Harvard Business Review on Increasing Customer Loyalty: A book review by Bob Morris

Harvard Business Review on Increasing Customer Loyalty
Various Contributors
Harvard Business Review Press (2011)

How to create customers who are profitable

This is one of the volumes in a series of anthologies of articles that first appeared in Harvard Business Review. Having read all of them when they were published individually, I can personally attest to the high quality of their authors’ (or co-authors’) insights as well as the eloquence with which they are expressed. This collection has two substantial value-added benefits that should also be noted: If all of the articles were purchased separately as reprints, the total cost would be at least $60-75; also, they are now conveniently bound in a single volume for a fraction of that cost.

Those who aspire to make their customers both loyal and profitable will find the material in this HBR book invaluable. It is one of the volumes in a series of anthologies of articles that first appeared in Harvard Business Review. Authors of the nine articles focus on one or more components of a process by which to turn angry customers into loyal advocates, get more people to recommend them, increase customer satisfaction by satisfying them, focus on profitable customers (loyal or not), invest in the right CRM technology, mine customer data for more effective marketing, and increase each customer’s lifetime value.

I now provide two brief excerpts that are representative of the high quality of all nine articles:

In “The One Number You Need to Know,” Frederick F. Reichheld explains what he characterizes as “The Ultimate Question”: “On a scale of 1 to 10, how likely is it that you would recommend our company to a friend or colleague?” There are two other questions that are effective predictors in certain industries: “How strong do you agree that our company sets the standard for excellence in our industry?” and “How likely is it that you will continue to do business with our company?”

The number to which the article’s title refers is what Reichheld calls the “The Net Promoter Score.” Promoters are those who provide a rating of 9 or 10, Passives 7 or 8, and Detractors 6 or less. For purposes of illustration, let’s say 100 customers respond as follows: 35 Promoters, 45 Passives, and 20 Detractors. The net score is determined by subtracting the total number of Detractors (i.e. 20) from the total number of Promoters (i.e. 35) and that is 15. That is a baseline against which subsequent efforts to increase Promoters and decrease Detractors are measured. Reichheld calls it the Net Promoter Score (NPS).

In “Diamonds in the Data Mine,” Gary Loveman offers these suggestions when using a database to measure/predict customer loyalty:

1. Acquire a rich repository of customer information.
2. Slice and dice data finely to develop marketing strategies.
3. Identify core customers by predicting their lifetime value.
4. Gather increasingly specific information about customers’ references – then appeal to those interests.
5. Generously reward employees who prioritize levels and degree of customer service.

Other articles of specific interest to me include “Companies and the Customers Who Hate Them” (Gail McGovern and Youngme Moon), “Putting the Service-Profit Chain to Work” (James L. Heskett, Thomas O. Jones, Gary W. Loveman, W. Earl Sasser, Jr., and Leonard A. Schlesinger), and “The Mismanagement of Customer Loyalty” (Werner Reinartz and V. Kumar).

SUGGESTED READING

The Ultimate Question
The Ultimate Question 2.0
Frederick H. Reichheld

Creating Customer Evangelists
Ben McConnell and Jackie Huba

On Great Service
Discovering the Soul of Service
Leonard Berry

The New Gold Standard
Joseph Michelli

Setting the Table: A book review by Bob Morris

Setting the Table: The Transforming Power of Hospitality in Business
Danny Meyer
HarperCollins (2006)

Note: Perhaps 30-35 years ago, probably in an article for Harvard Business Review, Peter Drucker said something to the effect, “If you don’t think you’re in the hospitality business, then you won’t have any business. People must feel appreciated before they will buy anything from you.”

The Nature and Value of Authentic Hospitality

This book will be of great interest and even greater value if one or more of the following is relevant to you:

1. You have direct and frequent contact with customers.
2. You personally train and/or supervise those who do.
3. You need to improve your “people skills” in your business and personal relationships.
4. Your organization has problems attracting, hiring, and then keeping the people it needs to prosper.
5. Your organization has problems with others who, for whatever reasons, consistently under-perform.

It is no coincidence that many of those on Fortune magazine’s annual list of most admired companies reappear on its annual list of most profitable companies. Moreover, both customers and employees rank “feeling appreciated” among the three most important attributes of satisfaction. Now consider the total cost of a mis-hire or the departure of a peak performer: Estimates vary from six to 18 times the annual salary, including hours and dollars required by the replacement process.

Until now, I have said nothing about Danny Meyer nor about the restaurant industry so as to reassure those who read this brief commentary that, although Setting the Table does indeed provide interesting information about him and his background, the book’s greater value derives (in my opinion) from the lessons he has learned from his successes and failures thus far, both within and beyond the kitchen.

One of the most important concepts in this book is hospitality. Here’s what Meyer has to say about it: “hospitality is the foundation of my business philosophy. Virtually nothing else is as important as how one is made to feel in any business transaction. Hospitality exists when you believe the other person is on your side. The converse is just as true. Hospitality is present when something happens [begin italics] for [end italics] you. It is absent when something happens [begin italics] to [end italics] you. These two simple propositions – for and to – express it all.” According to Meyer, service is the technical delivery of a product. Hospitality is how the delivery of that product makes its recipient feel about the transaction. This is precisely what Leonard Berry has in mind when explaining what he calls “the soul of service.”

Another of the most important concepts in this book is “connecting the dots” which Meyer views as a process by which information accumulated “can make meaningful connections that can make other people feel good and give you an edge in business. Using whatever information I’ve collected to gather guests together in a shared experience is what I call connecting the dots.”

Of special interest to me are those whom Meyer characterizes as mentors to whom he has turned for sound (albeit candid) advice. For example, on one occasion he enthusiastically “showed off” to Pat Cetta (co-owner of Sparks Steakhouse) a new dish just added to the Union Street Café menu: Fried oyster Caesar salad. Cetta’s response? “This dish is nothing more than mental masturbation. You’re clearly doing it just to get noticed by Florence Fabricant [in the New York Times]. And the bad news is that she won’t even like it. I guarantee you that shit is coming off your menu within two months – and if I were you, I’d take it off in two minutes. You know better than that, luvah!” Meyer agreed and quickly retired the dish.

As indicated earlier, I think the lessons which Meyer generously shares in this book, especially those learned from errors of judgment (“the road to success is paved with mistakes well handled”) are of substantial value to managers in all organizations, regardless of size or nature. If there were a rating higher than Five Stars when I reviewed it for various Amazon websites, I would give it to this thoughtful, eloquent, and entertaining book.

Q #125: When should a client be fired?

In this series, Bob Morris poses a key question and then responds to it with material from one or more of the business books he has reviewed for Amazon and Borders.

Especially when they are involved in an economy such as the one we have now, decision-makers in most companies are almost wholly preoccupied with keeping the clients they already have while doing all they can to obtain new ones. That is understandable. However, in both good times and bad, there are some clients a company really cannot afford. Here are five reasons:

1. They haggle over every cost and question every decision.

2. They are abusive to your people.

3. They constantly send mixed signals, change their mind, come to meetings unprepared, delay approvals, etc.

4. They have a “Slow Pay” strategy and feign being offended when tactful inquiries about an overdue payment are made.

5. They take it for granted when you and your associates “go the extra mile,” solve a problem they created, perform “above and beyond the call of duty,” etc.

Clients such as these are well aware of how much additional leverage they have during a turbulent economy such as the one we now have. If anything, they are an even bigger pain in the (bleep). If you have any of these clients, cut your losses and end the relationship ASAP. If you don’t have any, consider yourself fortunate.

The world’s most renowned experts on customer relations management (e.g. Leonard Berry, Seth Godin, Gary Hamel, Guy Kawasaki, Ben McConnell and Jackie Huba) all agree on at least one core principle: Create a detailed profile of your ideal client and then focus all of your marketing attention on prospects that meet that profile.

Comments, questions, requests, or suggestions? Please share them. They will be most welcome and I thank you for them. Best regards, Bob