Customer Loyalty's New Rules


By Jack & Suzy Welch At my old company, we did everything to retain customers—built dedicated facilities, designed innovative packaging, offered aggressive pricing, and delivered quality second to none. Still, a few major accounts dumped us. Is customer loyalty dead? — Carl Warren, Ridgefield, Conn.

Not dead, but different. Time was, you could "earn" a customer's loyalty with tickets to a big game, a Disney World (DIS) vacation, a few nice dinners. And you could keep that loyalty with what used to be called belly-to-belly selling, or put less graphically, relationship-building. You'd listen to your customers' dreams and worries, visit them to see how your product fit their needs, troubleshoot their problems. In more competitive situations, you'd add the sort of extra manufacturing and design services your letter mentions. And usually, such partnering was enough to keep them in the fold.

Yes, price mattered in those halcyon days, sometimes a lot. We're only talking about, say, 10 years ago. But it never mattered like in today's fierce economy. The Internet, in particular, has made pricing transparent and purchasing global. And, as you have so painfully discovered, that puts you in a buyer's world.

But we're not ready to bury customer loyalty, only to redefine it from a transaction to a two-way street. With the transaction approach to loyalty, you give your customers competitive pricing, high quality, and excellent service, and they give you repeat business. It's a nice deal—until someone comes along with slightly better pricing, quality, or service. Then it's square one again as you try to win your customer back.

With the two-way-street approach to loyalty, you and your customers don't have a deal as much as you have mutual dedication. Because you, the seller, are not delivering on just price, quality, and service. You are demonstrating intense loyalty by giving him a comprehensive, inimitable way to win. Better productivity. Faster throughput. Lower inventory. More innovative products. You are delivering something—anything—that makes you indispensable to your customer's success. Then, and only then, will you get complete loyalty in return.

You may well be thinking, We did that! We built dedicated plants. We designed special packaging. To which we'd ask: But did those services, no doubt costly, fundamentally change the game for your customers? Did you enable them to expand into profitable new markets or catapult old rivals? It seems unlikely, or how could they have walked away?

They couldn't have.

Modern loyalty, then, ultimately comes down to that old saying: "What goes around comes around." The more fervently committed you are to making your customers win big in the long haul, rather than just meeting their immediate demands, the more fervently committed they will be to you. That's a tall order, of course. But given the direction of the ever-more-competitive global economy, a two-way street approach to customer loyalty is the only road to take.

What are the characteristics of a good company "university"? — Vladimir Glazunov, Moscow

Your question, of course, mainly applies to large companies, since only they can afford the luxury of an in-house learning center. And what a luxury it is, too, as effective management development programs can provide a real competitive edge. They can attract the best kind of people during hiring and turn a company's high-potentials into high performers.

Note the word "effective." Because corporate universities too often are not. The most common reason is that companies bring in outsiders to do the teaching—typically business school professors and consultants. Talk about undermining the process. You want your own managers in front of every class, demonstrating for employees what success thinks and acts like in your organization. That's motivating, and it can also provide a heck of a lot of growth (not to mention fun) for the managers temporarily donning professorial robes.

In-house universities also fail for a second, more insidious reason: They become warehouses—a polite word for "dumping grounds"—for employees who can be spared for a few weeks. Why? Because few managers like being parted from their best people. The antidote is to make sure managers get it: In-house development programs are a reward for superior performance. Only the best get selected to go, and the company's leaders and HR people pick them.

In-house universities are pretty rare, and well-run ones don't come easy. But when done right, they can be a potent force for change. Your question suggests you may be lucky enough to seize that opportunity.

Jack and Suzy Welch look forward to answering your questions about business, company, or career challenges. Please e-mail them at thewelchway@BusinessWeek.com For their podcast discussion of this column, go to www.businessweek.com/search/podcasting.htm


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