Loyalty as a philosophy and strategy: an interview with Frederick F. Reichheld

Loyalty in the workplace has become a radically misunderstood concept. In this interview, Frederick Reichheld argues that loyalty drives financial success ‐ especially, in today’s volatile economy. As companies face the harsh realities of an economic downturn, holding onto their customers must be a priority for growth. Reichheld believes companies must focus on building a loyal customer base by forming strong relationships with front line employees. By keeping profitable customers and growing relationships with them, the “loyalty leader” companies identified by Reichheld out‐performed their competitors in the stock market by a factor of 2.2 on average during the 1990s. Bain research shows that a mere 5 percent increase in customer retention generates 30 percent to 40 percent increases in a customer’s lifetime profitability in industries like software and building management, and as much as 90 percent gains in financial services and advertising. Reichheld concludes that companies can only build a sustainable competitive edge by creating enduring, mutually beneficial relationships built on trust with employees, customers and suppliers. The ability to build and nurture loyalty over time has become an invaluable differentiator for successful organizations.