|| makeover ideas for better
"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."
- Henry Ford
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.
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.
NEW RULES OF THE GAME
So let's look at the new rules of the game you're playing for high stakes -
business survival, growth and profits:
- Fickle customers are going to shop around.
- Employees are going to job-surf because they know they can get caught in
next round of downsizing, rightsizing or re-engineering.
- Investors are going to dump their stocks at the first blip in their price.
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.
Ignore the latest management buzz words
Then there are companies that ignore the latest management buzz words and
trends. They never downsize or skimp on what they offer their customers. Yet
they continue to make record profits.
"Profit," a business sage once said, "is a social institution that provides
one of the foundation stones of liberty. In a competitive society, it is the
reward for social service which the community, of its own free will, bestows on
corporation re-engineered to enhance its efficiency is
indistinguishable from the inefficient corporate structure it
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.
A direct correlation
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:
- Take your eyes off the bottom line.
- Find and keep the right customers.
- Find and keep the right employees.
- Learn from defections.
Take your eyes off the bottom line
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
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
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
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
Create customer value
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."
Do something a little extra
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.
| Whatever you possess doubles in value when you share it with your customers.
For example, why, after a devastating hurricane, do some farsighted
insurance companies pay their customers more than required by their
policies? The answer is simple.
To help them rebuild better-constructed homes.
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.
Find and keep the right customers
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?
Identify your customers
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
- are customers from a specific geographic area less loyal than those
from another area?
- Does profession or occupation have any bearing on loyalty?
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
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
After exhaustive field trials, they found that these measures were more effective than enhancing the quality of the product.
Step two ...
Focus on customers' result
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?"
Structure your marketing effort
Many companies simply categorise their customers into
segments of profitability, or spend segments only.
Also categorise your customers in terms of loyalty. To
do this, conduct and audit to determine:
- how long your different
customers have been with you;
- how much money they spend with
you as opposed with your competitors, and
- what made them leave your
competitors to come to you
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
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.
- The cost of attracting new customers is 15 times higher than the cost of
more business from existing customers, according to the results of an
by American Express.
- Chrysler has found that 72% of customers who were satisfied with their
purchase and level of service came back to buy another car.
- IBM found that a two per cent increase in customer satisfaction lead
to $50-million increase in revenue
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.
- Acknowledge me when I walk through the door.
- If I'm a regular, greet me by name. Every time you use my name, you
reinforce the relationship between us. It makes me feel at home. It
makes me feel important.
- Chat to me. Get to know me. Make me feel special.
Learn about my requirements
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
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.
Develop a relationship
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
Communicate with me
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
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."
Stand apart from the herd
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:
| Doing business
would be great if
there were no such people
| "I will follow up with an after-sales phone call
three days after the purchase has been made."
"I will send a 'thank you' letter to the customer
within 24 hours of concluding the deal."
The benefits to your business of retaining my loyalty include:
- More profitable repeat business.
- An increasing number of profitable, personal referrals.
- A growing, loyal customer base.
- Lower cost of sales
Find and keep the right employees
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
Earn employee loyalty
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
"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
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 ...
Reward long-term customer delight
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
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
- "How far would I go for that
client if it was my own business?"
- "How would I do my function
differently if I was paying the bills?"
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
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.
Learning from defections
| When an airliner crashes, investigators search until they retrieve the
so-called black box. They'll spend whatever it costs to establish the
cause of the accident. As a result, the accident rate in the highly
complex and dangerous airline industry is very low. It's an industry
that learns from its technical failures. But like most industries, it
doesn't learn from its business failures.
| Business Failure:
An occurrence that can be attributed to following
the line of least persistence.
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
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
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.