It can reasonably be inferred that Lil's parents'attitude toward Gordon changed from: ACT-59C-SAMPLE 31 GO ON TO THE NEXT PAGE. 3 3 Passage II SOCIAL SCIENCE: This passage is adapted from Frederick F Reichheld's The Loyalty Effect (©1996 by Bain & Company, Inc.). Loyalty is dead, the experts proclaim, and the sta tistics seem to bear them out. On average, U.S. corpora tions now lose half their customers in five years, half their employees in four, and half their investors in less 5 than one. We seem to face a future in which the only business relationships will be opportunistic transactions between virtual strangers. But are the experts right? Has the time really come to abandon hope and enter the world of fast-money 10 speculators, job-surfing careerists, disposable employees, and fickle customers? Even more impor tant, can companies succeed by embracing opportunism as a way of life? The answer is no, not if they care about long-term growth and profits. Experience has 15 shown us that disloyalty at current rates stunts corpo rate performance by 25 to 50 percent, sometimes more. By contrast, businesses that concentrate on finding and keeping. go�d customers, J?roductive employees, a_nd supportive investors continue to generate superior 20 results. Loyalty is by no means dead. It remains one of the great engines of business success. In fact, the prin ciples of loyalty—and the business strategy we call loy alty-based management—are alive and well at the heart of every company with an enduring record of high pro- 25 ductivity, solid profits, and steady expansion. With rare exceptions, Chief Executive Officers (CEOs) have enough experience and common sense to understand what nonsense it is to speak of loyalty's demise. They know that doing business with people you 30 trust and understand is more predictable and efficient, and thus more profitable, than doing business with uninvested strangers. Yet if CEOs see thepower of Joy alty, why are defection rates so high? How do they manage to lose half their companies'customers every 35 five years? The answer is that most of them don't mea sure defections and have no idea they're losing cus tomers at such a rate. Or, if they do suspect the truth, they seeit as a problem for the marketing department. But customer loyalty is too important to delegate. 40 It has a crucial effect on every constituency and aspect of a business system; it drives business success and therefore CEO careers. The responsibility for customer retention or defection belon-gs squarely on the CEO's desk, where it can get the same kind of attention that is 45 lavished on stock price and cash flow. Consistently high retention can create tremendous competitive advantage, boost employee morale, produce unexpected bonuses in productivity and growth, even reduce the cost of capital. Conversely, persistent defection means 50 that former customers— people convinced the company offers inferior value-will eventually outnumber the company's loyal advocates and dominate the collective voice of the marketplace. When that moment arrives, no amount of advertising, public relations, or ingenious 55 marketing will prop up pricing, new-customer acquisi tions, or the company's reputation. In the mid-I980s, when a group of consultants at our firm began helping clients to improve their cus tomer retention, we believed it was a practical way of 60 increasing growth and profits, and as a kind of bonus, that it would enhance employee motivation and pride along the way. The truth was a good deal more com P..le?C·. We found W':_ could not l?rogr _ ess b�)'.ond a _ s��er ficial treatment of customer loyalty without delving 65 into employee loyalty. We found that there was a cause-and-effect relationship between the two; that it was impossible to maintain a loyal customer base without a base of loyal employees; and that the best employees prefer to work for companiesthat deliver the 70 kind of superior value that builds customer loyalty. We then found that our concern with employee loyalty entangled us in the thorny issue of investor loyalty, because it is very hard to earn the loyalty of employees if the owners ofthe business are short-sighted and unre- 75 liable. Finally, predictably, we found that investor loy ally was heavily dependent on customer and employee loyalty. Creating value for customers is the foundation of every successful business system. Creating value for 80 customers builds loyalty, and loyalty in turn builds growth, profit, and more value. While profit has always ?cc�pied center stage __in_ conven�ional t_'.1in�in_g �b?ut business systems, profit is not primary. Profit is indis pensable. of course, but it is nevertheless a conse- 85 quence of value creation. which, along with loyalty, makes up the real heart of any successful, long-lasting business institution.
