Employee Loyalty Research
By John Hennessy
According to research by author and entrepreneur Dianne Durkin, spending the time and resources to cultivate employee loyalty can mean a big difference to the long-term health and profitability of any company. An employee that believes in the worth of the company he or she represents will be more likely to communicate that belief down the line to the most important part of the equation: the customer.
In her book The Loyalty Advantage: Essential Steps to Energize Your Company, Your Customers, Your Brand (AMACOM, 2004), Ms. Durkin offers the following.
- Employee loyalty drives customer loyalty, which drives brand loyalty.
- If you haven’t thought about quantifying the effect of loyalty, you’re not alone. But companies on the leading edge of loyalty know that it has a long-term impact on a wide range of factors, including a company’s reputation, productivity, and profitability; customer loyalty and long-term value; brand development; and business growth.
- Christine Wright-Isak, Ph.D., president of Northlight Marketing, Inc., a research firm specializing in business sociology, says, “Loyalty is something that comes over and above compensation. The company culture has to consider some intangibles, for instance, the common human need to feel valued.”
- Why do customers make the choices they do? Customers come to your company because they hope to find a product or service that they need—even if sometimes they don’t know what they need until they find it. That belief – that your company can fulfill these spoken or unspoken needs – is often directly related to the attitudes and beliefs of your employees. A knowledgeable, enthusiastic employee can often turn even a skeptic into a satisfied customer, one who has the potential not only to continue spending money with your company but to refer friends and colleagues who will do the same.
Moderator’s Comment: Which companies have a culture that cultivates employee loyalty and are they outperforming competitors that don’t?
Our office just cancelled service with a large office supply company. The simple reason – a grumpy person answered the phone and was abrupt with our office
manager regarding an order. That office supply company has everything we need, offers convenient delivery and is competitively priced, but we’re no longer a customer.
Fewer and fewer shoppers and companies are willing to give business to firms whose employees make it clear that it would all be better if customers would
just go away. All the loyalty benefits, store improvements and product innovation in the world are wasted if the front treats customers like the enemy.
Have a friend shop anonymously. Call your help desk. Phone in a complaint. Write your company. And do it regularly. Your initiatives might be faltering
due to incidents of poor employee loyalty and not the merits of any program. If that’s the case, put those programs on hold and focus on improving your employee loyalty.
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John Hennessy – Moderator
I think that company loyalty is very desirable and can be a result of the company’s culture and respect for their employees and customers. Companies that I have worked for that truly respected quality and their customers were very easy to give my loyalty to. It was easy to identify with their mission and want to be a part of it. It gave you pride to be a part of the company and you wanted it to succeed, not only for the obvious reasons, but because you believed in what they were doing.
Looking at most companies today does not give me that “warm fuzzy” feeling. A few that we seem to talk about a lot are Costco, Trader Joe’s and maybe Nordstrom. Hy-Vee and Publix are possibilities too, in my opinion.
How sad in John’s example with the office supply company that one disgruntled employee can represent the entire company and lose an account but that is the real world, unfortunately. If that is truly the overall attitude of that company, then no problem, but if not, it is a shame. How many times does this happen?
More than ten years ago, a book was published with the title, “The Customer Comes Second,” making the point that if you treat your employees badly, how can you possibly expect employees to treat customers well?
Working in hospitality, I find that so many companies, albeit independents, illustrate the point. I especially find this interesting, since employees in foodservice e.g., have the most intimate contact with guests, and should be part of the feedback loop for continuous process improvement.
Seems like a no-brainer to me.
I think Mark’s comment, above, nails the issue. Does a company pay more attention to the condition of its inventory than the state of its employees — or, worse yet, treat its employees as if they were inventory, just a collection of interchangeable parts?
Which companies have a culture that cultivates employee loyalty and are they outperforming competitors that don’t? I think they are! In my area, we have Publix Supermarkets and a lot of other supermarkets. Publix is not the cheapest but does extremely well and is a driver and a 5 iron from a Wal-Mart Supercenter. I know people who work in Publix and they love to go to work because they feel as if they are valued. They are not told what to do but asked how can we do this. They are asked, “Do you need any help” or “Would you show me how to do this the best way?” In short, employees feel that they are valued, listened to, treated fairly and that it isn’t fake. No MBA’s here trying to manipulate anything. Just honest folks considering the needs of everyone with whom they come in contact. I also see the same at Chick Fil A where employees clean the store because they don’t want you to eat in a dirty place (they would clean in McDonalds or Burger King for the same reason) not because they are told it’s time to clean. Chick Fil A seems to be growing steadily and quietly providing an exceptional experience for employees and customers.
I will say that I think that employee loyalty starts with the hiring process. I don’t know for a fact but I would bet that both of these organizations’ new hires are referrals. I would also bet that they get the best and the brightest from the labor pool. I also don’t think that “brightest” refers to IQ but attitude.
I would ask any employer what he is doing to make his business the employer of choice in his market. You figure out the answer and everything else tends to be downhill!
Just as we misinterpret consumer loyalty, I think we also misinterpret employee loyalty. As pointed out, performance and loyalty are two distinct factors. While one can impact the other, they are clearly not the same thing. Just as we talk about ‘loyalty programs’ with consumers, any likely ‘loyalty program’ is likely to be equally as ill conceived and misdirected.
I would define employee loyalty in much the same way as I do consumer loyalty. The act of consumer loyalty is the result of a consumer making the choice to continue to shop with you in disregard of the alternatives. Thus, employee loyalty is when they continue to work and support their company in disregard of other choices of employment. I throw the word ‘support’ in there because it requires action. In the case of loyalty on the employee’s part, simply continuing employment isn’t enough. There must be action beyond that. Loyal employees are ambassadors. They are your best sales persons. They are engaged as a result of their actions.
On the employer side, employee loyalty is built not through any specific program but in a culmination of actions that result in a positive employee response. When these actions are contrived, they will produce zilch. They must be sincere and perceived as active engagement in valuing your workers. Just like consumers, employees aren’t fooled either.
Consider this, recently mostly automotive companies but, others as well, engaged in ‘Employee discount’ marketing campaigns. Now, some were successful to start. Then others jumped in as copy cats. Soon it became diluted to the extent that it had less value to the consumer. Now, consider if when GM introduced it, that it was really a result of their employees wanting to make a sincere offering as they portrayed it in their advertising. ‘We want you to have the same offering as we do because we believe so strongly in our product.’
When employees don’t shop, support and become ambassadors for their employer, there is likely a reason why. The reasons they don’t are likely the same as the consumer. I am remembering some time ago when there was a discussion about a clothing company that had difficulty getting their employees to buy and wear their clothes as a condition of employment. Why would that be so hard? In the same light, why would you see a Toyota or a Honda in a GM or Ford parking lot? When employers are actively engaged in conversation with their employees, they are likely to know and be able to respond with the actions to inspire loyalty. Likewise, the same would apply with consumers.
Seems easy doesn’t it? Talk a little, take a little back, do a little, then go back and talk more again and again. Why do so few do so? Maybe they are afraid to hear the response? Or, is it simply easier to remain mediocre? It just might be – excellence takes work.
People who feel they have choices aren’t particularly loyal to employers when they see that employers aren’t particularly loyal to them. Companies that aren’t loyal to their employees typically have at least 2 reasons: (1) we aren’t in a profitable enough business, so we can’t afford anything special (2) this is how everyone else treats their employees (“we are competitive”).
Loyal employees aren’t a necessary or sufficient requirement for retail success, financially speaking. But they make it less stressful to operate and, in some businesses, might help tip the balance towards success. Which came first, the chicken or the egg? Is Costco successful because of their superior compensation, or can they pay better because they’re successful? Or is their success based on several factors, only one of which relates to compensation? Of course, compensation isn’t the only factor increasing loyalty, but it’s a strong indicator. Would a charismatic leader (Sam Walton) be able to sustain loyalty merely through charisma, or did the widely-distributed stock options help?
Loyalty can easily be measured through turnover, but the cost of disloyalty, as well as the value to the bottom line, can easily be denied and ignored, since there are no universally accepted measurements. Has any major fast-food franchise taken 1 test zone and done everything possible to reduce turnover from 100%+ per year to a 5% (free medical plan, pensions, tuition assistance, teambuilding, EVERYTHING) to see if the financials improve? I once heard a David’s Cookies executive say that the company’s mission was two-fold: bake cookies and hire people, since the average person lasted 30 days.
I frequently read SEC financials filed by retailers with the following standard line: “The Company believes that its relationship with its employees is excellent.” I assume this means that the employees aren’t on strike, since no company publishes its staff turnover statistics. All retailers publish their inventory turnover figures. I guess that inventory is important, so it’s measured. People aren’t important, so their turnover isn’t disclosed.
I think the term “loyalty” to describe customers or employees is inappropriate. In fact, the opposite may be true. Companies need to be loyal to their customers and employees. How? By delivering on their promises to these two groups. If companies are faithful to their promises, then customers will return and employees will perform as expected. If you are looking for loyalty in life, get a dog. People should be loyal to their family or their country. Loyalty to a brand or to a company makes no sense.
However, there are some companies doing a good job of training and involving their employees so they are better prepared to delight their customers. These include Ritz Carlton, USAA, FedEx, Starbucks, and Wegmans. The secret is to invest in your employees. Wishes alone won’t work. The above companies recognize that customer service can be a key differentiating factor and have invested accordingly.
Interesting that Wegmans came in No. 1 in Fortune magazine’s “Best Companies to Work For In America” list this year. If you key “Best Companies to Work For in America” into Google, you’ll find it pretty quickly. The neat part of this site is that it lets you click on various measures such as employee turnover, 401-K, job growth, etc., and see who the leaders are. Publix also made the list, but it was 94th. ESOPs help, I think. My wife works at an ESOP – King Arthur Flour — and it’s quite a team! You’ll notice that Fortune’s list even includes quite a few companies with “negative” job growth. I think it all gets down to respecting people and telling the truth, in public and in private. The folks at the top have to have enough vision and smarts to make it all work, and enough courage to bring strong talent on board to build enthusiasm for the mission. With a good top team of enthusiasts left free to do the job, everything begins to click.
I’m confused! If one of your employees treats a customer rudely, that’s not a lack of “employee loyalty,” it’s just a poor job performance. That has little or nothing to do with employee loyalty.
Employee loyalty should be seen as a separate issue. It answers questions such as: How do your employees really see your firm’s products and services? Do they buy, use, and talk positively about your products/services when they’re not on the job?
The concepts might be connected — I have no problem believing that employees with high loyalty will tend to be better workers — but they are still distinct. Hidden shopper tactics, for instance, are a fine way to gauge performance, but they won’t reveal much about employee loyalty per se.
Ms Durkin is exactly right. For the most part, we’re in an Age of Disengagement. This has been fed over the last few years by 9/11 and ongoing terrorism, a multitude of corporate scandals, questions over the integrity of organized religion, discouragement over the war, a bickering bungling government experience, and so on.
According to the Corporate Executive Board, only 11% of employees are “strongly engaged” in their work with 76% reporting that they are “moderately engaged.” Gallup, in a survey of over 17,000 leaders, found that only 49% of them (many at VP and above) say they are “engaged” in their work. The frightening finding is that 9% say they’re “actively disengaged!” That means that, on a leadership team of 10, one of them is drilling a hole in their own boat.
It’s no surprise that customer ‘engagement’ is even worse, with roughly 85% of our customers ready to drop us like a hot rock.
What does it take to have true loyalty or engagement that has an emotional and spiritual basis as well as an intellectual one? Three things:
1) The living presence of higher purpose both personally and corporately.
2) Meaningful and dynamic dialogue.
3) An enabling environment that values the intellectual and innovative resources of the people who work there.
You can buy or demand compliance but commitment and loyalty is a spiritual choice each individual has to make.
Colour me cynical (yes, again). Some years ago, in an effort to make employees feel valued and employers swallow the cliche about them being their most important asset, the British government introduced a program called Investors in People. At first, I thought this was great. Then I started training to become an assessor and learned more about what the companies had to do to earn (and keep) accreditation. And what the employees felt about the process and the sincerity of their employers. Basically, it turned out to be pretty much a way of pinning a medal on the chest of employers who, in the majority of cases that I saw, were actually going through the motions to make themselves appear more employee-friendly than their staffs actually perceived. I’m sure this was not the case for all businesses but from my, admittedly limited, firsthand experience and the people to whom I spoke, it was true for the majority.
Having said all that, one company that I don’t believe even tried to get IiP but has some of the most loyal employees in the business is my old favourite, Waitrose. Everyone who works for them, and their parent company, department store retailer John Lewis, is a partner. Every partner gets shares in the company’s profits based on length of service and, I think, job level. However it works, it works. They have some of the consistently best customer service I’ve ever encountered and, in the current economic climate where there are daily profit warnings and indications of panic from retailers, their growth is better than virtually anyone else’s. This included proving two assertions they have long held: once Waitrose began opening branches in the northern part of the country for the first time ever, consumers would dump the bigger supermarkets and flock to them AND, similarly, as their home delivery service, Ocado, expanded its geographic area, the same thing would happen. No one has ever pretended that John Lewis or Waitrose are cheap but they have a reputation for quality, value (in the true sense that I continually bleat on about) and service. Their success, and the way in which employees are treated, prove the point that internal loyalty begets external loyalty. And profits.