Loyalty Rules!
by Frederick Reichheld
Six Loyalty Principles
1. Play to win/win
2. Be picky
3. Keep it simple
4. Reward the right results
5. Listen hard, talk straight
6. Preach what you practice
· Get rid of distractions - divest every business line that is delivering less than the best customer value.
· Beware of the rotting core - distractions are not always found in newer business lines. It may be what was traditionally your core business which is delivering poor value.
· Be wary of wall street wisdom - investor advice on how to achieve success can become a lethal distraction.
· Grow from positions of strength - the best source of growth is through deepening relationships with existing customers rather than spreading resources too thinly.
Be Picky
Who you associate with is the strongest indication of your values and aspirations. Choose your partners, suppliers, associates, and managers carefully. Not all are worthy to work with or represent your company, in terms of character, capability and performance.
Selecting the right employees should be one of your most important concerns in running your enterprise. Employee behaviors and attitude communicate most directly what your company stands for.
· Don't delegate employee selection more than absolutely necessary.
· Be picky about employees' initial experience: the first 40 hours of work makes an indelible imprint on a new employee and frames their understanding of the company and its business.
· Be picky about who stays and who is promoted: high performance cultures cannot tolerate mediocrity.
Target the right customers. Undisciplined customer acquisition can lead to higher costs and may jeopardize your reputation. Picking the right customers on the other hand means greater selectivity and more focused marketing. Look for barnacles, not butterflies. Target those who will provide you with ongoing income and greater profits rather than numerous short-term and often more costly customers that chase the latest gimmick or discount deal.
Keep it Simple
Complexity is the enemy of speed and responsiveness. The best business is so reliable and so flexible that it does the best possible job in the fastest and simplest way.
· Simple rules are golden: keep your principles simple and clear and easy to remember.
· Treat them right: your customers will be loyal if you treat them ethically and responsibly.
· Keep score keeping stable and simple. Manage performance using a simple, clear set of rules that don't change with the latest management fad. This is a powerful tool for keeping people focused on creating value.
· Small flexible teams. Create small teams that work together to solve problems. The small size will naturally build the loyalty and familiarity found in small towns.
· Teams of ten or fewer are the most effective. Don't increase the span of control for supervisors: productivity will fall.
· Outsource all functions for which you cannot deliver unique value.
· Measure retention - carefully. This is the best gauge of whether your company is delivering value to your customers.
· Build a better dashboard. Augment standard accounting metrics with gauges that measure the creation of partner and customer value.
· Align incentives. Once you have the right dashboard, you must align incentives to correctly influence behavior.
· Fix misalignment. Employee interest must not conflict with customer interest. Investigate and correct misalignment.
· Reach for the stars. Eliminate floors on performance and remove ceilings. Pay rewards according to real profits generated.
· Reward loyal customers. The partners that create the most value should receive the most benefits.
· Listen.
· Learn, rather than focusing on responding.
· Act, once you have learned the issue.
· Explain what you are doing AND why.
"Cheshire-Puss," she began, "would you tell me, please, which way I ought to go from here?" "That depends a good deal on where you want to get to," said the Cat. "I don't care much where--" said Alice. "Then it doesn't matter which way you go," said the Cat.
