Suddenly Loyalty Is Back In Business

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Here are some of the strategies that successful companies are using to cultivate and maintain loyalty among executives, employees and customers:

KEEP IT SMALL. Employees are most dedicated and motivated when they work in teams of 10 or fewer, say loyalty experts. Enterprise, the largest U.S. car-rental agency, with an annual revenue of $6 billion, has branch managers oversee no more than eight agents. "As branches get busier and bigger, we split them up," says senior vice president Sandy Rogers. The result has been "higher growth and profitability."

WATCH THE FRONT LINE. In a sales or service business, that's the best way to enhance the bottom line. Consider the typical cell- phone company, which each year loses nearly 40% of its customers, a figure that U.S. Cellular president John Rooney calls "a personal affront." He says he's less interested in luring new customers with rock-bottom, gimmicky calling plans than in making sure existing customers are happy with the plans they have selected. U.S. Cellular requires new sales and customer-service reps to undergo six weeks of training that emphasizes behavior rather than gadgetry. "We tell frontline people their objective is not to sell a product but rather to make customers smile," says Rooney. In a contracting economy, savvy companies realize that sales growth is more likely to come from holding on to current customers than from making new conquests. In the 18 months Rooney has been on the job, the company has trimmed its monthly customer-turnover rate from 2% to 1.7%--for an annual saving of $40 million in marketing costs.

FACE UP TO BAD NEWS. Just as International Truck keeps its unions informed about its finances in good times and bad, Cisco Systems has held firmly, amid the tech recession, to its policy of revealing all product bugs on a public Web page as soon as a problem is reported. In contrast, companies such as Microsoft have been criticized for keeping glitches a secret. Cisco's bug database and online message board help programmers and customers avoid massive problems and share fixes. Says Reichheld, who has studied Cisco's approach: "Loyalty is impossible without trust. And trust is impossible without accurate, reliable information."

OFFER JUST DESERTS. The Vanguard Group mutual fund company rewards employee loyalty and effort through an incentive program that accounts for as much as 30% of an employee's compensation. Even with a jittery stock market, employees stand to do well because results are determined as much by the company's progress toward its business goals as by the performance of its stock. "It's not strictly tied to the euphoria of the bull market or the despair of the bear market," explains chairman John Brennan. Employees seem to like the arrangement: turnover each year is less than 10%, about half that of competing money-management firms.

HANG TOGETHER IN HARD TIMES. J&R; Music and Computer World in New York City would seem to have every reason to head for the hills. The 300,000-sq.-ft. retailing giant is just a block from ground zero, and was coated with soot and concrete dust from the attack. It remained closed for six weeks after the attack, but all 800 employees continued to receive full pay. Rachelle Friedman, co-chair of the 30-year-old family business, says, "Our employees are our biggest asset. They're like family." Though J&R; cut prices and introduced free shipping, declining sales forced the firm to eliminate 48 positions in October--its first layoffs in 30 years.

Many J&R; customers say they still recall the store's refusal to price gouge after John Lennon's murder in 1980--just weeks after the release of his last album, Double Fantasy. J&R; had 3,000 copies and could have sold them for double the original price but didn't. "This time a lot of customers told us they waited to buy new music and DVDs until we reopened," says Friedman. She thinks business will return even amid the economic slump: "When things are bad, people find comfort in listening to music and watching movies." And they find comfort doing business with people they respect.