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Book review: Loyalty rules (F. Reicheld)
How Today’s Leaders Build Lasting Relationships

2. Table of content
6 Key About the My comments
Introduction
thoughts author & appreciation
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3. Is loyalty on a fast track towards extinction?
How can loyalty be a cornerstone to success in today’s economy if customers
can defect at the click of a mouse, shopping has never been as impersonal as
it is today and robots scan the world for the most interesting deals? In such a
world, loyalty must be on a fast track towards extinction.
Mr. Reicheld starts his book with a pledge to prove the above statement
wrong and demonstrates how traditional economic laws still apply in the
worldwide electronic marketplace. In this book, the reader will learn how he
can pursue sustainable economic growth and outperform the market.
You will learn that building lasting relationships with all your stakeholders
is a cornerstone to achieve that ultimate goal.
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4. While a lot of companies exclusively target
shareholder value maximization…
Essentially, companies striving to maximize shareholder value have two
options: they are on a crossroads where they have to choose between what
Mr. Reicheld calls low-road or high-road strategies.
Low-road strategies can generate impressive financials. Managers following
this strategy are convinced that maximizing shareholder value is the sole
principle to live up to in conducting ones business. On this low-road, where
money matters more than people, it will have become standard practice to
take advantage of customers, employees, vendors and other stakeholders.
This type of strategy is based on building a market power that enables
you to intimidate employees, strangle competitors and extract maximum
value from customers, all in faithful duty to shareholders. On this low-road
only the fittest survive and trust is seen as a weakness to be exploited.
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5. …this will ultimately lead to increased customer
churn rates and inferior loyalty towards the company
Although such strategies can be successful for a time, it is hard to believe
that they are sustainable in the long run. What if the company gets
blindsided by a competitor? What if it fails to anticipate a shift in market
preferences or failed to detect a new technology that renders its products
obsolete? Without true loyalty of all stakeholders involved, such strategies will
inevitably lead to an exodus of customers, employees, investors, etc. Unless
you are able to convince your partners that you conduct business by certain
principles worthy of their trust and commitment, you will not be able to
survive the inevitable storms lying ahead.
Yet, the question remains: How can I generate such loyalty amongst my
stakeholders? Frederick Reicheld continues his book by teaching you the six
principles that will help you to achieve this loyalty
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6. 6 key thoughts govern all true loyalty practices
Play to Win/win
Preach what
Be picky
you practise
True
loyalty
Listen hard, Keep it
talk straight simple
Reward the
right results
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7. 6 key thoughts: Play to win/win
Change entails risk and uncertainty. That is why your partners will resist
to it, unless they are convinced that you are committed to their success. They
must understand that you will never profit at their expense, yet will
work hard to create win/win situations.
Building such trust requires you to understand the very goals and
principles of all partners involved. But merely understanding your
partners does not do the trick, only by taking your partners’ input into
account in the decisions you take will you be able to show your true
commitment to mutual success.
Keep in mind that building this trust is a very slow process that will take you
years. Yet, it only takes an instance of betrayal to destroy the years of work
building up your partnerships. That is why you will need to be consistent in
pursuing your mutual goal and resisting the bargains that will interfere with
your ultimate objective.
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8. 6 key thoughts: Be picky
Success requires you to stand out of the crowd. Nevertheless, you should
understand that it is impossible to be special to everyone. That is exactly
why you need to be selective in choosing your partners and customers.
Prospective partners have to be chosen with care to guarantee that you can
afford investing in their success and stick with them for the long term.
Only when you choose your employees with greatest care, can you afford the
luxury to invest aggressively in their personal success and future. Recognition
of this willingness to invest and offer a truly special career will lead to higher
levels of loyalty and consequently lower defection rates. Ultimately, this will
lead to a more efficient management off human resources, allowing you to
reward your employees far beyond the industry standards, while still ensuring
above average returns.
The importance of selectivity also holds for your customers. True loyalty
leaders are extremely picky in choosing the customers their company will
serve. They will only target those customers for whom their firms have been
engineered to deliver truly special value. Although this may sound obvious,
being picky on choosing your customers while Wall Street analysts are
breathing down your neck is actually the most distant you can be from the
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9. 6 key thoughts: Keep it simple
Almost nothing reduces flexibility and organizational progress as severely as
uncertainty and confusion about core values and operating principles.
Clarifying how the high road can lead to personal and professional success will
simplify the lives of all your partners.
Yet, merely communicating your values and principles will not result in them
being implemented consistently by all your employees. This can only be
attained if you create the correct structures enabling your employees to do
so. Frederick Reicheld proposes to simplify your organizational structure in
small groups in order to maximize responsibility, flexibility and accountability.
Moreover, he regrets to see that the talented are consistently being
transferred to headquarters, taking them away from the field. Therefore, he
suggests shrinking headquarters and keeping your most valuable resources
on the field, close to your customers.
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10. 6 key thoughts: Reward the right results
How can we even dream of maximizing loyalty if our rewarding schemes are
not even aligned with this objective? If loyalty is really the goal, then
employees should not be rewarded for merely generating profit. Such a
situation will lead to employees focusing on short term initiatives to maximize
profits instead of working at the customers’ best interest. Therefore, you will
need to align your rewarding scheme with your goals and objectives.
The same rules apply to all your partners: to build loyalty across all your
business relationships, you must track what’s important, align incentives and
reward the right results across the entire network. You must ensure that
those partners who create the most value receive the most benefits. The
latter is something that is often overlooked when it comes to customers. Still
too many companies can be seen giving rewards and presents to customers
who haven’t proved their loyalty yet at the expense of the most loyal
customers. Instead of rewarding their most loyal customers, a lot of
companies consider these customers’ loyalty as obvious and forget to
cultivate this valuable and profitable relationship.
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11. 6 key thoughts: Listen hard, talk straight
In the first principle “Play to win/win” the author already stressed the
importance of a strong relationship with your partners. Building such a
relationship based on trust is impossible without accurate, reliable
information. Therefore, it is important to develop proper communication tools
and listening skills in order to develop a profound understanding, yielding
clearer opportunities, coordinated actions and superior results.
By listening attentively to your partners, you will harvest valuable information
on their concerns. From this intelligence, you should attempt to learn what
initiatives should be taken to further cultivate the relationship. Yet, the most
important step is still to be taken: after the implementation of your initiatives,
take all opportunities to explain your partners the rationale for your actions,
as well as the results obtained. This will result in a better notion of your good
intentions amongst your partners.
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12. 6 key thoughts: Preach what you practise
Write down your guiding principles, then preach them with passion. One of
the most important responsibilities of loyalty leaders is to teach everybody in
their organization how to live by these guiding principles and how this can
eventually lead to lasting relationships. You must also clarify how these same
foundations are the practical principles behind your competitive and economic
success. Indeed, communicating your guiding principles will not be enough to
motivate your staff to live by them. You should not hesitate to give in-
company examples of customers who successfully implemented these
guidelines and consequently had a positive impact on the company. Only by
giving high visibility to such desired code of conduct, can you take away
hesitation about what can and what cannot be done.
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13. Logo client
Book review: Loyalty rules (F. Reicheld)
How Today’s Leaders Build Lasting Relationships