Where the ‘L’ has loyalty gone?

26 Sep
September 26, 2013

Loyalty can be defined as “Faithfulness or a devotion to a person, country, group, or cause.”  Apple customers are often referred to as being loyal, as are customers of John Lewis and Waitrose.  In our business world we expect loyalty from our employees but do we operate our business with the same values or are we in danger of creating a dichotomy where we demand loyalty from our employees but encourage them to treat customers with disdain?

Story

I’m a boring customer.  I tend to pick a deal or a company and unless they do something daft I’ll stay with them.  Normally I’m not one to hop from account to account because I believe – perhaps rather old-fashionedly – in customer loyalty.

But the recent surge in energy prices caused me to look online to see if I was getting the best deal possible.  As you’d expect there were a number of better offers available and as there was some serious money to be saved I – for the first time ever – switched energy providers.

A while later my existing gas supplier called me to say they were sorry to lose me and could they please try to retain my business.  “How are you going to do that?” I asked.  “Well, we’d like to give you £200 credit towards your gas bill if you’ll stay with us.”

I was polite to the person calling me and pointed out that in all the years I’d been with this gas supplier they had done nothing to retain my business, to make me feel better or to engender my loyalty.  To be offered money only when they thought I was going to leave was an insult – why didn’t they give me this care and attention in the form of lower bills – always – then I’d never have swapped suppliers in the first place!

I’m sure many of you will have had the same experiences but then the same thing happened a week later when I came to renew my car insurance.  I’d recently changed my car and thought the premium might be slightly higher but was just blown away with the increase.

I told my insurer – who also provides me with specialist breakdown cover, roadside assistance, household insurance and house damage cover – see, a loyal customer – that I could get my insurance far cheaper elsewhere.  Sadly they couldn’t – or wouldn’t – do anything to help me.  As you can surmise, I changed insurers, created a whole new trail of paper and cost both companies handsomely.  I just don’t understand why it has to be this way.

Even my building society – who I’ve been with for 25 years and had four mortgages with – couldn’t offer me, a loyal customer, the same deal as a new customer.  They were happy to trade my 25 years of exemplary payments for someone they didn’t know.  It just doesn’t make sense.

Business context

It’s a well-accepted view that it costs five times more to get a new customer than it does to keep an existing one and yet many businesses seemingly fail to see the benefit of customer loyalty.  If a business can happily let good customers go then what message does this give to the employees?  I’ve presented on this subject before and showed how in the 1990s and early 2000s, credit card companies suffered badly due to customer churn.

In his book The Loyalty Effect: The Hidden Force Behind Growth, Profits and Lasting Value, Fred Reichheld explores example after example showing clearly how loyalty can and does drive business success.  Returning to the credit card issue, Fred shows how the cost of opening a credit card costs the business about $80 and takes between three to five years to see a profit.  Customers who leave before that time actually cost the business money!

We’re also constantly being told about the power and importance of employee engagement.  Major consultancies run employee engagement studies for most of the big businesses and the results are eagerly awaited by the senior executives.

The British Psychological Society has clearly outlined the business benefits of employee engagement:

  • Operating income. Companies with highly engaged employees collectively saw operating incomes rise by $389.95 million or 19.2%, but companies with below average levels of engagement collectively saw it fall by $664.14 million or 32.7%.
  • Net income growth. The group of companies with highly engaged employees saw net income grow by 13.7% or $121.38 million but it fell by 3.8% or $33.67 million among companies with low levels of employee engagement.
  • Earnings per share. Organisations with highly engaged employees collectively saw earnings per share increase by 27.8% compared to companies with low levels of engagement which saw a fall of 11.2%.

So, as though we needed it, proof that employee engagement does make a difference to business.  But what about the cost of losing an employee?  What is the real cost of the unengaged employee who decides, like the customer, to go elsewhere?

Gartner once calculated that the cost of losing an employee – in terms of lost productivity, team morale, replacement cost, training and so on – was equivalent to the annual salary of the person you’d just lost.  That’s a lot of money in today’s tough economy.

We all know what we need to do but how can you drive loyalty with your customers?  What makes them feel special?  Businesses that show they really care about their customers are seemingly doing well – quelle surprise!

In an article in The Guardian John Lewis, Harrods and Fortnum & Mason were all reporting strong sales in the run-up to Christmas 2012.  Perhaps it’s because people with money shop there, or perhaps it’s because they take care of their customers – and that always means better business.

Conclusions

It’s time to ditch the dichotomy where we demand loyalty and engagement from our employees but give none back to the customers they serve.  Unless employees can actually see clear alignment between what a business says is important and what really happens then true engagement and employee loyalty will never be realised.

Call to action

If you say you value employee engagement and loyalty then make sure you’re demonstrating the same focus for your customers.

 

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