Customer Loyalty is the Very Fibre of Your Business

Mike Teng
 


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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.

http://www.corporateturnaroundexpert.com

Dr Mike Teng (DBA, MBA, BEng, FIMechE, FIEE, CEng, PEng, FCMI, FCIM, SMCS) is the author of the best-selling business book “Corporate Turnaround: Nursing a sick company back to health", in 2002. In 2006, he authored another book entitled, “Corporate Wellness: 101 Principles in Turnaround and Transformation. " Dr Teng is widely recognized as a turnaround CEO in Asia by the news media. He has 27 years of experience in corporate responsibilities in the Asia Pacific region. Of these, he held Chief Executive Officer’s positions for 17 years in multi-national, local and publicly listed companies. He led in the successful turnaround of several troubled companies. He is currently the Managing Director of a business advisory firm, Corporate Turnaround Centre Pte Ltd, (http://www.corporateturnaroundcentre.com ) which assists companies on a fast track to financial performance. Dr Teng was the President of the Marketing Institute of Singapore (2000 – 2004), the national body representing some 5000 individual and corporate marketing professionals.

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