If You Think No Company Is Worthy of Loyalty, Think Again.

A New Book by the World's Leading Loyalty Expert Reveals Firms Prosper by Treating Employees and Customers Right

"Loyalty Shmoyalty," read a U.S. News & World Report cover story in late 1999. "In today's job market, staying put gets you nowhere." It's easy to see why reigning wisdom tags loyalty as a dying notion. Customers defect at the click of a mouse, tired of receiving shoddy service or being victimized by the latest pricing scheme. And disgruntled employees can put themselves up for auction to the highest bidder, job-hopping their way to a lucrative career. This is the age of "You, Inc." Isn't it time loyalty just rolled over?

In a revolutionary new book, leading expert Fred Reichheld, author of the 1996 best-seller The Loyalty Effect, argues that loyalty is far from dead. He unveils new research that convincingly proves that the more volatility, choice, and change the economy serves up-the more vital a role loyalty plays in building the relationships that are so necessary to success in all aspects of life. Indeed, Loyalty Rules! (Harvard Business School Press; September 14, 2001; $27.50/Hardcover) proves that far from dismissing loyalty-people yearn now more than ever for leaders and institutions worthy of their trust and commitment.

High-Loyalty Firms
Wouldn't it be great if there were companies that actually put customers and employees first-not just as a "feel-good" platitude, but as a guiding principle? Who wouldn't want to work for a company led by a CEO with integrity, that made outstanding profits and offered lucrative opportunities for employees-but succeeded financially not by cowtowing to investors but by "doing the right thing?" Reichheld shows that such companies not only exist, but that the principles of loyalty-simplicity, honesty, fairness, respect, and responsibility-work their financial magic in all kinds of industries, in companies large and small, high and low-tech, public and private. They include:

· Enterprise Rent-A-Car. The largest car rental firm in North America, it continues to grow at more than 20% a year in an otherwise sluggish industry. With over 45,000 employees, Enterprise manages to hire more college graduates than any other firm in the U.S., with starting salaries and compensation levels higher than most other companies.
· Cisco Systems. Voluntary turnover ran at less than 10% through the 1990s, although it is headquartered in Silicon Valley, where turnover averaged 25-30%. Not only does every employee carry an ID badge embossed with Cisco's values, but all bonuses are dependent on meeting customer satisfaction goals. Despite recent layoffs resulting from a sudden industry slowdown, Cisco continues to place enormous value on employee loyalty.
· Northwestern Mutual. The "Quiet Company" has consistently focused on creating superior value for its policyholders, parlaying its superior customer retention into lower costs and faster growth. No longer a high-end niche player, it is now the industry leader in individual life insurance.
· Chick-fil-A. Store operator turnover runs 5%, compared with the competition's 35-40%. Founder Truett Cathy has so effectively marshaled loyalty economics that he can afford to let his operators earn compensation double or triple fast-food industry averages, while still generating sufficient cash to grow the chain-all while remaining a private company.

The list of loyalty-worthy companies also includes Harley-Davidson, MBNA, USAA, Dell Computer, and The Vanguard Group-all distinctly different companies, but with a critical common factor. All are run by leaders who steadfastly put the interests of partners ahead of their own, and who organize their companies around six guiding rules Reichheld calls the "principles of loyalty:"

1. Play to win/win -- profiting at the expense of partners is a shortcut to a dead end
2. Be picky -- membership is a privilege
3. Keep it simple -- complexity is the enemy of speed and responsiveness
4. Reward the right results -- worthy partners deserve worthy goals
5. Listen hard, talk straight -- long-term relationships require honest, two-way communication and learning
6. Preach what you practice - actions often speak louder than words, but together they are unbeatable

Loyalty: A Two-Way Street
According to Reichheld, fewer than half of today's employees believe their companies deserve their loyalty-contrasted with 70-75% of employees of the high-loyalty firms profiled in the book. The key lies in building mutually beneficial relationships, a give and take in which employees are offered extraordinary opportunities to grow, learn, and yes, make money-but only if they contribute to customer value creation and the bottom line:

Based on new research commissioned by Bain & Company and told through colorful and compelling stories, Reichheld shows how the best-in-class succeed by building relationships that both create-and are supported by-loyalty. In contrast to competitors, high-loyalty firms:

· Often offer a low base pay but put no ceiling on the level of compensation and bonuses employees can make. Compensation is also directly tied to how well customers are satisfied. This alignment of employee/customer interests ensures that only the best, most productive performers will want to stay-and that they'll be handsomely rewarded for it.
· Are highly discriminatory about what customers they go after. Rather than encouraging employees to acquire a high volume of customers, employees are instead rewarded for attracting the right kinds of customers. This policy boosts profits and growth-and cuts costs-by keeping everyone in the company focused on the most loyal, lucrative customers.
· Reward loyal customers by giving them the best deals and service. From cellular companies to the major airlines, the going trend is to offer price discounts and other schemes to lure new (read: disloyal) customers, while forcing frequent, longtime (read: loyal) customers to pay full price.
· Use both high-and-low technology forms of communication to learn what employees and customers want and need-not the other way around
· Put the customer first in every situation and work in their best interest-even at the risk of a short-term loss by the company
· Don't hide mistakes, but instead share them openly with employees and customers-and encourage everyone who works for them to do the same
· Don't delegate hiring, but instead play an active personal role-even at the CEO level-in selecting employees. Invest the time and energy to develop employees, especially at the frontlines.

Profits and Purpose
Whatever the economic environment of the moment, the loyalty effect has time and again proven stronger and more enduring than any short-term profit strategy. Providing compelling profiles of the world's leading high-loyalty firms-and action-oriented practices that show how to become one of them-Loyalty Rules! heralds the coming-of-age of "high road" leadership. It proves once and for all that business is not and never will be just about making money, that loyalty makes possible both profits and purpose, and that no matter what kind of work you do-"doing the right thing" is the best and most rewarding reason to be in business at all.







About the Author
Fred Reichheld is a Director Emeritus of Bain & Company and a Bain Fellow. He is the author of The Loyalty Effect as well as of influential articles in Harvard Business Review and The Wall Street Journal. His work has been featured in leading publications including The New York Times, Business Week, the Financial Times, and The Economist.


LOYALTY RULES!
How Today's Leaders Build Lasting Relationships
Frederick Reichheld
Harvard Business School Press
Publication Date: September 14, 2001
$27.50/Hardcover; 240 pp; ISBN: 1-57851-205-0
Distributed to the Trade by Client Distribution Services, Inc. (CDS)

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