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Saturday, January 05, 2008

Measuring loyalty -- losing touch!

The credit card industry pioneered in client loyalty research. So why is it trapped in the 'space' of call centre rote, rate playing games. Maybe it is too much into measuring results.

Here's an interesting paradox. The credit card industry, it seems, led the way in measuring customer loyalty. Yet the industry -- despite all its research into business principals and practices to attract and retain qualified clients -- is trapped in the 'rate game' spiral, as it struggles to attract and retain high quality clients. Why?

Well, Charles Green in his Trusted Advisor blog quotes Fred Reichheld’s book "The Loyalty Effect" from 1991:

We found we could not progress beyond a superficial treatment of customer loyalty without delving into employee loyalty. We found there was a cause and effect relationship between the two; that it was impossible to maintain a loyal customer base without a base of loyal employees; and that the best employees prefer to work for companies that deliver the kind of superior value that builds customer loyalty. We then found that our concern with employee loyalty entangled us in the thorny issue of investor loyalty, because it is very hard to earn the loyalty of employees if the owners of the business are short-sighted and unreliable. Finally, predictably, we found that investor loyalty was heavily dependent on customer and employee loyalty, and we understood that we were dealing not with tactical issues but with a strategic system.
Fair enough, these ideals remain valid; the problem is in the measuring, Green suggests.
Very simply, the case of “loyalty” is Exhibit One in a lemming-like rush by business to over-stress three simple concepts:
1. Profit is a measure of business activity effectiveness
2. Measurement is a valuable tool for management
3. Activities can be disaggregated into smaller, measurable activities.
Those reasonable beliefs have metastasized into these distorted versions:
1a. Every business activity has value only insofar as it increases profit
2a. If you can’t measure something, you can’t manage it3a. Anything worth measuring is even better measured in shorter durations and smaller units. This extreme thinking has meant that the management of business these days
is centered on short-term profit manipulation—not on long-term value creation.
So legitimate and practical ideals are lost in the rush to measure them. And businesses, and their employees, start distorting their behaviours in an effort to achieve short term measurable results -- and then the whole business value proposition gets trapped again in short term thinking.


Sonny Lykos said...

Mark, Fred Reichheld is 100% correct. Example, with all the advertising and marketing does, still, when I go into my local MacDonalds, everyone there specks spanish to each other, including in the presence of their customers. It's a turn off!

And 9 of 10 times, I have to teal the clerk to not give ma a cup of coffee from the container that has about one inch of coffee and has been sitting there for a long time. So it's me, not the clerk, that must suggest a new pot of coffee be made. Another turn off. And the only reason why don't use the drive thru.

I and my wife had similar problems when calling a customers customerservice or support phone numbers. Simply put, we could not understand what they were saying.

All the advertising and marketing in the would is moot if the employees are not exceptionally trained in what they are selling, and how to sell it. And obviously, they must also be able to diseminate information by having a good grasp of speaking our language.

Once more it has been proven that it's the "front line" employees that will make or break a customer, create or destroy customer loyalty, and create or sabotage net profits.

Take care of your employees first, if you expect them to do the same with your customers.

Construction Marketing Ideas said...

These are excellent points; of course the challenge is especially serious a the lower end of the pay/skill level -- businesses which can only pay minimum wage (without tipping opportunities) are either going to find their labor pool is the lesser talented or otherwise employment-handicapped people. But this doesn't explain how, for example, in Canada the employees at some fast food chain branches 'get it' and others don't. I sense the successful locations are able to create an internal chemistry where relatively talented workers are attracted, stay, and invite their friends to join. Maybe it is as simple as Marcus Buckingham's approach to find the talent of each employee and allow them to soar within that area (even within the confines of a fast food place, that is possible, to a degree.)

Sonny Lykos said...

It might be Marcus Buckingham's approach, or it just might be as simple as a handful of business owners get it while most don't.