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Title: Loyalty Rules!
Author(s): Frederick F. Reichheld Publisher: Harvard Business School Press, 2001, 211 pages. Manageris 102b. In his bestseller, The Loyalty Effect, Frederick F. Reichheld demonstrated that corporate performance is strongly correlated to the loyalty of key partners, i.e. employees, customers, suppliers and investors. Loyalty Rules! shows that loyalty is more important today than ever before, refuting the popular belief that the rules of the loyalty game have been changed forever by the new economy. Above all, this book proposes many helpful tips drawn from observation of best loyalty practice leaders. Main subject [Customer
Loyalty] |
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Reading Tips for..
This book reads like a practical how-to manual on loyalty, rather than an intellectual treatise. Based on a detailed study of twenty loyalty leaders, the author derives six basic rules used by these companies to acquire and retain these partners. Most of these rules are analyzed from the perspective of both employees and customers alike.
The findings of the author’s previous book, The Loyalty Effect, are reviewed in chapter 1. Readers will undoubtedly appreciate the concise summary demonstrating the correlation between partner loyalty and performance.
The six principles of loyalty are described at the end of chapter 1 and illustrated in chapter 2 using detailed examples from Enterprise Rent-A-Car, The Vanguard Group, Harley-Davidson, Dell, Intuit and Cisco. A separate chapter is then devoted to each of these "rules."
The importance of staying focused is a recurrent theme throughout the book. Several arguments in support of this theory are presented in chapter 3, which emphasizes the pitfalls of dispersing the company’s efforts, as well as in chapter 5, which promotes simplicity.
Selectivity is a corollary to loyalty. The point isn’t to retain all partners, but only the best. The selection theme is developed mainly in chapter 4, supported with detailed illustrations of employee selection, a subject already covered in depth by other authors. A more original contribution is customer selection, a precept that many companies are reluctant to apply. The examples of Dell, Enterprise Rent-A-Car and the MBNA credit card company provide convincing support for this approach.
The need to share the value with partners is described in particular detail in chapters 3 and 6. Chapter 3 demonstrates the benefits of working in the interests of partners. Far from altruistic, this approach really helps build loyalty. Chapter 6 emphasizes the need to reward loyalty.
Finally, the importance of communication appears through the entire book. Readers who want to go deeper into this topic should refer to the last two chapters in particular. These chapters go on at length on the importance of talking straight, as demonstrated by Dell and Cisco. The importance of listening to partners is also emphasized.
Loyalty Rules! is Frederick F. Reichheld’s sequel to the book The Loyalty Effect, which described an economic model for profit, growth and long-term value. The new book is designed to be a practical handbook, organized around six rules for building loyal relationships with customers and employees. Loyalty Rules! will be useful for managers already convinced by the analysis provided in the earlier book that nurturing loyalty pays off. Loyalty Rules! now provides practical step-by-step advice on how to manage loyalty in an organization.
The six rules (e.g., play to win/win; keep it simple; listen hard, talk straight, etc.) are simple guidelines for structuring business relationships both externally (with suppliers, distributors, end consumers) and internally (employees). Business cases from a variety of industries (ranging from mutual funds and car rental to software) show how broadly these principles can be applied. While most managers would subscribe to most, if not all, of these principles, few managers actually live up to them in their strategic and tactical behavior. Instead, they cite economic pressures, competitive initiatives, or price pressures for taking loyalty-destroying, short-term actions. This is exactly where The Loyalty Effect becomes most valuable. The book not only describes abstract concepts in each chapter, but also offers real-life experience and examples showing how to apply these rules in practice. In other words, from now on, no more excuses.
For example, how do you “keep it simple”? According to Reichheld, by outsourcing, and shrinking headquarters and hierarchies. Such recommendations help executives practice the principles of Loyalty Rules! by refocusing the organization on targeting the drivers of loyalty. Moreover, if appropriate performance metrics are developed, managers can track how implementing the six rules impacts company performance. I would like to stress that managers must develop their own, company-specific metrics. The “Loyalty Acid Test” reproduced in the Appendix and cited throughout the book is a good place to start. However, this test seems a bit too simplistic to serve as a reliable diagnostic tool or decision-making aid. Unfortunately, the author does not provide simple statistics that would prove the test’s reliability and correlation to the six principles.
The book is not entirely original. Some ideas are extensions of concepts presented in The Loyalty Effect, and others have already been presented by the same author in a recent Harvard Business Review article and by other authors (e.g., in the work by Peppers and Rogers on customer relations or in negotiation literature by Fisher and Ury). These ideas are nonetheless important, and should be recalled to managers on a daily basis to keep them from giving in to the short-term pressures and excuses mentioned earlier. More importantly, never before have these principles been combined in such a manageable, practical package in the context of marketing and customer relations management.
Further readings…
- The Loyalty Effect
Frederick F. Reichheld – Harvard Business School Press. (Book) - Commitment-Led Marketing
Jan Hofmeyr, Butch Rice – Wiley. (Book) - Winning the People Wars
Mike Johnson – Prentice Hall. (Book)
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