How is that possible?

Profitability is driven by loyalty. Your loyal customers shop you more often, tell their friends about you and tend to avoid your competitors. Loyalty develops as a consequence of doing something meaningful for people. “The numbers” strip out the human element—it doesn’t help you focus on what’s meaningful to your customers.

A blaring example is the decision to outsource your call center operation for customer support. No question—the cost savings in the short term can be enormous. But what’s the long-term customer attrition rate?

It costs fives times more to acquire a new customer than keep an old one. A high attrition rate means you have to funnel your resources into marketing and advertising in order to continually acquire new customers because you can’t keep your old ones.

Online retailer Zappos has over 75% repeat customers. Yes, they invest heavily in training and supporting their in-house customer service staff, but their 62,000% growth rate over the last 8 years speaks for itself. CEO Tony Hsieh doesn’t run Zappos strictly by the numbers, but instead keeps his focus on loyal customers and innovates around their needs.

Honor the human element in your business. Celebrate your customers. Support your employees. You’ll build more profitable businesses and you’ll also feel better about yourself.

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1. Integrity as a Competitive Advantage
2. How Do You Achieve a 62,400% Growth Rate?
3. The Key to Building a Profitable Business

Who has an emotional connection with their phone company or health insurance provider? Most of us have horror stories with at least one major phone company (and some people even create websites like Hate Verizon) or have had trouble getting reimbursed for a legitimate medical claim.

Industries with low integrity need artificial tactics to reduce their customer attrition rate, like one to two-year contracts in the case of your mobile service provider. These low integrity players, however, offer opportunities for competing businesses with higher integrity to grab—and keep—market share.

Virgin Mobile entered a well-saturated U.S. wireless service market in 2002 with a different game plan. They offered pay-as-you-go pricing with no hidden fees, no restrictions and no contracts. With an annual budget less than one-tenth of the larger providers, Virgin Mobile acquired 1 million subscribers in 5 quarters. Today, Virgin Mobile has over 5 million subscribers.

What’s more interesting is that most wireless providers use annual contracts to reduce their churn rate (or attrition rate—the rate at which customers leave you within a given time frame). Virgin Mobile doesn’t use contracts and yet they have a lower churn rate (4.9%) than the industry average (5.4%). (For more examples, see “Companies and the Customers Who Hate Them” by Gail McGovern and Youngme Moon in Harvard Business Review.)

Profitability is built on loyalty (because loyal customers buy from you more often and help create new customers via word of mouth). Loyalty is a result of integrity.

Want to operate your business with high integrity? Remember that your business is made up of real people who serve real people. Don’t let policies and rules strip the human element out of your business. Build a thriving culture that centers its efforts on the needs of its customers.

Related posts:

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