"Here we strike bedrock, because creating value for customers is the foundation of every successful 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

Return on Investment: The rate of profit from an investment of capital.
Webster's Seventh New Collegiate Dictionary

Return on Customer Loyalty: The total profit generated over the lifetime of a business relationship divided by the cost invested to retain the customer's loyalty. In a recent study produced by LINK Inc., CEOs were asked what their main frustration with the marketing function was. 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. Now, calculating the return on invested time, resources or cash should be step one of any planning process.

I suggest it's marketing's responsibility to offer a new way to look to elevate business out of its self-destructive focus on near term earnings. For anyone who says, "You're being idealistic," I have a one-word response: McDonald's.

This new vision can't just be evangelical fervor. It must also provide concrete methodology, measurement and compelling results. The Loyalty Effect offers a paradigm shift. Increased loyalty of guest and employee should be the prime objective of any business. The book offers numerous case histories in a whole host of industries to back its case, including Chik-fil-A.

Now, The Loyalty Effect was published in 1996, an eternity in business and even longer in the business book world, so I compared the data it shared on Chick fil-A with data available today, and compared the book's predictions with actual results.

The results are pretty interesting. Truett Cathy predicted that the company would be a billion dollar brand by 2000. It was. NRN's Top 100 report for 2002 shows Chik-fil-A with sales at $1.372 Billion. Equally important, the brand shows the best system wide sales growth, unit average volume and unit growth in both 2001 & 2002. In addition, it is the only brand in its category (chicken) that shows gains in market share in both years. The increase is a whopping 1.9 pts.

What are concrete near term measurements of success or failure in this new paradigm? Customer counts and employee turnover. 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 and the economy are two favorite excuses. Further, the restaurant, foodservice and hospitality industries have accepted triple digit hourly employee turnover or double-digit management turnover (averaging somewhere between 30-50%) as fact. HR departments may measure the rate of turnover and implement a variety of programs to staunch the blood loss, but the loss remains excessive.

Both guest count decline and high turnover tell a simple story: Neither group sees the brand as worth sticking with. In a world where conventional wisdom holds that no one is loyal to anything, I disagree. Give the consumer/employee something that offers them ever-increasing value. Recognize and reward the best in both groups, and you will see increases. Chick-fil-A is my proof.

So, I exhort my colleagues in marketing to lead the way by helping their bosses look at the business in this 'new' way. Make loyalty the measure and sales/profits/market share/unit growth will follow.

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I have two raves this issue. The first is Hi Rise Bakery here in Cambridge. It demonstrates an uncanny feel for 'food as theater'. The main store isn't large. It has perhaps 40 seats, including an enormous table for family style seating. Half of the space is devoted to the bakery. Diners are treated to "The Theater of Baking" performed of artisans. Guests munch on knockout sandwiches or pastries and imbibe excellent selection of coffees and teas.

Hi-Rise also sells jams, jellies and whole bread, bringing the Hi Rise experience into the home. They do all this without any vanity or fuss and have been rewarded with both "Best of..." designations from the local major media and standing room business. Maybe I love these guys for the fact that they use the sense of smell to such advantage. It is something we don't do enough of in an industry that should trademark seductive aromas.

The second rave goes to the books The Loyalty Effect and Loyalty Rules, both by Mr. Reichheld. You can click here for a direct link to Amazon.com.

We combine theater technique, classic marketing skill and operations know-how to create a profitable, "WOW" guest experience.

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