Customer Loyalty is the Very Fibre of Your Business

Customers do not measure you on your earnings per share. They have their own
measurement. The important thing to have from customers is their loyalty. Companies
that ignore this important element face dismal future of low growth, weak profits and
shortened corporate life span.

Frederick Reichheld, a customer-loyalty guru and author of bestselling books, The loyalty
Effect and Loyalty Rules! argued that loyalty is the guarantee of your competitive
advantage and survival. Based on his study, 5 per cent increase in customer retention
will be translated into growth of between 25 and 95 per cent in profitability.

When you set aside your own interests and do something extra for a client – when the
client perceives that you have helped him in some out-of-ordinary way and gone the extra
mile – the result is often loyalty. The extra mile can be represented by many different
gestures and acts. Sometimes, they have little to do with your formal contract. This may
include helping your client to get his children to school. Going that extra mile builds
client loyalty because it enhances trust. It shows that you are focused on your client’s
interest rather than your own agenda. There is something else behind going the extra mile
and it is called reciprocity.

The problem in business today is that they do not measure or evaluate loyalty.
Accountants have devised sophisticated measurements for assets, costs, revenues and
inventory. However, they do not make distinctions between sales revenues from new with
old customers. Investments in old customers and acquisition of new customers are
considered as costs, instead of amortizing it over the life of the customer relationship.
Thus the full value of loyal customers is hidden.

The most effective CEOs start with a view of the market, then work back to create an
organization focused on satisfying customer needs. The best example is Dell Computer, a
company that puts the customer at the center of virtually everything it does. Michael Dell
said that he did not create what became known as the direct model out of any great vision.

That model though is what makes the company unique and has helped it to expand. “The
direct model has a number of attributes,” Michael Dell stated. “Of course, being in touch
with the customers’ needs is one of its most fundamental principles.” It is difficult to
imagine a more customer-centric organization than Dell’s since each product is custom ordered,
and the company is structured around customer or customer groups.

Wal-Mart’s success against all odds was due to the founder Sam Walton’s fierce
commitment to offering his customers the lowest prices, regardless of where they lived.

Sam Walton once said: “Every time Wal-Mart spends one dollar foolishly, it comes out
of our customers’ pockets.” He also said: “There is only one boss. The customer. And he
can fire everybody in the company from the Chairman on down, simply by spending his
money somewhere else.” That sentiment is still deeply embedded in the psyche of the
company, more than a decade after Walton’s death. In 2003, Wal-Mart was voted by the
Fortune Magazine as the most admired corporation in the United States.

In his book: Who Says Elephants Can’t Dance? the former turnaround CEO of IBM, Lou
Gerstner said that in 1990, IBM had lost touch with the marketplace and its customers.
When the company failed to grasp the microcomputer revolution and other important
changes within its industry, the company almost went under.

Lou Gerstner got IBM to refocus on the marketplace as the only valid measure of success.
He started by telling virtually every audience in the first couple of months that there was
a customer running IBM. He wanted to rebuild the company from the customer back.

Perhaps Jack Welch, GE’s former chairman gave the penultimate word on the importance
of customers when he said, “Companies can’t give job security. Only customers can.” In
other words, succeed in the marketplace or you’re out of a job.

Herb Kelleher, CEO of Southwest Airlines was quoted in Fortune February 1994 on a
pilot’s decision to return to a gate to pick up a passenger who arrived late: ” Rules are
great, but the bottom line is to do the right thing.” Sally Price of PepsiCo, quoted in
Business Week, March 21, 1994: We are taking customer service from the must-have
necessary evil it was in the past and turning it into a competitive advantage.” The
customer is not king anymore. The customer is dictator.