I've recently decided that it's time to write my next book. It's been in my mind for some time, but I was missing the trigger that would inspire me to write it. Then a few weeks ago I found it. It happened when I was working with some people at my favourite local training venue, Cranage Hall. There was another trainer working there, taking a group of people through a programme that was entitled 'Cracking the sales management code'. That got me thinking. Could there be a customer loyalty code? And if there is, what is it?
The more I thought about this the more intrigued and engaged with the idea I became. I've been thinking about it ever since, and have now concluded that there is a customer loyalty code, I know what it is, and I should use that as the basis, and the title, for my next book.
I've started already, drafting out ideas for the various chapters, and piecing together the elements of what I think make up the customer loyalty code. I'll reveal some of what I believe are the core code elements in future articles, but I heard about some experiences during the New Year celebrations in Spain that brought into sharp focus what I believe to be a critical negative element. So critical in fact that I have written it into the code as something that negates, or at least drastically reduces, all other positive ones. It is the degree of self interest or short term greed an owner or organisation has, and how it is revealed to customers.
I can't think of anything positive to say about greed, but I don't think there's anything wrong with a business having self interest. It obviously must have to survive, flourish and grow. But if it gets out of hand, and becomes all consuming, the medium to long term affect can be devastating to future growth and profitability. And even a short term excess of it, especially if it's linked to greed, can do serious damage, as the examples below from New Year in Spain make clear.
My wife and I usually spend Christmas with family in the UK and New Year with friends at our apartment in Spain. In previous years we have arranged to have a small party in our apartment or to visit a restaurant for New Year. However, this year we had no guests staying with us, so we decided to do something different and have a quiet meal in the apartment for just the two of us. It made a refreshing change and we really enjoyed it. Our neighbours however had arranged to go out with friends to a local restaurant.
On New Year's Day we met with our neighbours for a coffee and they told us about the fiasco the previous evening. As many do, the restaurant had booked more people in than they usually cater for. But this one had taken it to an extreme. They had even erected a marquee in their garden to accommodate yet more people. But they hadn't properly considered the impact all these extra people would have on the kitchen. They just couldn't cope. Even though they had arranged for everyone to arrive at the same time, and organised a fixed meal, our neighbours, in a party of 18, still had not had their main course served by midnight. So when it did eventually arrive, in the early hours of New Year's Day, they were no longer hungry, wanted to go home, refused to pay the full amount (they just paid half) and left. They also said they would not use that restaurant again, even though it had previously been one of their favourites. And of course they have been telling this story not just to us, but to anyone who will listen, so other customers will potentially be lost. So this one night of greed has resulted in untold damage to the reputation and future trade of this restaurant.
That story reminded me of an experience we had a few years earlier at another local restaurant on New Year's Eve. Some friends had recommended the place and booked it for our party of 10. The evening went very until shortly after midnight, when already opened bottles of Moet Chandon arrived on our tables. No one had ordered them, and as it was a fixed price for the evening, we assumed they were part of the fixed price and all enjoyed a glass of champagne. We were then shocked when the bill arrived and this champagne had been charged at an extortionate rate. We had not ordered it, so we refused to pay. An argument with the owner then followed. We eventually agreed to pay half want he wanted to charge and left, vowing never to return.That was another example of a bit of short term greed (and stupidity) resulting in long term damage to a business.
But this doesn't just happen in Spain. We've had a similar experience in the UK. We used to be regular customers of a local hotel that had a great restaurant. We would therefore visit with friends at least once a month, and did so for many years. We also went to their New Year's Eve event and booked into the hotel for the night. The business was privately owned by 2 brothers who had spent years building the reputation and custom of two local hotels. They always kept a close eye on everything to make sure their standards and service levels were maintained. But they were ready to retire, so they sold the business to new owners. After the takeover, the new owners made a few investments in expansion and refurbishments, and appeared to be maintaining the standards and service in the restaurant. So on the following New Year, we made our usual booking. But then we discovered they had fallen into the same short term greed trap.
The new owners had booked in many more people than used to be accommodated. Dining tables were squashed together and some (including where we were sat) were even placed on the dance floor, limiting the space for dancing and making it uncomfortable for the people sat there. Also, instead of the traditional live musicians they had book a disco, which was probably cheaper. The whole evening was a disappointment, we felt cheated, and we have never been back. So they may have made a bit more money that evening, but they lost the long term trade of me, my friends and I guess many other regular customers.
This same thing happens in major organisations too. A prime example is Marks & Spencer. They were one of the most respected retailers in the UK, with an excellent world wide reputation too. The business had been build on the solid principles of quality, value and service, which they used as the drivers for everything the business did. As a result, they were one one the best employers in the UK, they enjoyed steady growth, they made good profits and their shares were considered to be among the best you could buy. Then, a change at the top brought in a new regime. Instead of quality, value and service being the overriding drivers of the business, they were overridden by a constant drive to maximise profit and shareholder return. Not surprisingly, with the solid reputation and good will the business had build over many years, it was not difficult to make substantial cuts to many things and so boost the short term profits. And for a few years it worked; the short term profits soared and the then shareholders had some bumper years. But eventually the effects of all this began to seep through to the front line. Fewer staff were in the stores, morale was at a low ebb amongst the work force, the goods were not of the usual quality, etc. This all resulted in fewer customers, a need to cut prices and a severely damaged reputation. So the shareholders may have had a few years of boosted returns but they then plummeted and the business went into a long term decline, from which it has never fully recovered.
More recently we've seen the same thing happening at Tesco. It grew from being a small, relatively insignificant, grocery discounter, with the motto 'stack it high and sell it cheap' into the third biggest grocer in the World. This was all expertly led, first by Sir Ian McLauren and later Sir Terry Leahy. They realised early that the UK grocery market was likely to be invaded by European competitors like Aldi, Netto and Liddle and decided to move Tesco into a new, value and service based segment. (Other low cost grocers, like Kwiksave and Sommefield, chose to stay and battle it out, but have since lost and gone). Under their skilful management the core purpose of everyone's work became 'to create value for customers and earn their life long loyalty'. And it worked. Tesco overtook Sainsbury's to become the most successful UK grocer and they were also successful in building their formula for success into a world wide operation. Tesco shares were some of the best performing ones I've ever owned. But yet again, after Sir Terry left the business, a change of leadership brought in a new regime. Shareholder return became the new mantra and soon after the business went into a steady decline.
I note that they have now learned their lesson and are bringing back many of the old principles that created the previous success. But I fear it may be too late. Loyal customers are hard won but easily lost. And when you lose them, they go elsewhere and strike up relationships with new suppliers, which makes it doubly hard to win them back again. So here again we have an example of a short term focus on self interest resulting in long term damage.
I think this principle applies in all things - especially in relationships. For example, there's an excellent book called Trusted Advisor. It is written for people selling consultancy and/or advice to help them learn how to become a trusted advisor and so gain more business. It contains an equation for building trust. That equation has the same element, self interest, as something that negates all the positive elements of trust building. So it's just the same, whether you're building trust, building a relationship, building a reputation or building a business. There's an inverse law -the more self interest or greed you nurture and/or display the less successful you are likely to be in the long term.
I believe this law works works in reverse too. I am lucky to have had the opportunity to work with many successful businesses. Many of them privately owned, so I get to know the founder and owner. I can confirm that in almost all cases, it is rarely just about the money to be made or the glory success will bring. There is usually a more noble purpose or more worthy goal than just making money or being praised as a successful business person. In most instances it is related to delivering something outstanding for customers and providing a great place to work where people can earn a fair income. Not a self interest but an interest in important others. The personal return usually follows if it is done well, but that is not the key focus.
So that's it. My belief that too much self interest or short term greed can kill long term loyalty. I think it's a sound belief. What do you think?