What Price Loyalty? A View from Three Sides

Given these definitions, is loyalty an anachronism?  And, indeed, does loyalty have any place in the world of commerce?  If you’re still reading, then you can acknowledge yourself for not completely giving in to cynicism.  The word around the water cooler is that “loyalty is dead.”  Have you ever heard this expression without also hearing a tone of regret?

It is certainly true that employers can no longer be expected to provide jobs for life, as in the days of yore.  Who can blame them?  We all remember employees who developed their own fiefdom within a company, considered themselves unassailable in their right to decide the level of service you received, whether as an internal or external customer.  As their management superior, you could demand their responsiveness, since you held sway over their career advancement and exercise of power, just as the medieval aristocracy could demand loyalty on pain of death or worse.

The modern equivalent of this mandated loyalty can be easily found in current employment contracts and non-compete clauses.  Is this the kind of “loyalty” we want?  We get compliance, but only lip service to commitment.

From the employee’s point of view, loyalty is commonly perceived as a one-way street, something they are expected to deliver, but have minimal expectation of receiving in return.  Employees can no longer be expected to devote themselves to a company and commit to undying fealty.

Let’s not forget the customer.  Companies would love to have their loyalty, since we all know through numerous research studies that the loyal customer will be less price sensitive (and will actually pay an average nine percent price premium), they will refer other customers more, and consider competitors less, and are more tolerant and forgiving of service glitches.  Tarp, Bain & Company polled customers who had changed suppliers, and uncovered a disturbing statistic.  Of those polled, fully 82% of those who had made the change stated that they were satisfied with the incumbent supplier before the change.  Meditate on that for a moment before reading further.

Ten years ago, when quality was the buzz word, companies strived to meet customer expectations.  Today, quality is only your ticket into the game, and does not guarantee a win.  Customer satisfaction, therefore, does not, in and of itself, generate loyalty.  In an effort to generate loyalty — and unless you have a monopoly in your marketplace, you can’t mandate it — companies have tried to buy loyalty or hope that through habit and the hassle of change, customers will stay with them.

How many supermarket loyalty cards do you have on your key ring?  It’s been established that this is merely a vehicle to get a discount and doesn’t necessarily cause customers to drive out of their way to get it.  Habitually loyal customers are an easy target for aggressive competitors, whose latest marketing gimmick might win the customer’s business, at least temporarily.

We’ve seen examples of how, when loyalty is removed from the equation, customers will leave an organization in droves.  If you have a Dell computer, it’s likely that you enjoyed the streamlined sales process and the quality of your equipment, but notice how your perception of value is dented or destroyed when trying to get tech support.  If you have a cell phone – unless your service provider is Cellular One – it’s unlikely that they’ve called you to suggest a better plan when your bill went over the contracted monthly payment.

Still reading?  Then you’re either a masochist, or just optimistic enough to hope for suggestions for some viable solutions to these problems.  At the root of the issue is that loyalty is generated when caring is part of the picture.  British Airways recognized four things customers want:  (1) friendly, caring service, (2) flexibility (willingness to evaluate each situation individually, rather than “by the book”), (3) problem solving, and (4) recovery (make it up if you mess it up).  The result of a focus on meeting these four criteria is committed, rather than mandated or bought loyalty.

When it comes to employer-employee relations, do these concepts apply, and if so, how?  A paradigm shift is needed if we want to resurrect loyalty in the workplace relationship.  If we view coworkers, managers, and staff as customers, how differently might we interact with them?

The quality of leadership is key to employee commitment.  Edward Demming, the American quality guru, who introduced Kaizen (the spirit of continuous improvement) to the Japanese back in the ‘50s and ‘60s, and changed the commercial culture from being copycats to being innovators, asserted that if an organization has a problem, look to the top.  We all have examples of where a wide separation of employer and employee salaries, bonuses, and perks have served to disillusion and destroy employee commitment (e.g., Enron, Global Crossing).

More positive models are also to be seen, thankfully, in companies such as NCI Building Systems, who thrive in the metal building industry and are the second largest buyers of steel in the U.S., after the automobile industry.  Despite a 76% increase in the price of their raw materials in the first quarter of 2004 (and the resulting huge price increases), they manage to maintain loyalty among their customer base.  This is due in large part to the efforts of their staff to help customers solve their current challenges, as well as having provided years of friendly, caring service.  This staff commitment, in turn, was produced by years of effective leadership and the care demonstrated by the company in watching out for their employees’ social and financial well being.

An article published in 2003 in Darwin Magazine, outlined 10 steps to employee loyalty:

• Increase confidence in leadership (e.g., a clearly stated company vision and strategy for success in their marketplace).
• Improve company culture (e.g., a feeling of being treated fairly can be more important than salary increases).
• Increase trust (e.g., reduce the perception that employees are there to serve not just the external customer, but to provide a rich lifestyle for the executives).
• Create advancement opportunities (e.g., employees also seek professional development through training and increased capabilities and job satisfaction, not merely getting a more impressive title).
• Promote stability of the company (e.g., create a perception that the company is in it for the long haul, and not just the fast buck demanded by Wall Street).
• Provide autonomy and challenge (e.g., employees feel valued when given the opportunity to make suggestions for improvement and when constructive criticism is not treated as a complaint).
• Provide job stability (e.g., it’s okay to move the cheese, but let’s not remove it entirely.  Demonstrate that loyalty is rewarded with security).
• Fairly compensate (e.g., in the post-stock market bubble world, employees now prefer performance compensation ahead of equity).
• Provide flexibility (e.g., since 9/11 most of us have re-evaluated our priorities and seek a better balance between work and home life.)
• Monitor benefits (e.g., health care coverage, matching company contributions and stock ownership plans can more closely align an employee with a company).

Clearly, all this is easier said than done.  However, it costs between four to five times more to win a new customer than retain an existing one.  Keeping your internal service providers and customers loyal may also pay off at that level.  A cost benefit analysis of measures to generate employee, as well as customer loyalty, may be worth the effort.

Recommended reading:

Employer Loyalty

Loyalty — Management’s Forgotten Trait, James L. Mazurek, Illinois Municipal Review

The Loyalty Effect, Frederick F. Reichheld

Employee Loyalty

The Fifth Discipline, Peter Senge

Here Today, Here Tomorrow, Gregory Smith

Customer Loyalty

Managing Customer Value, Bradley T. Gale

Customer Intimacy, Fred Wiersema