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Is it ROI, Return On Investment or 
ROL, Return on Loyalty

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by Richard K. Hendrie, January 2005
 
“Here we strike at the bedrock, because creating value for the customer is the bedrock of every business system. Creating value for customers builds loyalty, and loyalty, in turn, builds growth, profit and more value…Profit is indispensable, of course, but it is, nevertheless, a consequence of value creation.
  Frederick Reichheld  The Loyalty Effect
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LINK Inc. recently produced two research white papers on attitudes and perceptions concerning marketing. The first surveyed CEOs, the second, marketing executives. One of the key take-aways was that neither group looked at the business of brand building in a strategic fashion. CEOs seemed preoccupied with the nuts and bolts of production. Branding was a function of location and tangibles; product, service and ambiance. Marketing had a similar view. Everyone was focused on the near term, using ‘hunting’ marketing techniques to bring the customers in. Farming requires more patience.

When CEOs were asked what their main frustration with the marketing function, one interesting response was, “Lack of focus on & appreciation for ROI.” Wow. This happened to coincide with my reading The Loyalty Effect and it got me questioning what is really important to the long term health of a brand. 

Is it ROI, Return On Investment or ROL, Return on Loyalty? In the current paradigm, ROI in terms of new product or service offerings or, God forbid, discounting, is easily measured and valued. It is also the paradigm where degree of guest satisfaction is the standard by which most organizations measure their performance. Unfortunately, studies have proven that a satisfied guest is just as likely to move to a competitor as they are to stay. In fact, because consumer’s expectations are so pitifully low, the principle of ‘exceeding guest expectations’ is no longer valid. ROI is part of the old world. Return on Loyalty is where the future lies.

Here are some comparisons to ponder between seeking ROI and ROL
 

ROI Customer Model
ROL Guest Model
“Hunting” by ads or promotion “Farming” through personal connection
Satisfied, but without loyalty Loyal in spite of competitive incentives
Attracted by the latest competitor Enjoying a ‘learning’ relationship
Influenced by discounting Influenced by how they are ‘understood’
Anonymous Acknowledged
Changeable Evangelical
Lower check without customization Higher check with customization
Higher employee turnover  Lower employee turnover

In the Loyalty paradigm, one of key characteristics assumes a ‘learning relationship’ between consumer and vendor. A learning relationship is one that is managed by the vendor, requires the technology to collect meaningful data, segment it in ways that benefit both the consumer and the vendor. Amazon.com stopped its spending of hundreds of millions of dollars on TV in 2000 to concentrate its resources on this very strategy. Today, they ‘know’ me and my preferences, address me by my first name, and offer meaningful suggestions of items I might like based on my previous history. None of it is based on price, or discounting, simply knowledge. I am defined by my buying habits. There is a dark side to this. In a recent article in the Circuits Section of the New York Times, December 30th 2004, entitled, Customer Service, The Hunt for the Human, Amazon.com demonstrates that it still doesn’t get the human part of the ‘learning relationship’. They do not publish a phone number anywhere, so that if you want to talk to another human being, you cannot. Period. 

“It’s incredibly annoying,” said Ellen Hobbs of Austin Texas, whose frustration has led her to publish Amazon.com’s customer support number at her own website,” They haven’t invested the kind of money in helping you solve problems as they have in selling you things.” In December of 2004, some 1100 people visited Mrs. Hobbs site, “You assume there are people back there somewhere, but it’s as if the whole purpose of these systems isn’t to provide customer service, but to keep the customer at arms’ length.”*

Yet Amazon.com’s attitude is, “We’ve found that customers really do appreciate the self service features we’ve got.”*

Yeah, they’ve got the right attitude.

The article goes on to quote a 82 year old consumer,  Mrs. Meyer, “The way it used to be, you’d ring the number up and a person would pick it up and ask you, ‘What can we do for you?’”, saying it as if she were describing life on Mars.*

A different way to customize is exemplified by Joie de Vivre, a chain of boutique hotels who have taken the Loyalty route by offering personalized accommodations based on one’s preferences – not just in bed type or smoking/non-smoking, but based on personality. They name it Yvette, who says, “Hi, I’m Yvette, your hotel matchmaker. Wouldn’t you love to stay in a hotel that perfectly suits your personality? You favorite boutique hotel is a reflection of who you are. Take my Hotel Matchmaker ™ test and find the best match for you.”

This new vision must also provide concrete methodology and compelling measurement. Their CEO has stated that this feature on their website has taken a sizable chunk of on-line business away from the generic hotel reservation web sites, allowing the company to charge full fare in exchange for the personalized service.

The Loyalty Effect suggests a paradigm shift in which the loyalty of guest and employee should be the prime objective of any business and that value be defined by these measures. Chick Fil-A has subscribed to a loyalty based value system of doing business and has consistently outperformed its competition in every meaningful financial measure in its segment for the last decade. In fact, over the last several years, it’s the single company that has shown growth in the segment! 

What are concrete near term measurements of success or failure in this new paradigm? Guest counts grown without incentives and low employee turnover combined with exceptional performance. There are too many brands out there that have seen erosion of their guest base and see it primarily as a result of external factors (competition, the economy are two favorite excuses). Further, the restaurant, foodservice and hospitality industries have accepted triple digit hourly employee turn-over or double digit management turnover (averaging somewhere between 30-50%) as a sad fact of life. HR departments may measure the rate of turnover and implement a variety of programs to staunch the blood loss, but turnover remains excessively high.

Both guest count decline and high employee turnover tell a simple story: neither group see a brand worth their loyalty. In a world where conventional wisdom holds that no one is loyal to anything, I disagree. Give the consumer/employee something which offers them ever increasing value, recognizing their patronage, customizing their experience, rewarding the best in both groups, and you will see increases. Amazon.com, Joie de Vivre and Chick-Fil-A are my proof.

*New York Times, Thursday December 30th 2004 – Customer Service: The Hunt for a Human


 
Contact:

 Rick Hendrie
Chief Experience Officer
LINK Inc.
617-335-1011
rkhendrie@comcast.net
www.linkincmethodmarketing.com
 

Also See: Brand Enhancement: Invite Surprise and Delight Into Your Operation / Rick Hendrie / November 2004
Your Experience Is The Brand; Good Hospitality, Food and Service Are Merely Entry Points into Being Competitive / Rick Hendrie / November 2004


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