Loyalty is Reciprocal
Many companies strive to build customer and employee loyalty, and for good reason. Loyal customers are often willing to pay more, and are less likely to be swayed by the competition. Loyal employees are less likely to quit when the company goes through a rough patch, and are generally willing to work for less than what they would receive elsewhere.
What many executives don't understand, though, is that loyalty is reciprocal. Loyalty is a mutual (if unspoken) agreement to take each other's interests into consideration. Loyalty cannot be bought, but can only be earned through an ongoing demonstration that the loyalty is mutual. I'll be loyal to you if you're loyal to me.
[Aside: Perhaps many executives don't understand this because in order to become an executive at a big company, you can't be loyal to anyone but yourself. Such is the shame of our system.]
Loyalty In Action
I've carried a Discover card for something like a decade and a half. Initially, I used it because I liked getting the money back (which I still like). But over time, as every other credit card I ever owned tried to put the screws to me after a couple of years, I began to appreciate that Discover never:
Tried to impose an annual fee through some sneaky trick
Reduced the time I had to pay a bill without incurring late fees
Otherwise tried to squeeze money out of me
As a result, I use my Discover card anywhere I can, even though some of my other credit cards have "loyalty" programs which are (financially) just as or better than Discover's cashback program. I am more inclined to use my Discover card simply because they've proven that they're not likely to try to play the games of "gotcha" that so many credit card companies play with their customers.
"Loyalty" is not Loyalty
As a counterexample, I've been a Northwest Platinum Frequent Flier for years, though it has lapsed the last few years as my travel declined and other options have become more available in the Twin Cities. Even though frequent flier programs are the classic example of a "loyalty" program, I was never particularly loyal to Northwest. All things being equal, they could buy my business by offering more miles or an upgrade, but that's not loyalty on my part. It cost Northwest real dollars to buy my business (through free travel and upgrades). True loyalty is when I would fly Northwest even if another airline offered a cheaper fare and/or a better schedule.
In this case, my "loyalty" extends only as far as the perceived value of that upgrade or free trip. Once other airlines came to town offering cheaper fares, Northwest lost my business.
Loyalty is Emotional
Part of what makes true loyalty so powerful is that it is emotional, rather than rational. We want to help those who have helped us in the past. "Loyalty" programs like frequent flier plans are a good idea, but they're still at the level of a direct economic incentive.
What could Northwest have done differently over the years to earn my true loyalty? Interestingly, they wouldn't have had to spend any additional money. All they had to do was show that they, as a company, were looking out for my interests:
When my flights were delayed or cancelled, assign someone somewhere at Northwest to make sure I got to my destination OK. [As an aside: this job was generally handled by our corporate travel agent, and I was fiercely loyal to her, as were many of my colleagues. The loyalty she earned from us paid off handsomely when her employer tried to lay her off. We literally saved her job, and forced her boss to promote her.]
When I called with a customer service complaint (about an extremely rude gate agent), provide some resolution beyond "Thanks for the feedback, we'll look into it." And what, exactly, did you discover when you looked into it?
How to Generate Loyalty
Commit to looking out for your customers and employees. Sometimes a company can't satisfy the needs of everyone, but at least acknowledge what people want. It is amazing how far a little listening and empathy can go, and how much farther a few small actions can take you.
Example: In my company, because we're not cash-flow positive yet, I couldn't give anyone a year-end bonus. Instead, I gave everyone some stock. Everyone understands that, as of today, the stock isn't worth much. But it is an acknowledgment that everyone deserves more than what they're currently getting. After 2 1/2 years of sometimes very difficult going, I have yet to have any employee quit or ask for special treatment.
Example: One of our customers inside a big big company is trying to give us ways to shorten the payment cycle, to improve our cash flow. This isn't much, but it shows that they understand what's important to us. If they ever need a favor in return, you can bet they'll get it.