Customer Loyalty Creates Customer Retention and Long-Term Value

In the health club business, many of us pride ourselves on our service and hospitality. And we are much better at customer service today than we were yesterday, but not nearly as good as we want to be and need to be tomorrow. We work hard to hire right, treat staff right, treat customers right and constantly improve.

These efforts seem to be rewarded. As I write this, the industry's average annualized attrition rate is 25.44 percent, and its trailing 12-month employee turnover is 18 percent. Not bad, but I keep asking myself: Why aren't these numbers lower?

Let's not kid ourselves about retention. Retention can initially improve through tactics such as locking members into long-term contracts and making cancellation painful. But the use of these tactics won't go unpunished. At some point, your customers will break free and run like hostages. Once exploited, people rebel. Sometimes it's mild rebellion, other times it's loud and nasty.

Retention is the lagging indicator of customer loyalty. It is a result of the love your customers have for your business. Stop seeking retention and start seeking loyalty.

What if you measured attrition based on when customers' hearts left your club, not when their bodies and wallets left your club? What if you measured how many current and former members still love your business? In other words, of the people still paying dues, how many do so but don't really love your business? Of the people who cancelled, how many did so but still love your business? If the answer to the former is “zero” and the answer to the latter is “all,” you have the highest loyalty possible.

Retention is thought of as people still paying their dues. When they stop paying, they move to the attrition side of the ledger. But if you could measure the investment of their hearts instead of their money, how many members and former members would be on the “loves us” side of the ledger, and how many on the “doesn't love us” side? Your retention/attrition metric and profit and loss ledger are likely not reporting this.

Imagine that long-term value was your only objective. Consider if the only metric you were going to use to determine long-term value was customer loyalty. Where would you start? How would you determine if things you were doing were detrimental to your loyalty objective?

Here's a simple filter to determine if your operation is creating even minor feelings of exploitation with your customers. Restaurateur Danny Meyer, in his book “Setting the Table,” writes, “Hospitality is what happens for you, not to you.” If your focus is on service and hospitality, look at every process and interaction through this lens. Start with how you answer the phone, transfer a call, check someone in, sell a membership, sell personal training, set appointments, sell merchandise, allow for a guest, cancel a membership and handle complaints. Dig into each of these and see if it is happening to or for your customers. During the cancellation process, are you turning a customer who loved your business into a former customer who now despises your business?

Let's suppose you've looked at every process and are mortified to discover that almost all of these things, by design, are happening to the customer. How do you turn your ship around? Not by commanding your staff to be hospitable. Not by stating a new direction and mandating that everyone attend customer service training.

You start by looking at how you manage and lead your employees. Are their jobs happening to or for them? Are you outwardly hospitable with an inwardly hostile culture? Hospitality and service work when they are an embedded part of your culture. You can't ask people who do not feel that they are treated well to treat others well. As always, everything begins with you.

If long-term value is the wish of the owner/investor, you have one path to follow: Only the right culture can create happy and loyal employees. Only happy and loyal employees can create customer loyalty. Only customer loyalty can create long-term value. Only long-term value will create a happy owner/investor.


Blair McHaney is CEO of Confluence Fitness Partners Inc., which does business as Gold's Gym of the Wenatchee Valley in Wenatchee, WA. He also previously served as president of the Gold's Gym Franchisee Association.

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