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LOYALTY MANAGEMENT – A BETTER WAY

 

 

Loyalty Management uniquely combines "the right thing to do" with "the profitable thing to do". It is as much a management philosophy as it is a management technique. Common sense and the Golden Rule are much in evidence.

 

Most executives claim to believe that loyalty (usually when talking about customers) is important, yet few companies do much to deserve it – how many companies that you deal with have earned your loyalty?

Traditional accounting practices place a value on things, they do not recognize the value of people; a company with a loyal customer base and a loyal well trained staff is valued in much the same way as a company with neither. This hides the company’s true value and future growth potential. This is especially important in valuing a company – either as the seller or the buyer.

Further, the emphasis on monthly or annual profits encourages managers to base their decisions on achieving short term results, especially if their compensation is tied to short term profits.

Few managers are able, or willing, to see beyond this year’s results. Few question the accounting procedures which classify the purchase of physical assets as an investment while expenditures on staff training and customer service are listed as costs (i.e. they reduce profits)

When times are good many companies abuse both their employees and their customers – reliable service and keeping promises don’t matter (they believe) there’s always another customer and employee waiting (they think) for their product or service. Until there isn’t! When business isn’t so good, and most industries are cyclical to one degree or another or are influenced by economic downturns, it’s "Good night Vienna" time.

Let’s take a quick look at how Loyalty managers differ from their more traditional peers.

Loyalty Management is concerned with developing loyalty based relationships with each of the four major stakeholders in the company: Customers, Employees, Suppliers and Investors.

Customers/clients

 

The Loyalty manager’s primary goal is to convert satisfied customers into loyal ones because he knows that loyal customers contribute a disproportionate share of the company’s profits and are crucial in assuring its future growth.

Loyal customers are those with whom an emotional bond has been forged – usually when the company, or one of its employees, has exceeded the customers’ expectations.

Loyal customers have much higher retention and referral rates and typically give a greater share of their purchases to the company. This pattern reflects itself in a higher Customer Lifetime Value (the net margin derived from the customer over the lifetime of the relationship).

In these troubled times a company’s best chance and least cost option first for survival and then growth is to build business with and through its existing customers.

Employees

Loyalty managers know that loyal employees beget loyal customers – it’s unlikely that a company will have many loyal customers if it doesn’t have a loyal staff. The two go hand-in-hand.

Suppliers

Loyalty works both ways. A company’s suppliers will (should) be trying to make the company a loyal customer but it is also in the company’s interest to make the supplier a loyal supplier. A loyal supplier is more likely to cooperate when the company needs something extra or special.

Investors

Loyalty managers avoid making short term decisions at the expense of longer term profits and growth so it is important to try to convince investors that the Loyalty Management philosophy is the best way to protect the company’s future.

And then ….

Loyalty managers understand there will be times when actions have to be taken that are counter to the principles of Loyalty Management but these will always be last resort decisions.

Most companies that adhere to the principles of Loyalty Management will be more profitable, more secure and have a greater chance of long term growth than companies that are managed in traditional ways.

Loyalty managed companies will suffer least when the economy, or their segment of it, is in trouble. Even in the worst recession business doesn’t disappear altogether, it contracts – the pie is still there, it’s just smaller. In times like these it is the companies that have the most loyal customers which are best protected.

And finally……

One less obvious benefit of a successful conversion to Loyalty Management is a reduction in managements’ collective "blood pressure". There is less conflict with and between the stakeholders, there are more positive than negative attitudes and managing becomes less stressful - even fun.

Frank Friend Associates with Business Insight Technologies

friend@ffauk.com 239 206 0058