Loyalty Rules!: How Today's Leaders Build Lasting Relationships

Written by Frederick F. Reichheld. Published by Harvard Business School Press

Loyalty is an old business concept that has been seeping out of the marketplace more quickly now than ever. When Enron, WorldCom and other large corporations made headlines by letting people down with blatant acts of corporate fraud and corruption, many people saw company loyalty flying out of the window like so many broken promises. In an effort to raise loyalty back to its previous, glorious heights, Fred Reichheld, a Harvard MBA and leader of the renowned management consulting firm Bain & Co., has been writing for years about how a steadfast focus on loyalty can help a company beat the competition, fair and square.

Reichheld's previous book, The Loyalty Effect, showed that loyalty makes financial sense for any company. One reason is its positive impact on employee and customer retention. In The Loyalty Effect, he demonstrated how "a 5 percent increase in retention can yield between 25 percent and almost 100 percent increases in profits across a variety of industries." In other words, loyalty pays, often quite handsomely.

In Loyalty Rules!, Reichheld shows business leaders how to bring the world of ethics into the world of economics by demonstrating that loyalty not only drives profits when it is valued and measured, but it can also act as a central indicator of a company's success.

Reichheld writes that loyalty is even more important in an era when win-win relationships are needed to hold together companies that are spending fortunes to acquire the right customers and employees. With examples such as Southwest Airlines, Enterprise Rent-A-Car and Harley-Davidson, he shows that when a company nurtures loyalty, customers stick around. Loyal customers make repeat purchases for years to come. Reichheld also shows that, while many companies are having a hard time finding qualified people to do their work, investments in acquiring and training employees pay off when loyalty is built into the company's fabric. Reichheld uses research, stories and case studies to demonstrate the many positive effects of creating win-win relationships that are filled with truth, fairness and responsibility.

We need loyalty more than ever as the Internet allows us to become more and more distanced from the people with whom we work. Instead of spurning the Internet and its cold-hearted, digital ways, Reichheld embraces the electronic marketplace and sees it as a way for companies to deepen relationships with customers, employees, suppliers and investors. In Loyalty Rules!, he writes that he has found that trust actually rules the Web. More trust strengthens loyalty. When your online customers trust your Web site, they will share more of their personal information with you. This enables you to form an even more intimate relationship with your customers, which in turn allows you to serve them better with more personalized products and services. Reichheld writes that this kind of personal attention creates a virtuous cycle in which even more loyalty is created.

Loyalty Rules! offers business leaders a short list of loyalty principles they can use to increase the amount of loyalty a company enjoys. These loyalty principles are: play to win/win instead of profiting at the expense of a partner; be picky by making membership a privilege; keep it simple by warding off the complexity that slows down your responsiveness; reward the right results by giving worthy partners worthy goals; listen hard and talk straight; and finally, preach what you practice. Of course, Reichheld writes, these principles only work when executive leaders are onboard and active in making loyalty a priority within the company.

That's why I believe Reichheld's name and ideas should be broadcast throughout the business world. Every company can benefit from his pragmatic, ethical approach to improving a company through strong loyalty practices. When we see a company that is faithful to loyalty principles, we are loyal in return, and the positive, win/win cycle spins forward.

Review by Chris Lauer, senior editor, SEBS