Anytime there is 5 percent increase in customer retention rates of industries, it leads to 25 to 100 percent increase in profits. This has been confirmed among several types of industries.
A company should know how to build a good working relationship with its employee, and investor by understanding and relating their needs. With this, its management team can create a better plan on its value creation process and re-check and expand the basics of its core strategy.
The fact that the view of value creation sometimes may be obviously different from the pupil – dilating perspective of investors with their own money at risk should be considered.
2 principles: Our main objective for our client is to create value, and also, our most valuable asset is the employees aimed at creating productive contributions to the establishment of client value. Our business is successful as long as these two principles are active.
Anytime we inadvertently move off center, it is really a hard time. However, the reaffirmation of our loyalty to our main principles returns a remarkably quick response on the way to growth, lasting value and profit.
Loyalty brings about growth, more value and profit, so in other to get loyalty, there is need to Create value for customers. As profit is constantly the real deal conventional thinking of business systems, it is not primary. Profit is indispensable, yes, but this is the price for value creation. Combine this with loyalty and you will reap the trust of any successful, long lasting business institution.
How do market leaders do it?
- They don’t do snapshot accounting. The business pictures they learn are time exposures. Also, they consider people as assets not expenses, and they expect that the assets will yield after several years.
- When it comes to human assets, the make their choices carefully, and then look for methods to expand their productive lifetimes and increase their value.
- They put in efforts to regularly remove asset defection because they take it as an unacceptable value-destroying failure.
By reducing the rate of defections in customers – in employees and investors they have gotten prodigious increase in profits and cash generation.
The ability to contribute to profits plays a big role in the growth or downfall of all business skills and competencies. The current theory assumes the primary objective of a business as value creation rather than profit.
Loyalty is a head start for a strong value creation because the only way for a business to retain customer and employee loyalty is to deliver superior value; high loyalty is an obvious sign of solid value creation.
The best method of differentiating good profits from bad is to measure the loyalty of your most valuable assets: your customers, employees and investors. A low and decreasing rate in defection leads to virtuous profit. Otherwise, you are likely liquidating your balance sheet – and shattering long term value.
You can’t Build a highly loyal customer base as an add- on. It has to be integral to a company’s basic business plan. Leaders that build their whole business system on customer’s loyalty are successful because they acknowledge that a company wins customers loyalty by consistently delivering quality value; and they understand retention on revenue a cost has an economic effect and can now wisely reinvest cash flows to acquire and retain the most valuable customers and employees.
The link between a company’s long- term fortunes and the loyalty of its employees, and investors is now invisible.
Due to this, more inexperienced salespeople are required (lower productivity at higher cost); more dissatisfied customers (who bought under pressure and later regret it); more customers that do not fit (price shoppers and buyers with no interest or stake in the product, service or company); and finally, the escalating costs of more complex product line. In the case of costs, the conventional approach is to redesign processes or lay off employees. But both are likely to destroy the work force and alter customer service, which will reduce customer retention and make cost very expensive. The vast majority of cost reductions are aimed at the shareholders benefit only. And they usually destroy value.
- The first step is to find and acquire the right customer; customers whose loyalty can be won and retained, customers who will ensure constant cash flows and a profitable return on the firm’s investment for many years.
- The second step: As soon as loyal customers and the extra cash- flow they provide have been acquired by a company, it needs to reinvest a reasonable share of the cash in hiring and retaining superior employees.
- The third step: Create an adequate Investor mix and help investors understand the importance of customer and employee loyalty in creating long- term value for shareholder. Disloyal capital is of a high cost, so it should be avoided.
Loyalty based management is not an easy task. It is impossible to transform measures, employee career paths, incentives, customer lifecycles, and capital structures so fast. It’s a slow and steady process which never ends. It’s remarkably an old method and yet it steadily produces remarkable results, even in this age when loyalty where some people say loyalty is dead.
The way the parts of the systems link together is the most important factor when it comes to ultimate, lasting success.
Loyalty must be considered as a strategy rather than a tactic. Customer, employee, and investor loyalty are very carefully intertwined in a way that you must understand and know how to manage all three before you can understand and manage one. But while loyalty so strategic, its implications transcend strategy and refers to a philosophy of business where people are placed above process.
The central ideology of this philosophy is that the purpose of nosiness is not simply to create profit but to create value.
Philosophy and strategy is not loyalty; it also refers to operations, because it offers a practical set for implementing strategy. You can certainly determine where value is being delivered and where it isn’t immediately by studying the behavior of investors, employees and customers ( do they or don’t they come back for more) , and by extension, if a business is succeeding or failing in its objective of creating lasting value.
8 elements to build superior loyalty
- Creating a superior customer value proposition. – Your strategy should be aimed at the development of a value proposition of truly superior value in relation to competitive offerings for key customers.
- Finding the right customers. – know your designated customer and develop systems to selectively acquire them. Most times, getting the right customers is as a result of the magnetism of the value proposition and the referrals it generates than on brilliant salesmanship. In fact, Market leaders care more about sorting new customers flow than about increasing its volume most times, because adverse selection can lead to drastic reduction on the value available to core customers.
- Earning customer loyalty – Your behavior towards your customers matters a lot. See them as assets, and try your best to retain these assets and expand their lifetime value. Pricing policies, product line, employee incentives, and service levels are all designed to improve the loyalty of customer.
- Finding the right employees. – Choose your hires according to the choice of customers. People with character who have the same interest in sharing the company’s value are the ones they search for, recruits that can to attain the levels of productivity that leads to satisfaction and long term careers.
- Earning employee loyalty. – invest a lot in the development and training of their employees and construct career paths and organizational structures that enable them to make the most of their education and abilities. While employees stay on, they should improve at their jobs and build a better relationship with their customers; employee’s loyalty and customer loyalty reinforce each other, thereby, making jobs more satisfying and increasing the potential for superior customer value. Leaders share the extra result produced with employees in the form of higher compensation, which enhances the increasing loyalty spiral.
- Gaining cost advantage by means of superior productivity. – There is a cost benefit when there is extra productivity that comes from better customers and employee loyalty. Employees may earn better salaries – Most times it is about 10 to 50% greater than the competition – but as a revenue percentage, the price of their higher salaries is actually lesser. In addition, leader’s structure incentives to enable employees treat expense dollars like spending their own money.
- Finding the right investors. – Leaders need the right investors in order to balance their business systems and help themselves to react to competitive threats and industry turbulence. In most cases this means that is not a traditional capital structures like mutual or private ownership. For public companies take those who are predisposed to long term relationships as the right investor. The select investments carefully and retain them. They also see their success as the success of their employees and customers. Wall Street / AEX expectations determine the growth target for leaders but on the creation of enough opportunities for people within the business system.
- Earning investor loyalty. – Investors must earn a true return on their cash before any payment of bonus to management. This gives managers powerful will to reinvest profits only in projects with considerable potential to create value. Treating investor’s money as their own is the best possible way for the loyalty of the investors to be earned by managers. This constitutes an enormous competitive advantage in a business world increasingly put to test by the problems of investor churn.
By aligning the interest of all the players, these companies have dramatically increased the odds that people will utilize their energy in increasing the value pie size. Not only to get a bigger share for themselves.
Source: The loyalty effect, The Hidden Force Behind Growth, Profits and Lasting Value: Frederick F. Reichheld & Thomas Teal
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