Dynamic Marketing Communiqué

On Loyalty and Profits: Find out how this bestselling author quantified the link between these business aspects! [Monday: Marketing Marvels]

January 24, 2022

Miles Everson’s Business Builder Daily speaks to the heart of what great marketers, business leaders, and other professionals need to succeed in advertising, communications, managing their investments, career strategy, and more.

A Note from Miles Everson:

Customer loyalty is an important factor in the success and growth of businesses.

Without loyal customers, I believe it’s less likely for a particular brand to thrive in the long run and branch out in areas where its target market resides.

That’s why I’d like to touch on this subject in today’s article while also featuring an outstanding professional who’s written a book on customer loyalty.

I’m talking about New York Times’ bestselling author, Fred Reichheld!

Keep reading below to know more about Reichheld’s “The Loyalty Effect” and why it’s important for independents, business leaders, managers, and marketers like you to be aware of this concept.

Miles Everson
CEO, MBO Partners
Chairman of the Advisory Board, The I Institute

Marketing Marvels

Business leaders and marketers intuitively know that when customer loyalty goes up, profits go up too.

However, this is not always the case with some enterprises.

According to an article from the Harvard Business Review, only a few companies achieve meaningful and measurable improvements on customer loyalty despite conducting activities that aim to serve consumers better.

What’s more?

Only a few businesses revamp their operations with customer loyalty in mind!

Thankfully, one of the leading experts on this subject has published a book to help brands operate effectively, establish positive connections with their target market, and achieve great results.

Fred Reichheld

Reichheld is a fellow at management consulting company Bain & Company and the founder of Bain’s Loyalty Practice, a business model that helps companies achieve great results through customer and employee loyalty.

Named by The Economist as the “high priest” of loyalty, he is also the creator of the Net Promoter System, a market research metric that helps business owners and marketers know whether or not consumers would recommend their products or services to a friend or colleague.

Reichheld’s works in the area of customer and employee retention quantify the link between loyalty and profits. His books:

  • The Loyalty Effect: The Hidden Force Behind Growth, Profits, and Lasting Value
  • Loyalty Rules! How Today’s Leaders Build Lasting Relationships
  • The Ultimate Question: Driving Good Profits and True Growth
  • The Ultimate Question 2.0: How Net Promoter Companies Thrive in a Customer Driven World

… have each become bestsellers.

The Loyalty-Based Management

According to Reichheld, building a highly loyal customer base cannot be done as an add-on. It must be integral to a company’s basic business and marketing strategies.

In his words,

“Loyalty leaders like MBNA are successful because they have designed their entire business systems around customer loyalty. They recognize that customer loyalty is earned by consistently delivering superior value. By understanding the economic effects of retention on revenues and costs, loyalty leaders can intelligently reinvent cash flows to acquire and retain high-quality customers and employees. Designing and managing this self-reinforcing system is the key to achieving outstanding customer loyalty.”

High customer loyalty is beneficial to brands and businesses. Loyal and repeat customers are more likely to spend more on their next transactions, refer that particular brand to their peers, and try a new offering.

These are some factors that explain why one business is more profitable than another.

Reichheld also emphasized that strengthening loyalty is not just a matter of simply cutting prices or adding product features and benefits. It’s also a matter of paying workers better, which sets off a chain of positive events.

Here’s how:

Better pay boosts employee morale and commitment. ⟶ As employees stay longer, their productivity rises and training costs fall. ⟶ Employees’ job satisfaction, coupled with knowledge and experience, leads to better customer service. ⟶ Customers are more inclined to stay loyal to a company. ⟶ Happy and satisfied customers and employees become part of a loyalty-based system.

See? This system shows that loyalty truly boils down to offering SUPERIOR value to both your customers and workers!

Below are 3 important aspects of a loyalty-based management, according to Reichheld:

  1. The RIGHT Customers 

Customers are essential to a successful business. However, not all customers are the same. That’s why you have to target the “right” customers―those who are more likely to do business with you for a long period of time. 

There are customers who don’t ever stay loyal to one brand no matter how much value they receive. Reichheld advises to avoid these kinds of people as much as you can so you’ll be able to focus on connecting with those whose loyalty can be enhanced. 

  1. High-Quality Products and Services 

Once you identify the customers you should target and work hard to keep, the next thing you have to do is go about the business of keeping them. This means adding or innovating new products or services to meet your customers’ ever-changing needs and demands. 

Brands that fail to use their knowledge of customers to develop offerings are giving opportunities for competitors to lure consumers away. When this happens, not only will these businesses lose an important asset in their operations but also lose the chance to boost their revenues and profits. 

  1. Loyal Employees 

Employee retention is key to customer retention. 

The longer your workers stay with your business, the more familiar they become with the ins and outs of your operations. They learn more and become valuable assets of your company. 

Satisfied employees who directly deal with customers frequently have a powerful effect on customer loyalty. It’s easier for customers to become loyal to your brand when they see happy workers. 

We’re not saying you shouldn’t hire new employees to work for you. What we’re saying is as a business leader, you must continue to find ways to make your current employees satisfied and feel more accomplished through the offerings and benefits you provide. 

Besides, a customer’s contact with your business is frequently through your staff, not the top executives. So, you must value your workforce as much as you can!

For Reichheld, creating a loyalty-based system in any company requires a “radical departure from traditional business thinking.” Instead of profits and shareholder value, customer value must be at the center of a business strategy.

This leads to adjustments in some old business practices, especially in terms of redefining the right customers, revising employment policies, and redesigning incentives.

Kudos to Reichheld!

No wonder Consulting Magazine named him as one of the top 25 most influential consultants in 2003 and The New York Times credited him as “putting loyalty economics on the business map!”

Through The Loyalty Effect, Reichheld showed the powerful impact and business benefits of a loyalty-based management:

“Even a small improvement in customer retention can double profits in your company.”

(This article is from The Business Builder Daily, a newsletter by The I Institute in collaboration with MBO Partners.)

About The Dynamic Marketing Communiqué’s
“Monday Marketing Marvels”

Too often, industry experts and the marketing press sing the praises of some brand or company’s marketing strategy.

… only for the audience to later find out that its product was a flop, or worse, that the brand or company went bankrupt.

The true ROI in marketing can’t be separated from the business as a whole.

What good is a marketing case study if one can’t prove that the company’s efforts actually paid off?

At the end of the day, either the entire business is successful or it isn’t. And the roles of marketing and communication are always paramount to that success.

Every Monday, we publish a case study that highlights the world’s greatest marketing strategies, marketers, and communicators.

However, the difference between our articles and the numerous ones out there is that we will always make certain that the firm really did generate and demonstrate earning power worthy of study in the first place (compliments of Valens Research’s finance group) in keeping with a person’s leadership skills in the area of marketing and/or communication.

We’ll also study the greatest marketing fails and analyze what they did wrong, or what they needed to improve. We all make our mistakes, but better we learn from others’ mistakes—and earlier, rather than later.

Hope you found this week’s marketing marvel interesting and helpful.

Stay tuned for next week’s Monday Marketing Marvels!


Kyle Yu
Head of Marketing
Valens Dynamic Marketing Capabilities
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