The customer is not always right: Employee loyalty is more important than customer loyalty
Why investing in your employees is a strategy that drives profits
Grace Tripathy
, Wed 10 August 2022
"The customer is always right; The customer comes first."
We've all heard these mantras, either as part of our jobs or as customers ourselves in the marketing materials of countless businesses.
However, extensive research shows that customer satisfaction is more effectively built by first focusing on employee happiness.
At the July Executive Symposium last Thursday, July 28, 2022, Todd Coerver, CEO of P. Terry’s Burger stand stated his belief that “the customer is not always right.”
He demonstrated the way that he invests in his employees because investing in them is just as critical as investing in the company.
Coerver’s stance on the always-known “customer is always right” rule poses the question: “Is employee loyalty more important than customer loyalty?”
The idea of putting employees before customers seems counterintuitive, but it's not entirely new.
Over 20 years ago, a group of business professors from Harvard University had been working on a model that validated this concept. James Heskett, Thomas Jones, Gary Loveman, W. Earl Sasser, and Leonard Schlesinger were comparing results from their own studies and synthesizing other research to construct a model to explain the outstanding success of the most profitable service-based companies.
It began with Sasser’s research, conducted with his former student Fred Reichheld. The duo took aim at a long-standing assumption of business: market share is the primary driver of profitability. If a company can increase market share, it will increase sales while taking advantage of economies of scale to lower costs and thus increase profits.
When the pair examined a variety of companies and the existing research, however, they found that while market share is one factor in profitability, another factor better explains the most profitable companies: customer loyalty.
Based on their research, Sasser and Reichheld estimated that a mere 5% increase in customer loyalty can yield a 25 to 85% increase in profitability.
This finding laid the foundation for the five Harvard professors’ search for the causes of customer loyalty. After studying dozens of companies and troves of research, they created a model that tracked the origins of customer loyalty.
They called it the "service-profit chain."
The service-profit chain links together several elements of the business model in a linear relationship: Profit and growth are driven by customer loyalty.
But first let’s take a step back… How is customer loyalty achieved?
Loyalty is influenced by customer satisfaction.
Customer satisfaction is stimulated by a high perception of the value of the service.
Value is the result of productive employees.
Productivity stems from employee satisfaction.
Put another way, profits are driven by customer loyalty, customer loyalty is driven by employee satisfaction, and employee satisfaction is driven by putting employees first.
According to Forbes, a recent study demonstrated that managers play a significant role in employees’ satisfaction and the service-profit chain.
A trio of researchers led by Richard Netemeyer of the University of Virginia collected data from a single retail chain that included 306 store managers, 1,615 customer-employee interactions, and 57,656 customers.
The researchers were testing the effect of managers’ performance and satisfaction on employees, and hence its effect on customers’ satisfaction and the overall performance of the managers’ stores.
They found that managers’ actions, customer satisfaction, and store financial performance were indeed linked. These results support the argument that management’s support of employees significantly contributes to Heskett and his colleagues at Harvard internal service quality, the first link in the service-profit chain.
The findings from the research of Netemeyer and his team also suggest that flipping the organizational chart really works.
It’s essential that managers understand that their role is to support employee satisfaction and hence customer satisfaction, in no small part because their success in this role clearly has a major impact on the financial performance of their company.
The belief shared by many corporate leaders that hierarchies ought to be flipped and customers put second is simple in theory, but difficult to put into practice.
Turning the organization around requires turning loyalties around.
Leaders must demonstrate that their loyalty is to employees first, trusting that their employees will then be more loyal and caring to their customers.
It’s a big gamble, but the results speak for themselves.
How can you demonstrate an employee loyalty policy in your workplace?
All companies want to attract the best possible talent to their workplace. But who would want to work with a company that treats its members as disposable assets?
Investing in your employees is a great business opportunity, and it builds a solid reputation for your company.
People want to work for organizations that promote their growth and value their opinions.
When you recognize the importance and value of your employees, you remind your team what you’re working towards, and what they’re doing right, which in turn, inspires them to keep doing better.
This plethora of inspiration and praise allows for a more open-minded environment for idealization between you and your direct reports. Engaging in your team will allow for an engaged work environment at your organization.
If you’re looking for an efficient way to track your progress with your team as you engage in them, AIM Insights ensures visibility over all ongoing activities: task performance, manager performance, organizational citizenship, team performance, and goals for direct reports.
Implementing employee loyalty at your organization is great. But tracking overall performance throughout this process will be crucial to understanding its impacts long-term.
Just like the research that Harvard professors, James Heskett, Thomas Jones, Gary Loveman, W. Earl Sasser, and Leonard Schlesinger conducted, happy employees equal happy customers.
When you inform your employees that the customer is always right, it pits the employees against the customers, with the customers always coming out on top. This creates problems on multiple levels.
● It undermines the authority and control of the employees.
● It often causes employee resentment against managers.
● It signals that management supports customers more than employees.
● It shows a lack of trust that employees can appropriately resolve difficult situations.
The reality is, supporting your employees will lead to happier customers.
It’s important to remember to take your employees’ side in a positive way so that the customer understands that you and your employees are the experts of your business, and you aim to help the customer.
However, some customers may not be happy if they are not treated as though they are correct, and that is okay.
Believe it or not, there are some customers you do NOT want. If a customer constantly complains, abuses employees, or creates stress for your company, they’re not worth it. It doesn’t matter how much money they pay.
A bad customer:
● Erodes employee morale
● Requires an unusually high amount of resources
● Increases employee stress levels
There may be times when you have to “fire” a customer in order to protect your company and employees. If you’re planning on staying in business for the long haul, you need to avoid terrible customers.
Dropping bad customers may cost you a little revenue in the short term, but it’s better in the long term for your business.
