For use: Sunday, June 20, 2000 and thereafter

 

 

 

A Business Bestiary: "Appreciate the Barnacle"

 

by Michael Finley

 

 

 

The barnacle is nobody's favorite creature. It fastens itself to the hulls of ships and slows their progress. But in your business, barnacles -- customers who stick with you through thick and thin -- are a dandy thing to have.

 

The image comes from Frederick Reichheld, head of Bain & Company's loyalty practice and author of The Loyalty Effect (Harvard Business School Press). 

 

The loyalty Reichheld has in mind is your customers' loyalty to you. Think of it this way: if your organization routinely loses 20 percent of its customers annually, you are losing half of your customers every 5 years. All the investment you poured into acquiring and cultivating them is squandered.

 

Whereas, customers who keep buying from you 5 percent longer than average give you a greater return on their investment in acquiring those customers. Since they are already acquired, the extra years of buying are like free money.

 

So how do you get customers to attach themselves to your hull? By making loyalty one of your organization's missions.

 

·        MBNA, the credit company, states on its annual reports: "Our strategic plan is summarized in nine words: "Success is getting the right customers and keeping them."

 

·        John Deere, the tractor people, sees farm families as customers for more than one generation.

 

·        Vanguard, the mutual fund company, maintains the lowest fees in the industry, holding onto people for life.

 

·        Lexus, the luxury car company, keeps its service centers in close contact with the mother company by installing satellite dishes on every center, for instant communication and improved service.

 

When you think about it, most businesses do this the exact wrong way -- offering inducements to one-time customers through sales, coupons, and special offers. People this sensitive to price will move on to another business as soon as your offer fades. These customers are like butterflies, and are your least profitable customers. Better to focus on the barnacles, says Reichheld. Your best friends will anchor themselves to you for the long haul.

 

Order Fred Reichheld's The Loyalty Effect

Copyright (c) 2000 by Michael Finley