How To Build Loyalty

By Heather Baldwin

You’ve heard it before – customer satisfaction ratings mean nothing; customer loyalty is everything. After all, customers can be satisfied with your product or service and still migrate to a competitor. It happens all the time. In a survey, Frederick F. Reichheld, author of a new book called Loyalty Rules! How Leaders Build Lasting Relationships in the Digital Age (Harvard Business School Press, 2001) found that 80% of customers defecting from one company to another had said before switching allegiances that they were ‘satisfied’ or ‘very satisfied’ with their original vendor. So how do you build customer loyalty? Surprisingly, it has almost nothing to do with customers and everything to do with your front line employees, says Reichheld.

Reichheld spent the last four years studying 20 loyalty-leading companies in various industries, including Dell Computers, Southwest Airlines and Enterprise Rent-a-Car. What he learned was that companies that put a system in place to collect and analyze customer feedback, and then made a practical link between customer feedback and employee promotion, saw customer loyalty – and with it, profits and revenue – soar.

Take Enterprise, for example. After reviewing years of customer satisfaction rankings and re-purchase decisions, it determined there was almost a direct correlation between customers who said they were ‘completely satisfied’ with Enterprise and their return to an Enterprise counter for future car rentals. Other rankings – even the second highest satisfaction rating – produced no such correlation. So Enterprise decided to measure customer feedback and reward employees based on their individual abilities to generate ‘completely satisfied’ rankings from customers. The result? With employee pay and promotions tied directly to their ability to delight customers, Enterprise “blasted past Hertz and Avis” to become the nation’s number one car rental company in the U.S., says Reichheld.

It’s a simple principle, says Reichheld – determine what drives customer re-purchasing and then make that the priority when evaluating employees. The key, however, is to focus on the accomplishments of individuals or small teams. Many companies make the mistake of basing bonuses on the company’s overall customer satisfaction ratings, but individual employees generally feel they have no control over those ratings. “When you say, ‘You. Your bonus will be based on customer feedback specifically about you,’ that works,” says Reichheld. “The employee will feel like he or she has control and you’ll probably start seeing employees compete with each other to see who can best satisfy your customers. The result, of course, will be a fast-growing customer base that returns to your company again and again.”