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Loyalty Rules!Loyalty Rules!
Loyalty Rules!
Author Interview
Featured Companies
The Loyalty Effect
Apply Loyalty to your Business
Loyalty Acid Test
Fred Reichheld: Author / Speaker
Loyalty Library
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Loyalty Rules!
Author Interview
Author Interview
Harvard Business School Press 2001

  Q. How do you describe loyalty?

  A. True loyalty is about earning people’s enthusiastic commitment to a relationship that will improve their lives over the long run. When partners -whether they be customers, employees, suppliers, dealers, or investors - trust that leaders have the capability and commitment to help build their success, they will commit to doing the same in return. But they must see more than good intentions and kind words. They must also see a rational strategy for generating superior financial results.

  Q. Your previous book, The Loyalty Effect, proved the link between loyalty and bottom line profits. How does Loyalty Rules! relate to this book?

  A. When The Loyalty Effect was published several years ago, many people in the media and in the business world were saying that loyalty was dead. My first book proved that idea wrong. I think what most startled people was not just the fact that loyalty was more than just a nicety - but that it affected the bottom line so dramatically. Now, with the advent of the Internet, free agency, online job auctions, and customer shopping bots - people are once again writing the eulogies for loyalty. Loyalty Rules! unveils new research that proves loyalty is alive, well, and more vital than ever in today’s volatile economy. It reveals the companies most worthy of employee and customer loyalty, shows what they’ve done to earn that loyalty, and how they’ve leveraged it to become huge financial success stories in which everyone wins - from the CEO to employees, investors, and most importantly, customers.

  Q. It’s easy to see why companies want loyal employees. But in a workplace that seems to reward job-hopping with higher salaries and better career opportunities, shouldn’t employees just look out for themselves?

  A. Contrary to the whole “You, Inc.” and “free agent” mentality, I believe people yearn now more than ever for leaders and institutions worthy of their trust and commitment. The reason there is so little loyalty to be had in today’s environment is not because of a confusing new economy - but because most leaders have proven themselves unworthy of loyalty. If people had the opportunity to work for an exclusive team renowned not just for business success, but for always doing the right thing by customers and employees - that would engender loyalty. If people worked for a leader of integrity, who dedicated both time and money to helping each employee achieve his or her fullest potential - that would also engender loyalty. Loyalty Rules! shows there are companies that do just that - and in doing so have enriched lives as well as pockets.

  Q. What about customers? Aren’t most people jaded from poor service, pricing schemes, and slick sales pitches?

  A. Too many companies have betrayed customers’ trust by rewarding disloyalty. For example, new customers get the best cell phone deals while longtime customers pay top rates. Infrequent travelers get the lower advance ticket price while frequent business travelers pay ridiculously higher fares. But that doesn’t mean customers won’t give their trust - and their business - to a company that really earns that trust. Especially for customers on the Web, where business is conducted at a distance and risks and uncertainties are magnified, trust is more important than ever. When asked to name the attributes of e-tailers that were most important in earning their business, Web shoppers’ #1 answer was “a Web site I know and trust.” All other attributes - including lowest cost and broadest selection - lagged far behind.

  Q. What are some of the companies your research pegged as being most worthy of loyalty?

  A. The loyalty leaders discussed in the book - Harley-Davidson, Enterprise Rent-A-Car, The Vanguard Group, Dell Computer, Southwest Airlines, Dell Computer, Cisco Systems, Northwestern Mutual, MBNA, Chick-fil-A, SAS, Southwest Airlines, USAA, The New York Times Company, U.S. Marine Corps, and Intuit - have exemplary records of customer and employee retention that have endured throughout the good times and the bad. Leaders of these companies have prospered by consistently putting the interests of customers, employees, and other business partners ahead of their own.

  Q. You say that most companies are shooting themselves in both feet with their reward systems. Why?

  A. Most reward systems today are far too generous to mediocrity and far too stingy in rewarding superior performance. Executives - from the CEO on down - continue to be well compensated whether or not they create real value for customers and other partners. At the same time, these corporations usually limit the upside of rank-and-file bonuses. What this system really ensures is that the star performers will be encouraged to defect, while the deadwood continues to decay at the company’s expense.

  Q. Many high-loyalty firms in the book boast huge compensation levels - not just for executives, but for all employees. How do they make this possible?

  A. When leaders correctly align the interests of their employees and their customers, they can be exceedingly generous while still keeping costs low. Vanguard, Enterprise, and many other loyalty-based firms show enormous cost advantages even while they compensate people well beyond market rates. Both productivity and loyalty grow whenever there is an opportunity for greater rewards - not just in monetary compensation but in the opportunity to build something of significance; to learn, to grow, and to have greater and greater impact.

  Q. Yet low base pay is as common a practice at high-loyalty firms as high compensation.

  A. That’s true - low base pay is also an important part of the strategy. The base has to be low enough that very few people who are not generating superior results for customers and other partners will want to stay unless they are confident that they can build their success over the years. Otherwise, leaders run the risk that employees will mistake tenure for loyalty and think they get paid just for showing up.
  Q. What is the Loyalty Acid Test?

  A. Since loyalty is the gold standard for measuring the quality of a relationship, we’ve devised a “relationship report card” to help leaders evaluate and strengthen key relationships with all of their partners: employees, customers, suppliers, and investors. A handful of “loyalty leader” firms have beta-tested this tool with striking results. Between 70-75% of their employees believed their companies were worthy of loyalty - compared to less than 50% in other organizations. When loyalty is measured as closely as profits, you begin to see the link between treating people right and financial rewards.
Bain & Company  (c) Bain & Company, Inc.