The best business leaders go to
work every day to focus their business on earning the loyalty of their
customers. They understand that long-term sustainability and profitability
requires earning and retaining customers. The goal is to get customers to love
them, to need them, to get excited and emotional about them, and to want their
companies to succeed and flourish. To do this, business leaders have to
understand what their customer’s value in all aspects of the relationship, and
deliver it. According to the business press, on-line shoe and clothing retailer
Zappos is in this space today.
There are a number of legendary
companies that have done this for their customers at one time or another,
usually under the leadership and guidance of entrepreneurial visionaries. Some
that come to mind are: Walt Disney and The Walt Disney Company; Akio Morita and
Sony Corporation; Thomas J. Watson and IBM; Steve Jobs and Apple Computers;
Jeff Bezos and amazon.com; Howard Schultz and Starbucks; Richard Branson and
Virgin Group; Isadore Sharp and Four Seasons Hotels and Resorts; and Anita
Roddick and The Body Shop. Of course, there are thousands of other private
corporations and sole proprietors who have earned the loyalty and dedication of
their customers because they have set customer loyalty as part of their guiding
vision and business purpose. Bose Corporation and The Teaching Company are two
that come immediately to mind.
Earning customer loyalty is among
the most difficult of all business objectives and one of the highest
achievements of any business. It requires relentless innovation, integration
and coordination in the areas of: understanding the customer’s value-drivers;
design of business strategies and processes; applied human knowledge and
capabilities; financial management; and corporate culture. Managers must be
ever vigilant and aware that as each of these components advance and change,
the other components must be adjusted accordingly. A high degree of corporate
vitality and operational flexibility within an overarching framework of well
defined guiding aspirational and operational principles is required to ensure
that fidelity to profitably fulfilling customer values remains the guiding
purpose of corporate action.
Certainly not all executives have
the desire or ability to organize and operate in ways that achieve customer
loyalty. For many I suspect the concept is too lofty and abstract. Instead they
strive for a lesser and often contextually equally valid objective to run an
effective business to maximize sales, serve customers in an appropriate and
respectful manner through adequately trained and motivated staff, and earn a
profit for owners to the best of their ability. But this is a lesser effort
that will likely result in nothing better than competitive parity rather than
competitive advantage. It is in these types of businesses that we most often
find customer reward programs offered under the guise of “loyalty programs”
being used as a marketing and behavioural modification tool to add some more
value to the total business offering or ‘value proposition.’
There is nothing wrong with such
programs. If run well, they can increase customer satisfaction and profits. But
often the loyalty programs being offered to induce customer loyalty are
zombie-like copycat programs that provide no additional loyalty, no competitive
advantage, and no additional profit. When given the opportunity to join a
program for free and earn a discount or future reward, many people will do so.
They will join your program and they will join the competitor’s program. And in
the end, customers will continue to shop across a spectrum of businesses and
brands, their preferences based on a number of unknown and unmeasured variables.
Usually such programs result in higher consumer prices or lower company
profits, and customers who are indifferent with respect to the operation and
value of the ‘loyalty’ programs to which they belong.
When the focus of management is on
reward program participation – or worse yet, number of members – rather then
earning customer loyalty, the business will never find out why customers prefer
to shop across competing brands and participate in multiple loyalty/rewards
programs. Management will focus on increasing the number of members and card
usage because they are easily measured, and will speak in the boardroom as if
their loyalty club members and cardholders are actually loyal customers.
Borders Books is reported to have
had 40 million members in their loyalty program when they filed for bankruptcy
in 2011, but they didn’t have 40 million loyal customers. Their “loyalty”
members were buying most of their books elsewhere.
There is only one way to build a
world-class business: focus on understanding the needs of customers to win
their loyalty and build an integrated system that can deliver everything they
desire in a manner better than any competitive alternative. Earning customer
loyalty is amongst the highest moral achievements of a business because it
requires the creation and delivery of human values through rational human
action. This should be an aspirational goal of every executive and their staff.
Yet too often marketing executives and managers continue to focus on signing up
new loyalty program members, and offering them discounts and incentives for
spending, and ignoring the really hard job of creating unique value for
customers that results in increased loyalty.
