility if the right employees don't learn the lessons. And most of them don't learn because defections don't influence employees' success. If you don't directly relate compensation structures and career path policies to customer loyalty levels, employees won't act on the results of failure analysis. Develop a 'Black Box' Mentality Don't take customer defection or employee resignation lying down. Get to the root causes. Make it your business to understand exactly why. Obviously, reasons like emigration or relocating to another city can't be helped. neither can pregnancy. But if one of your employees has a responsibility clash with a colleague, that isn't good enough reason to leave. And if you're that person's boss, it's your fault. So intervene and sort it out. Now
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deas - new or otherwise - are funny little things
that won't work unless you do. Some of the best modern business makeover
ideas are adapted from well-proven formulae that worked so well in the past.
