It took retail giant and wholesaler Costco less than thirty years to become the second largest retailer in the USA and seventh in the world—without advertising. How? By growing a worldwide base of intensely loyal customers and employees, many of whom “wouldn’t shop/work anywhere else.”
Just last week, Costco’s earning report beat expectations for both top and bottom line (CNBC). The stock closed at $204.50 per share this week. That represented the high water mark in the company’s history.
Obviously, many things play into the success of Costco, but at its heart, the story is one of loyalty.
Probably the highest level of engagement is loyalty. Loyal workers and loyal customers are worth 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 good will than she will ever cost you. A customer who gives you a lifetime of return business and word-of-mouth support isthe ultimate competitive lever.
Bringing Customer Loyalty to Your Organization
The old paradigm was “customer and employee satisfaction.” It’s great to have satisfied customers and employees, but it’s not enough anymore. 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. The surveys 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, at bottom, 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?
“Intense Loyalty”: The New Paradigm
How do you get the kind of intense engagement?
The answer, according to Harvard Professor and veteran Bain consultant Dr. 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 of wildly successful Southwest Airlines: “Practicing the Golden Rule is integral to everything we do.” Andy Taylor of Enterprise, the most prosperous rental-car company in the world: “The only way to grow is to treat customers so well they come back for more and tell their friends about us.”
Every company has pockets of great customer service, but few make a system of it—ironically, since study after study demonstrates that customer loyalty is the prime driver of profitable growth. It’s well established that as little as five percent growth in customer loyalty can drive as much as 85 percent growth in profits.
By contrast, chronic inconsistencies in customer service are the enemy of loyalty. Some companies pay a fearsome price when 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.
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 experience reap enormous rewards: enhanced customer satisfaction, reduced churn, increased revenue, and greater employee satisfaction too.”
A loyalty “app” starts with both customer and employee loyalty measures. Many organizations are now using Reichheld’s well-regarded “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 behaviors to work on. 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 move that score in the right direction.
Once you know the score, you can make leaps in loyalty the focus of your organization.
Patrick Leddin, PhD is a speaker, global leadership consultant, and The Wall Street Journal bestselling author of The Five-Week Leadership Challenge. Patrick is an Associate Professor at Vanderbilt University with a thriving leadership blog and podcast, and 25-years of leadership experience. He offers an unparalleled mix of academic rigor and real-world experience.