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Employee and Customer Loyalty - Critical Keys to Profitability

By Jack Borland
February 28, 2006

Talent Keepers gave an excellent presentation on employee retention culture at the ABA's NCCB last week. One finding that really caught my attention was that the greatest factors in job offer acceptance are, in order of importance:

1. Compensation related issues
2. Job related issues (scheduling, training, etc.)
3. Personal issues (leadership quality)

In looking at employee retention, Talent Keepers found that the greatest factors for retention after being hired are reversed, with leadership/trust issues with immediate supervisors being the primary reason people stay.

What's trust got to do with it?

This basic psychology switch in your employees mirrors the psychological changes in customers too. In accepting a job offer or purchasing a product or service, most people believe that their decisions are based on rational, logical, quantifiable facts. In reality, emotion plays a much greater part in this decision process than most people comfortably admit.

What's this got to do with customer loyalty? Several things: First, loyal customers and loyal employees share a common trait; they make more money for your business. (Oh, sure, some loyal customers, and some loyal employees can actually be a drain on a firm. But in general, loyal employees have more experience to draw from, more expertise, and are more efficient. Loyal customers cost less to maintain and are more profitable over time.)

Second, they have a personal investment in their relationship with your firm. Employees who feel that their supervisors are trustworthy and flexible are willing to work with them to help the company succeed. Customers who feel that you recognize that they made a conscious decision to pick your company from a field of competitors, and are valued for that choice, are more inclined to stay, add to their business, and provide referrals.

Thinking about relationships, research shows a very direct correlation between personal relationships and loyalty to the firm. Lack of trust is the leading cause of employee turnover.¹

For customers, the ability for the company to demonstrate flexibility, fairness, and trustworthiness are the real drivers in creating loyalty. Those things are typically exemplified by the personal interactions a customer has with the firm - how complaints or inquiries are handled, or how the company communicates with the customer. Note that while automated systems and impersonal touchpoints such as web self-service can be important tools in providing customer satisfaction with basic service offerings, they typically aren't drivers for customer loyalty, unless they demonstrate a company focus on understanding the customer's unique needs and desires.

Ultimately your customers' relations with your firm come down to their relations with your employees. A problem or need that is addressed quickly, efficiently, and with care and concern for the customer can lead to strong customer loyalty. Your more senior employees will, on average:

• Inherently understand customers' needs and suggest appropriate solutions;
• Be experts on the company's systems and processes; and,
• Exercise responsible judgment on when to seek waivers and exceptions to policies.

Conversely any time a customer interacts with systems, processes, communications, or employees that demonstrate a basic lack of understanding of the customer's needs and issues is a potential opportunity for customer defection. Consider these facts:

• 75% of the reasons customers leave have nothing to do with your product;
• While 80% of companies polled think they provide a "Superior Experience," only 8% of their customers agree.²
• 70% of ex-customers state that they were "satisfied" or "very satisfied" with their former company immediately prior to defection.³

Is 'Satisfied' good enough?

Satisfaction has very little to do with loyalty. Community banks, for example, pride themselves on their connections with their customers. But we see, and general research backs this up, that the bulk of banks including community banks are stumbling in their efforts to develop a customer-centric culture.

What is a customer-centric culture? Simply put, it's when your company puts your customers' needs and desires first, rather than trying to get their needs to fit into your product or service offerings. It's making sure that your agents or personal bankers are asking questions to understand the customer's needs before offering a solution - and making sure that the solution they do eventually offer is actually relevant to the customer. And it's about developing behaviors to interact with the customer in ways that they desire.

How do you justify doing anything about this?

Think about the economics of these issues. When looking at employee retention, most companies don't quantify the hidden costs of losing trained personnel. The cost of the brain drain of talented, knowledgeable workers in their prime work years is formidable. They are the most productive part of your workforce and have the highest long-term contribution potential. The same goes for emphasizing customer retention over new customer acquisition. Consider this:

• The cost of employee defection ranges between $10,000 and $20,000. For banking the estimate is approximately $17,000.⁴
• It costs between six and ten times as much to acquire a new customer as it does to maintain an existing customer⁵
• For every $1 spent acquiring a new customer you'll spend $100 to re-acquire a lost customer⁶

In addition, for every dollar spent in efforts to promote employee retention, you can expect a customer retention dividend - well-trained, knowledgeable, loyal employees will help create and retain loyal customers. (When spending on employee retention, keep in mind that the best investment is leadership training and improved communication channels, rather than just improving pay or benefits.)

Your Next Steps

Understand the value of your customers AND employees.
Identify your most profitable customers and most productive employees, then talk with them to find out what makes your company attractive to them, and what else they'd like you to provide in terms of service and support. Note that this doesn't mean servicing only your most profitable customers. Rather it means developing ways to better retain those customers, and by that, possibly gaining additional business from some of your other customers.

Make an executive commitment to a Customer-Centric Culture.
Explain to your employees why a customer-centric culture is important and how you will execute change within the organization to facilitate a CCC. Open avenues of communication so your employees can tell you where issues exist. Make sure they realize the benefits they receive from customer-centricity: profitable customers make for profitable companies that can provide greater tangible and intangible benefits to their employees.

Make a commitment to retain your (best) employees
Gain commitment at all levels that employee retention is one of the key drivers for customer retention - and that therefore it is a key priority for the company to provide training, coaching, and leadership to all employees.

Evaluate all channels.
Make sure you understand how you are presenting yourselves to the customer and to the employees. Identify issues and address them, prioritized by their potential impact to your retention numbers.

Develop metrics.
Hold leaders accountable for employee retention. Hold leaders and staff accountable for customer retention and new customer acquisition. Identify relationship experts within the company, give them leadership roles to share their knowledge. Don't benchmark yourself against your peers - emulating the average will never produce greatness. Instead, look at industry differentiators like Southwest Airlines, Wachovia Bank, and Whole Foods--where a customer-centric culture and a positive customer experience have resulted in huge profits. If you can emulate their employee and customer retention numbers, you'll be successful beyond your wildest imagination.

You may attract great employees with a signing bonus. You might hook new customers with a great 'for a limited time only' deal. But it's the value of integrity and trust that keeps both of these important groups of people with your company and contributing to your on-going success.

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Jack Borland is a Customer Experience Consultant and Sales Manager at Vox, Inc., a customer experience research and consulting firm. Contact him through the feedback form on our Contact Us page. Copyright 2006 Vox, Inc. All rights reserved.

¹ Source: Trust Factors at Work, Pennington

² Source: Bain & Company

³ Source: Bain & Company

⁴ Source: Talent Keepers original research

⁵ Source: general industry estimates

⁶ Source: MauroNewMedia studies

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