What is the Linkage Between Employee Engagement and Customer Loyalty?

Chris Zook’s book, The Founder’s Mentality, makes the point that a successful and growing enterprise has a great relationship with customers AND has a highly engaged employee base. From his perspective – and that of many others – it takes both to be successful.

How does that play out in practice? Do they always move together?

LRC has measured both in a variety of settings. The results of our work with a particular retailer may shed insight into some of the issues you are facing. This client had roughly 300 stores and their business model centered on “value.” This equated to a broad and quality product line, but with a competitive strategy of offering low prices via promotions, coupons, and private labels.

Each year, the LRC obtained a statistically significant measure of the customer relationship at each store, along with a measure of employee engagement. As expected, analysis of the customer relationship identified price as a strong driver. However, various aspects of service also emerged as an important area for most of the stores.

The following graphic was used to summarize the relationships between customer loyalty and employee engagement at the stores.

A few takeaways:

  1. 42% of these stores had both high customer loyalty and strong employee engagement. These stores connected with both customers and employees.  They retained a high percentage of both – a real accomplishment in this industry.  They experienced growth above the corporate average and had above average profit rate performance.
  2. At the other end of the spectrum, 17% of the stores had weak relationships with both customers and employees. This was an alarming finding to the client.  And it fed on itself.  Customers were generally less happy and many had complaints which lowered employee morale.  The atmosphere in many of these stores was toxic.  These stores had to make a significant move with employees to change this environment.
  3. Interestingly, there were a significant number of stores with opposites – strong relationships with one group and weak with the other. Instead of being in a steady state, these were stores in transition.

High customer loyalty, but weak employee engagement is not sustainable.  Ultimately, the employees begin pulling the customers down.  One of the stories employees told that illustrated how this happened was:

Customers would ask me to change our store policy on certain things.  Management had drummed into our heads that there were no exceptions, so I stood my ground.  The customer would go to the store manager who would return with the customer and tell me to make an exception.  I felt like he had thrown me under the bus.

Strong employee engagement and weak customer loyalty is also not sustainable.  Ultimately, the store must have a minimum number of strong customer relationships to generate the repeat business needed for strong financials.

It is important to realize that these two don’t necessarily move together; impacting one does not move the other in some cases.  However, employee engagement has an impact on customer loyalty and vice versa.  As you look toward improving one metric, make sure that it isn’t at the expense of the other.

Posted in Blog, Employee Engagement, Insights, LRC Blog, Retail.