A Man of Words Remains Partial to One -- Loyalty In the 90's, a tough, impatient decade that has given loyalty a drubbing, Frederick F. Reichheld has always been loyalty's champion in business. Mr. Reichheld produced the hard numbers showing that a seasoned employee, treated properly, was two or three times as productive as someone just in the door. No one ever questioned that customer loyalty was a good thing. But precious few companies actually understood how powerful a lever a committed customer was. Mr. Reichheld, a management consultant at Bain & Company in Boston, had the tally: A company that keeps just 5 percent more of its customers from sliding away could lift profits by 50 percent. Times have changed, but he still preaches that loyalty, an old-fashioned virtue, is fundamental to business success on the Internet. This season Amazon.com, for one, with its obsession with serving customers, is singing Fred Reichheld's song. Everyone understands that e-commerce economics requires enormous expenditures upfront to attract a clientele. This holiday season was a critical test of which e-tailers could win out in pulling customers to their sites. But that's only a start. Those customers have to stick around. The Internet measures a site's "stickiness" in minutes; profitability is reckoned in years. According to preliminary research by Bain and others, it will take three to four years of loyal patronage just to break even on what is now being spent to drag customers in the door. "The economics of loyalty just gets applied so much more powerfully," Mr. Reichheld said in an interview on Dec. 17. "If you think about the true economics of an Internet business: they've got this big acquisition cost, and then they've got a potential annuity of income if they treat people right and earn their loyalty." Mr. Reichheld believes the Internet has enormous potential for serving customers better, with richer information, interactive relationships and innovative services. "There are so many creative things you can do for the customer's lifetime experience," he said, "lots of ways to create a unique, distinctive and much better customer experience." From what he has seen so far, however, "very few" companies are going to be able to hold their customers for three to four years. Acquisition costs for the pure Internet e-tailers are "going up like crazy," he said, while the customers they attract tend to surf from one retail site to another. "They're snagging fundamentally disloyal butterfly kinds of customers," he said. The preliminary research on consumers' Internet shopping habits and projected loyalties shows some traditional merchants like Lands' End and L. L. Bean doing very well. Their customers are Velcro, not Vaseline. "I'm pretty convinced that the existing firms, as they add Internet capabilities, are going to cream pure-play Internet," Mr. Reichheld said. Some traditional merchants enjoy customer retention rates 10 to 20 percentage points higher than their newer competition. Normally, trailing the competition by 20 points in customer loyalty "is enough to put you out of business," he noted, adding that "10 points is very weak returns." Mr. Reichheld's core doctrine is engraved in stone: Companies that cultivate loyal customers, loyal employees, loyal investors, consistently outperform their competition. Mr. Reichheld first built a Bain practice and then a philosophy on that observation. "One, it all starts with trust," he said. "If you don't earn your customer's trust, you won't make money on the Internet. Two, unless you have superior economics -- a strategy for building real economic advantage -- you're not worthy of trust. Three, customer selection is more vital than ever. There is so much churn out there." Mr. Reichheld is an idealist and a perfectionist. On average, he notes, American companies lose roughly half their customers in five years, half their employees in four. The huge expense of replacing them offends his perfectionist streak. And the emerging career pattern of workers jumping from employer to employer strikes him as a sad failure. It is "sheer hogwash" to preach that message to young people, he said. "A great company is where you want to end up and spend most of your life," he said. "Most of life is a search for people and institutions worthy of your loyalty and commitment. People yearn for that. That's why the Marines are not short on recruiting." At 47 and financially secure, Mr. Reichheld has retired from client engagements. His Bain partners made him the first Bain Fellow, a half-time senior position that permits him to concentrate on extending his loyalty research. He gave a score of speeches this year, and he is three-quarters through writing a book on corporate leadership. "This idea of treating people right, principled relationships -- it doesn't just happen naturally," he said. "It takes leaders who have the ability to put others' interests ahead, to take a long time frame, and to bring things into that framework." Every year or so, most recently in October, Mr. Reichheld assembles a a circle of chief executives from companies he admires. The collection is as varied as Intuit, Vanguard, Harley Davidson, Chick-fil-A, Northwestern Mutual Life, State Farm, A. G. Edwards, Enterprise Rent-a-Car, ServiceMaster and Bright Horizons Family Solutions. That circle provides sketches from life for his book on leadership -- far-sighted executives like Scott Cook of Intuit, Benjamin F. Edwards III of A. G. Edwards and S. Truett Cathy of Chick-fil-A. "These businesses structure themselves in a way that would make it logical that you would commit to them," Mr. Reichheld said. "The way people are treated, the principles they run on, the real results, are worth that commitment." Among other things, "they align people's interests, so that if the team wins, they drag along everyone who contributed." His favorite instance is Chick-fil-A, the fast-food chicken chain, which is based in Atlanta. Its store operators put up only $5,000 and pay the parent company 15 percent of sales for various services. Above that, parent and operator split all the profits 50-50. Incomes of $100,000 or more are common; a handful of operators earn $300,000 or more, typically from two outlets. By contrast, the competition might pay $40,000 or $50,000. "Chick-fil-A -- they celebrate when their people do well," Mr. Reichheld declared. In his view, Mr. Cathy, who founded Chick-fil-A, got it exactly right: "There is no way in heaven he can get rich unless his store operators get rich." And Mr. Cathy is quite rich. Four years ago, Mr. Reichheld's first book, "The Loyalty Effect" (Harvard Business School Press), debunked the notion that loyalty was dead. It also put loyalty economics on the map. It showed, for instance, that when a brokerage house improved its retention of brokers to 90 percent from 80 percent, it more than doubled the potential value of a new hire. For one credit card company, a 5 percent increase in customer retention translated into a 75 percent increase in the average customer's lifetime value to the company. Typically, a customer generated $40 in profit the first year, $106 in the 10th and $161 in the 20th. Customers who stick around tend to buy more, are much cheaper to serve, bring in friends as referrals, and accept premium pricing. Over the years, that all compounds. "In the old world," Mr. Reichheld said, "you can have medium loyalty and still make a buck," protected by a convenient location or the customer's lack of information. In the Internet world, there will be no place to hide, no substitute for earning high loyalty. "The economics are going to be obvious," he predicted. "People are going to be forced to do the right thing or get out of business." --,--`-<@ 매일 그대와 아침햇살 받으며 매일 그대와 눈을 뜨고파.. 잠이 들고파.. Till the rivers flow up stream | Love is real \|||/ @@@ Till lovers cease to dream | Love is touch @|~j~|@ @^j^@ Till then, I'm yours, be mine | Love is free | ~ | @@ ~ @@