Leadership and Loyalty
by Steven C. Coats

Loyalty is always a hot topic in tough economic times. We all know how difficult it is to pick up new business during downturns, and the cost of obtaining a new customer at any time is usually very high. Constantly churning employees also produces an ongoing drain on productivity and skyrocketing recruiting costs. Think about the implications of needing to shop for new long term banking relationship every six months. Business and profit growth is simply easier, when all your key stakeholders stay with you.

So take a moment and thoughtfully answer this question, "Do you (or your company) deserve the loyalty of customers, employees, partners and shareowners?" Think about your answer from their perspective.

There is a difference between loyalty and "locked in." Many companies have customers that appear loyal because of continuing business, but nothing could be further from the truth. Sometimes customers may feel like they have no other options, so they continue doing business with a company, while perhaps almost despising the relationship. Talk to some of the business people in Cincinnati who frequently complain about their local airline. With over 90% of the gates at the airport, Delta owns that city. So flyers either use them, (and frequently pay excessive fares) or drive two hours to another airport. So, are Delta's customers truly loyal - or simply lacking reasonable alternatives?

Customers will also continue doing business with a company simply for the sake of convenience or habit. To be sure, convenience can be a source of strategic advantage that does build loyalty. It can also be a feature that customers will value just some of the time. The key question is this: if customers pay a premium for the convenience, which is usually the case, will they continue to do so in tougher times, or when a lesser cost, equal alternative is available?

The relationship your employees have with you is no different. Many will stay with you if they have no other reasonable options, or if working with you has become a comfortable routine. But how can you be assured they are giving themselves fully to your cause.

I remember a few years back talking with a manager about his team. When I asked how many people he had working for him, his answer surprised me. He said, "about half!" In talking with some of the employees, one said something like, "I am working hard enough not to get fired, and making enough so I don't want to quit." For some reason, this did not sound like (or prove to be) the success formula for high performance or loyalty.

There are similar examples for all the various relationships you have in business. So rather than assuming loyalty is the sole reason for an ongoing relationship, you need to be clear on how you would answer the question posed at the beginning. Do you deserve the loyalty of others?

Loyalty Factors

Contemporary research has cited three factors that must be alive and well for customers (and we believe other relationships as well) to be considered loyal. 1) They must be very satisfied with you (just satisfied is not enough), 2) they express a strong desire to continue doing business with you, and 3) they actively tell other people about you. They become great advocates or salespeople for you. The important point is this: loyalty requires all three of these.

For others to be loyal, they must feel "emotionally committed" to you. They must feel that the value of the relationship is more than just the sum of the business transactions they have with you. They must know that you and your company are genuinely interested and invested in their needs. When it comes to customer loyalty, remember this: the number one factor in developing committed customers is having committed employees taking care of them. The role employees play in creating customer loyalty is up to four times more powerful than that of products, services, brands and so forth.

This brings us to the loyalty conundrum. In tough times, companies aspire to ensure their customers remain emotionally committed to them. For this to occur, we know that businesses must have deeply committed employees, who are devoted to their own companies, as well as to the customers they serve. But what is one of the most frequent strategies many companies take when business gets soft? They initiate downsizings and layoffs. And many times, those most affected are the direct customer interface people, who are most responsible for building customer loyalty.

Points to Remember

So what is the bottom line on loyalty?

  1. Loyalty cannot be just a strategy, it must be a fundamental principle. You are either devoted to it or not. Trying to substitute committed people with an occasional new marketing program or technology enhancement will not cut it. Therefore, increasing your efforts on building loyalty during only the tough times is too little, too late.
  2. Trust and credibility are cornerstones. Your words and actions must be aligned. If your constituents do not believe in you, they will not remain with you. At some time, you may find yourself having to decide between suffering a loss of either profitability or credibility. Experience tells us it is much harder to earn back credibility, and without the trust and loyalty of your customers, employees and others, you're dead!
  3. You get people emotionally committed to you, by helping them find greater meaning and purpose in their relationship with you. You may be one of the many, deeply committed to your job or company, even though you could make more money elsewhere. You may feel that same level of attachment to people (or organizations) with whom you do business, or companies in which you own stock.
  4. Don't believe it when you hear that people, especially your employees, do not care about loyalty. You just have to remember that you have to act in ways that deserve it. That is true in all relationships, business or personal.
  5. Think deeply about whether your messages and actions communicate loyalty. Why would customers remain loyal if your primary views of them are statistics, or accounts listed on a monthly sales report? How committed are employees likely to be, when they are referred to with such esteemed terms as headcount, or my favorite, full time equivalent. Like the old Monster.com commercial, is that what you want to be - an FTE?
In closing, be reminded that loyalty must be earned. Back in the early '80's, Tylenol literally flushed their entire market share down the toilet, and proved through their actions (expensive as they were) that people (doctors, patients, mothers, employees, shareowners, etc.) could still trust them. They rebounded to become the strongest brand in their category, and a source of heartfelt pride for employees. Contrast that with the reported actions today of some of the executives at Enron. Should these people find their ways into executive positions in different companies, would you want to work for them, lend to them, or invest in them for the long haul?


Steven C. Coats is Managing Partner of International Leadership Associates - dedicated to developing leaders that inspire other people to do the best work of their lives. Contact Steven at http://www.i-lead.com .

Many more articles on Customer Service, Executive Performance and Creative Leadership in The CEO Refresher Archives

   


Copyright 2002 by Steven C. Coats. All rights reserved.

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