Loyalty Effect, The: The Hidden Force Behind Growth, Profits and Lasting Value

I read this book when it was first published and recently re-read it. Those who have checked out my reviews of other books which address many of the same issues already know that I have a bias with regard to "customer satisfaction" and "customer loyalty", agreeing with Jeffrey Gitomer and others that the former is wholly dependent on each transaction and the latter can end (sometimes permanently) because of a single unsatisfactory transaction. The objective for those who have customers (be they internal or external) is to achieve and then sustain their passion about doing business with you. You want them to become evangelists.

Of course, Reichheld fully understands all this. In a brilliant essay which recently appeared in the Harvard Business Review, he shares new research which (again) shows that companies with faithful employees, customers, and investors (i.e. capital sources which include banks) share one key attribute: leaders who stick with six "bedrock principles": preach what you practice (David Maister has much of value to say about this in his most recently published book, Practice What You Preach), play to win-win, be picky, keep it simple, reward the right results, and finally, listen hard...talk straight. In this book, Reichheld organizes his material within 11 chapters which range from "Loyalty and Value" to "Getting Started: The Path Toward Zero Defections." With meticulous care, he explains how to devise and them implement programs which will help any organization to earn the loyalty of everyone involved in the enterprise. He draws upon a wealth of real-world experience which he and his associates in Bain & Company, a worldwide strategy consulting firm. Reichheld heads up its Loyalty Practice. In his most recently published book, Practice What You Preach, David Maister explains why there must be no discrepancy whatsoever between the "talk" we talk and the "walk" we walk. Reichheld agrees, noting that the "key" to the success of his own organization "has been its loyalty to two principles: first, that our primary mission is to create value for our clients, and second, that our most precious asset is the employees dedicated to making productive contributions to client value creation. Whenever we've been perfectly centered on these two principles, our business has prospered." It is no coincidence that the world's most highly admired companies are also the most profitable within their respective industries. I wholly agree with Reichheld that loyalty is critically important as a measure of value creation and as a source of profit but that it is by no means "a cure-all or a magic bullet." Loyalty is based on trust and respect. It must be earned, usually over an extended period of time and yet can be lost or compromised at any time with a single betrayal.

"One common barrier to better loyalty and higher productivity is the fact that a lot of business executives, and virtually all accounting departments, treat income and outlays as if they occurred in separate worlds. The truth is, revenues and costs are inextricably linked, and decisions that focus on one or the other -- as opposed to both -- often misfire."

"Companies cannot succeed or grow unless they can serve their customers with a better value proposition that the competition. Measuring customer and employee loyalty can accurately gauge the weaknesses in a company's value proposition and help to prescribe a cure."

"While every loyalty leader's strategy is unique, all of them build on the following eight elements: Building a superior customer value proposition, finding the right customers, earning customer loyalty, finding the right employees, earning employee loyalty, gaining cost advantage through superior productivity, finding the right [capital sources], and earning [their] loyalty."

Who will derive the greatest value from this book? Decision-makers in any organization (regardless of size or nature) which has been weakened by defections among customers and/or employees. If the primary objectives are value creation and partnership, decision-makers in these organizations must never betray or neglect any of the fundamentals of loyalty-based management: "partnership builds incentive; incentive builds value; value builds loyalty; loyalty builds even greater value." It's as simple and (yes) as difficult as that.

UTTERLY PROFOUND (4/4 people found this helpful)

To put as simply as I possibly can, this is an utterly profound business bible. The way business should be, explained with astounding clarity.

This is the best book I have ever read and the day I read something more profound and true to real business success, will be a very surprising one...

This book will most definitely provide the foundation of all my future business activities.

Outstanding clarity for a confused business world (5/5 people found this helpful)

As part of an overall research process into CRM, I came across this book from Fred Reichheld. To say I was enthralled would be an understatement! Reichheld has been able to get to the heart of why so many companies seem to be in a downward spiral of faster and faster responses to sales problems which seem only to make matters worse.

It could be argued that there is not much new in what Reichheld says and looking back 25 years I recall successful companies that were practising what this book preaches.

But recent years have seen an overwhelming focus on profits, growth and short-termism.

Reichheld argues that loyalty must be viewed "not as a tactic but as a strategy." He goes on to say, "The central tenet of this philosophy is that the purpose of a business is to create value, not simply to create profit."

That isn't rocket-science, it's good common-sense. But just as the knowledge of our fore-fathers is being lost under the deluge of 'solutions' from medical science, so it appears that modern business is forgetting the fundamentals of success from just a couple of decades ago.

Any manager or owner of a business that is worried about acquiring and retaining profitable customers MUST read this book. To read it and reject the messages is fine. To read it and realise the sense it conveys is excellent. To ignore the book is a crime.

In more than 35 years in business, I can't remember a book that has given me more insight into what we are all trying to do than The Loyalty Effect by Frederick Reichheld.

The most valuable business book I've ever read (2/2 people found this helpful)

Reichheld lays out both why loyalty matters, and why difficulty in measuring the impact of loyalty has made managers undervalue it in the past. He shows how loyal relationships with employees, suppliers, customers and investors all contribute to a company's long term success.

His insights are profound for anyone building a company. We have used his insights to build our business, and have benefited enormously from the viewpoints expressed in this book.

For those who think there is no such thing as loyalty! (0/0 people found this helpful)

For those who think loyalty cannot be attained by either your customers or your employees, think again. This book shows you how to acquire loyalty throughout your organization as intense as any Marine has for the Corps. Well worth reading, especially for the doubters and skeptics out there.

Loyalty Effect, The: The Hidden Force Behind Growth, Profits and Lasting Value

Frederick F Reichheld

Reader Reviews:

How to Achieve and Then Sustain Loyalty (3/5 people found this helpful)

UTTERLY PROFOUND (4/4 people found this helpful)

Outstanding clarity for a confused business world (5/5 people found this helpful)

The most valuable business book I've ever read (2/2 people found this helpful)

For those who think there is no such thing as loyalty! (0/0 people found this helpful)

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