TORONTO — Some of the companies that have high customer-retention rates share some common approaches to the way they implement customer service throughout their organizations, according to Frederick Reichheld, a director at Bain & Co., Boston, who spoke at the Direct Marketing Association’s 82nd Annual Conference and Exhibition here yesterday.
In addition, he said, they also are successful at retaining employees, indicating that these firms have an all-encompassing dedication to satisfying the people they come in contact with.
Reichheld, whose book, “The Loyalty Effect,” quantifies the fiscal impact of customer and employee loyalty, said companies that invest in meeting the needs of their customers and employees see benefits in terms of reduced marketing and recruiting costs and see positive effects on their revenues from customers that return again and again because of the high level of service they receive. Because of the cost of customer acquisition, firms that go out of their way to keep customers by providing good service reduce the amount of marketing they need to do to retain their customer bases.
Reichheld said that at first glance, loyalty and traditional business seem to run counter to each other.
“Business is about greed and self-interest … and loyalty is about self-sacrifice,” he said. “So business loyalty is really an oxymoron.”
But, he said, some company leaders have been able to redefine loyalty as it relates to business, not by offering frequent-shopper points or other gimmicks, but by utilizing strategies that decrease attrition among both customers and employees.
“These guys want to get rich by giving their customers the best possible service, and by treating the employees the best they can,” he said.
Reichheld listed several traits that business leaders who have high customer loyalty share in the way they approach their treatment of customers and employees.
Among the qualities that such loyalty leaders share are their tendency to “preach what they practice.” These companies talk constantly about customer service, he said, and make it such a part of their infrastructures that the companies can handle customer service crises when leaders are absent.
He cited as an example a situation that happened with Intuit Inc., Mountain View, CA, the maker of tax-preparation software, in which a newspaper reported that there was a bug in one of the company’s programs, just as the company was entering its peak selling season. As the company’s CEO was giving a previously scheduled presentation that morning, the rest of the staff handled the situation smoothly by offering free replacements, no questions asked.
Reichheld also said simple management structures can help with customer loyalty, because small teams can provide better, more personalized service than larger ones.
Another quality loyalty leaders share is that they are selective in choosing their customers in the first place. Rather than selling to “butterflies,” or customers that are likely to be short-lived because they are being sold an inappropriate product or service, companies should focus on marketing to “barnacles,” or customers for whom the product or service is highly appropriate and are therefore likely to remain customers for a long time.