CHAPTER 8
PRACTICE 6: CREATE INTENSE LOYALTY
IT TOOK RETAIL GIANT COSTCO less than thirty years to become the second largest retailer in the United States and the seventh largest in the world—without advertising. How? By growing a worldwide base of intensely loyal customers and employees, many of whom “wouldn’t shop or work anywhere else.”
The highest level of engagement is loyalty. Loyal workers and loyal customers are worth their weight in gold. A talented worker who gives her heart and mind to your enterprise can generate ten- or a hundred- or a thousand-fold more in revenue and goodwill than she will ever cost you. A customer who gives you a lifetime of return business and word-of-mouth support is the ultimate competitive lever you can use to move the world.
The old paradigm was “customer and employee satisfaction.” It’s great to have satisfied customers and employees, but it’s no longer enough. The new paradigm is “intense loyalty,” and shifting to that paradigm is the job you must do now.
“SATISFACTION”—THE OLD PARADIGM
Most customer satisfaction surveys don’t lead to meaningful change. They are often poorly designed, too long, and biased. The questions are frequently crafted to get certain answers, which makes the resulting data inaccurate. Many of the questions are centered less on customer issues and more on “How did we do?”
Obviously, the quality of leadership is often the reason for loyalty or disloyalty among employees and customers. Reliance on pro forma “satisfaction” scores is lazy twentieth-century thinking and a formula for complacency. The real question for leaders is, “How do you build intense loyalty?”
| THE JOB USED TO BE … | THE JOB THAT YOU MUST DO NOW … |
| Satisfy customers | Create intense loyalty |
“INTENSE LOYALTY”: THE NEW PARADIGM
How do you get the kind of intense engagement that was so movingly demonstrated by the workforce at Western Digital? How do you get the unshakable loyalty of sixty million people who gladly fork over a membership fee every year to shop in a warehouse called Costco?
The answer, according to Harvard professor and veteran Bain consultant Fred Reichheld, is “to treat them the way you would want to be treated.” This principle, known as the Golden Rule, is laughably simple—and it works. Reichheld cites Colleen Barrett, president emeritus of wildly successful Southwest Airlines: “Practicing the Golden Rule is integral to everything we do.” Andy Taylor, executive chairman of Enterprise, the most prosperous rental-car company in the world, says, “The only way to grow is to treat customers so well they come back for more and tell their friends about us.”1
Here’s just one example of Enterprise’s appreciation of the Golden Rule: A friend of ours on a business trip got stranded in a small town in the American Midwest. His plane was canceled, and it was long past closing time for the only rental-car office at the tiny airport, but he thought he’d try the door. A smiling young man in a white shirt and tie opened it. He was an Enterprise employee, and quickly signed out the last rental car in town to our friend.
“Why are you even here?” our friend asked. “It’s awfully late.”
The young man answered, “I heard the flight out of town got canceled, so I figured somebody would probably need me.” Then he pulled a cake out of his small refrigerator. “My wife made this cake today and brought it over for anybody who might want some. Would you like a piece?” Our friend had missed his dinner and actually was kind of hungry. He thankfully took the piece on a plate with a fork and a napkin, and it was delicious.
Then the young man said, “Here, take the whole cake. You’ve got a long drive to Des Moines.”
Our friend, who had never done business with Enterprise before, is now a lifetime customer. “They take the cake!” he says. Enterprise systematically instills the Golden Rule into every one of its nearly 70,000 employees, and as a result is named the most customerfriendly car rental company year after year.
Every company has pockets of great customer service, but few make a system of it—which is ironic, since study after study demonstrates that customer loyalty is the prime driver of profitable growth. It’s well established that as little as 5 percent growth in customer loyalty can drive as much as 85 percent growth in profits.2
By contrast, chronic inconsistencies in customer service are the enemy of loyalty. Some companies pay a fearsome price when their poor practices show up on YouTube—a delivery person carelessly tossing a customer’s purchases into his truck, workers stealing photos off a customer’s laptop, a fast-food employee licking the food. You can’t afford an inconsistent record when it comes to promoting loyalty. Of course, the opposite is also true—stories of extraordinary customer service can spread like wildfire.
AN INTENSE-LOYALTY “APP”
Companies need a system—an “application”—for building loyalty all along the journey of the client or employee. For a long time, leaders have focused on improving “moments of truth,” touch points where customers might come in contact with the firm. This is helpful, but it produces excellence only in spots. Researchers say, “Organizations able to skillfully manage the entire customer experience reap enormous rewards: enhanced customer satisfaction, reduced churn, increased revenue, and greater employee satisfaction too.”3
A loyalty “app” starts with both customer and employee loyalty measures. Many organizations are now using Reichheld’s wellregarded “Net Promoter Score” as their key measure of both. It’s the ratio between people who would recommend your company as a great place to work or do business and those who definitely would not. If your score is 100, everyone recommends you; if it’s –100, nobody does. A score of 50 or more is unusually high because you have many more promoters than detractors.
The Net Promoter Score provides a credible baseline measurement of loyalty, but you need other information to tell you what to do about your score. That information comes from careful analysis of customer input—in other words, empathic listening. What is the customer or employee telling you specifically about yourself? What things do they specify when praising you or complaining about you? From this analytical work you can isolate the lead measures to address. Leaders who combine a true measure of loyalty like the Net Promoter Score with a rich system of input are most likely to know what to do to improve that score. Once you know the score, you can make leaps in loyalty a wildly important goal—and you should.
Powerful Lead Measures: Fascinated People
As we discussed in Chapter 4, lead measures track actions you take to achieve a goal, and lag measures quantify the results. Some organizations have powerful lead measures for driving loyalty among all stakeholders. One unique company is Grupo Entero of Guatemala City, a diverse and thriving enterprise started by Juan Mauricio Bonifasi, known as “Juanma.” A careful student of the 7 Habits for some years, Juanma conceived of a company that would be based on their principles, a company where proactive, visionary people could flourish. Juanma doesn’t distinguish between clients and employees—they are all collaboradores, or contributors.
“Our primary goal,” he says, “is to fascinate our contributors, to create a culture where people are fulfilled by using their talents in passions in their work.”
Grupo Entero is essentially a holding company, a nursery for entrepreneurial businesses staffed with fascinados—fascinated people. One branch of the company is Guateprenda, a microcredit bank that lends money to low-income borrowers who want to start their own businesses. No traditional bank would lend to such people. But just a small loan can make a huge difference to a farmer who needs a truck for his market garden or a single mother who could make a lot more money selling snow cones if she had more equipment and a storefront. Guateprenda’s people become emotional when they talk about the tremendous difference they are making throughout Central America. Another Grupo Entero undertaking is Sonrié, a chain of dental clinics “dedicated to freeing people from pain and helping them maximize their potential.” The staffers at Sonrié work miracles for suffering children and disfigured adults who gain new confidence in the workplace.
We’re enthralled by Juanma’s notion that each individual associated with his Grupo Entero, whether client or employee, is considered a collaborador, a fascinado who is finding an outlet for his or her passion and potential. It’s a remarkable business model—a company that exists not just to make money!—although Grupo Entero thrives financially as people clamor to be part of an enterprise dedicated to unleashing the potential of every contributor. He and his fellow leaders heavily invest their time and money to understand and develop that potential so it can be leveraged. Every contributor is thoroughly trained in the 7 Habits, the mental operating system of the company, and then a development plan is tailored carefully for him or her, a plan that will leverage the individual’s fascination in life. Grupo Entero’s whole purpose is to see those dreams realized.
A Loss of Productivity: Passionless People
Contrast Grupo Entero with the development practices of most organizations. “It’s hard to think of an important aspect of management more neglected than development planning: helping your employees shape the future direction of their careers,” says business executive and writer Victor Lipman. “Yet this valuable activity is ignored … or handled as a bureaucratic exercise … or an afterthought. Companies pay a high price: the loss of top young talent.” How many leaders give it even a thought?4
“People care if you take a genuine interest in their future,” says Lipman. “Taking an honest interest in someone builds loyalty. Loyal employees are more engaged. Engaged employees are more productive.”5
EMPLOYEE LOYALTY LEADS TO CUSTOMER LOYALTY
It’s also fascinating to note how employee loyalty affects customer loyalty, which in turn affects the bottom line. “One lesson that emerges from the experience of low-end retailers is that putting workers in crummy, low-wage jobs tends to yield crummy service as well,” wrote journalist Harold Myerson.6 This was demonstrated when a large US home-improvement retailer cut costs by eliminating its experienced floor staff as well as its educational programs, resulting in the inexperienced staff that was left not being trained properly to service customers. Following suit, the company’s reputation for excellent customer service collapsed and sales slowed to a crawl.7
By contrast, companies that work to gain the intense loyalty of their employees tend also to gain the intense loyalty of their customers. Grupo Entero embodies this principle with its philosophy of cultivating loyal contributors. As we mentioned, Costco’s miraculous rise likewise is due to the loyalty of its contributors. The firm pays its people 42 percent more than average for the industry and provides an enviable package of benefits, including career education and a ladder to the top. Employee turnover is 6 percent, contrasted with around 40 percent for the retail sector as a whole. Upbeat Costco employees look like they enjoy their work, and in the view of brand expert David Aaker, Costco’s company policy clearly results in customer loyalty.8
That loyalty is intense and growing. As of this writing, Costco’s Net Promoter Score is an astounding 71, the highest in the retail industry.9 Millions of shoppers pack Costco stores across eight nations, according to ABC’s 20/20, “and for some of them the experience borders on the spiritual. Shopper Jose Davila put it this way: ‘This is the best place in the world. It’s like going to church. You can’t get anything better than this. This is a religious experience.’ ”10
To put things a little more modestly, Costco’s leaders are living by the simple principle of treating people the way they themselves would like to be treated. A friend of ours, a local attorney, goes with his wife to Costco every Saturday morning “because that is where I see all my friends.” For him, shopping is important, but the overall experience is the real story. It keeps bringing him back. In the end, when leaders focus on workers as people, on customers as people—while keeping an eye on profitability—they cannot help but succeed.
MOVING THE MIDDLE
As far as we know, no organization has ever earned a Net Promoter Score of 100. Getting into the seventies puts you among an elite few companies, like Costco, because the average score is between 10 and 15.11 If you’re a leader, one of your wildly important goals is to raise your company’s score, whatever it is, because of the critical value of stakeholder loyalty. A realistic strategy for doing that, whether you’re leading a small team or a whole company, is to “move the middle.”
Any business has promoters and detractors. Some promoters (like your mother) will love you no matter what you do. Some detractors (hopefully not your mother) will hate you no matter what you do. You’re not likely to affect the feelings of people at either end of the spectrum, but in the middle is the vast majority who could be influenced. If you can move that group even a few points toward the promoter side of the spectrum, you reap huge dividends because the group is so large.
A revolutionary study by the Sales Executive Council has shown that a mere 5 percent performance gain from the middle 60 percent of a sales force yielded, on average, more than 70 percent more revenue than a 5 percent shift in the top 20 percent of employees.12 In simple terms, a small movement in the middle has an effect on the top line that is way out of proportion.
Anything you can do to move the middle toward intense loyalty will reap big benefits. Often passive customers can become very loyal customers if you listen with empathy to their issues. For example, Shawn says, “I’m very happy with my tablet. I love it. I’m a ‘middling’ user—I enjoy getting Wi-Fi access to my favorite social media and news sites and an occasional movie, but I’m neither a techie early adopter nor a cranky old Luddite. I’m just loyal to my tablet.
Move the Middle
“But if I were asked, I do have a few issues with it. I’d like to have a protective case that isn’t so heavy. I get knocked off my applications too often. I know I have to sync it, but I wish I didn’t. The app store is hard for me to navigate. And sometimes the connection problems make me want to throw it out the window.
“I recognize my issues are petty and unreasonable, but tablet-computer designers who are also empathic listeners might be able to help. And if they did, my loyalty to their product would zoom up into the intensity zone.”
THE INTENSITY ZONE
Because the rewards of intense loyalty are so great, you should be gripped by the goal of achieving the “intensity zone,” where people wouldn’t want to work or do business with anyone but you. Who can calculate the value of workers who will wade through the mud for each other and their company? Or the value of customers who feel almost religiously tied to you? Moving the most people possible toward the intensity zone should be a wildly important goal for every leader, and is the job you must do now.