Customer loyalty means greater profitability: based on an interview with Anthony J. Mullen, CPA, MS, Senior Fellow, National Investment Center for the Seniors Housing & Care Industry, and Partner, Royal Star Partners.

We hear constantly about the importance of customer satisfaction to the success of today's businesses. New tools emerge regularly to measure customer satisfaction, and their results are used for continuous quality improvement and marketing outreach. I would submit, however, that customer satisfaction in itself, while necessary, is not sufficient for business success.

And by "business," in this instance, I mean long-term care. What can long-term care businesses do to ensure their success and profitability? Perhaps the most important step: They can engender customer loyalty.

Customer loyalty is not customer satisfaction--it goes beyond that. Customers are not only satisfied, they are happy--so happy that they've become loyal, even evangelists for the community. The concept of customer loyalty focuses on three questions: Would I recommend this community to a relative or friend? Did I recommend this community to a relative or friend? Did that relative or friend actually move in as a result? The waiting list grows and, eventually, the community becomes recognized as "the best." And that enables it to charge more for its private-pay services or to increase its Medicare census.

The connection between customer loyalty and increased revenue has been confirmed and explored in two books by Fred Reichheld, Loyalty Rules: How Today's Leaders Build Lasting Relationships and The Loyalty Effect: The Hidden Force Behind Growth, Profits, and Lasting Value. Reichheld has shown that customer loyalty is the mark of distinction for successful businesses in all industries and can lead to profitability. Although criticized in some respects, his books offer case histories of this involving such companies as Enterprise Rent-A-Car and Vanguard.

Within long-term care, there are three signs that your facility is meeting customer loyalty standards: growth of a waiting list, increased referrals from the local healthcare network, and increased staff retention. The last--staff retention--is crucial. It indicates that the facility or organization has taken the first steps absolutely necessary toward building customer loyalty and reduced the high costs of employee turnover. Specifically, it has addressed the needs of staff directly.

This means addressing staff's needs on an individual basis--giving each staff member respect and the training needed to do the job. Moreover, organizations are helping staff not only with their job goals, but also with achieving their life goals (additional education, for example). Finally, they are giving staff members autonomous job responsibility and then getting out of the way.

This last step, however, is where actual achievement of staff-engendered customer loyalty breaks down. Senior management must be absolutely convinced that this is the way to go. In many cases, unfortunately, they talk the talk, but they don't really believe it. Or at least they don't trust their employees sufficiently to make it work.

You'll note that this isn't just a matter of wages. There's no question that long-term care, particularly nursing homes, faces a structural impediment in reimbursement rates that makes it difficult to pay much beyond the $9 per hour for nurses' aides, housekeepers, and other frontline workers who are crucial to customer loyalty. This is a problem in that a significant portion of nursing home staff consists of single mothers who have difficulty making it on such wages. A facility or organization has to find ways to pay at least fair wages to its staff and offer benefits to the extent possible. An example of one long-term care company that walks this talk is Benchmark Assisted Living, which focuses on giving staff rewards both psychic and personal, and has seen it pay off in reputation and profitability.

The challenge of building customer loyalty through staff excellence goes beyond wages and benefits, however. It gets into the very business education that most of us, at least in this country, were given and grew up with. It might be labeled the "command and control" approach to business management: Orders originate at the top management level and are to be implemented, without serious question, by all other levels charged with executing them. For staff in this situation, the old saying applies: "Ours is not to reason why, ours is but to do and die."

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We are now learning that good businesses--truly successful, profitable businesses--don't work this way. Good business management is much more about coaching and mentoring than about command and control. I believe that an example is HCR Manor Care, widely considered to be the best large chain in the business, with outstanding quality of care and survey performance. Although I'm not as familiar with HCR Manor Care's inner workings as I am with some other organizations', I'd wager that it treats its employees well and gives them considerable autonomy in doing their jobs. It's not so much that HCR Manor Care's employees are smarter or more talented than anyone else's, it's that HCR Manor Care's employees are treated better. Illustrations of other companies turning "average" people into job performance stars can be found in Jeffrey Pfeffer's excellent book on the subject, The Human Equation: Building Profits by Putting People First.

There are a few questions unique to long-term care that I'd like to address before concluding. One is the commonly heard statement that, for nursing homes subsisting on Medicaid and Medicare, the real "customer" is government. There is a fatal flaw in this reasoning in that most families and referral sources have access to several long-term care communities within their geographic areas. Whether they're government-controlled or not, every facility has to recognize that families and community healthcare networks still have a choice among them, and the community has to do something to positively attract visits and referrals. It is also true that there remains a small, although admittedly shrinking, private-pay market for nursing homes to cater. In short, these communities still have to rake the needs of free market competition seriously.

Another question refers to specific instruments for measuring the progress of customer loyalty efforts. These do exist--one is called the Loyalty Acid Test, in which staff ask themselves, "Does this company deserve my loyalty?" and "Do I plan to stay on for more than two years?" The sad fact is that in long-term care, a number of staffers respond that their facilities don't deserve their loyalty and they do intend to stay on for more than two years. With a staff this disengaged, you'd have trouble meeting customer loyalty goals.

Finally, what is the best approach to move staff toward developing customer loyalty? For example, is it best to work through upper-level staff managers such as DONs, shift supervisors, and LPNs? Yes, that is a good way, but the crucial first step in this is to hire upper-level staffers with sufficient emotional intelligence to do this. Should these staffers be given a bonus or other financial reward for producing such customer loyalty results as increased staff retention and growing waiting lists? Here it is a good idea to be very careful. This is where gamesmanship can begin, if only because the temptation exists to jack up those numbers any way possible. I've had the experience, which may not be all that uncommon, of seeing management ask staff to "give us a high five" for all that we do in responding to staff satisfaction/loyalty tests. The main reward for high scores should be information that can be used to improve the community still further.

Remember, that's not just pie in the sky. "Community improvement," in this sense, means more business, more profitability and, as a result, greater rewards for all staff who are creating success every day.

Anthony J. Mullen, CPA, MS, is a Senior Fellow of the National Investment Center for the Seniors Housing & Care Industry and a Partner in Royal Star Partners, a development company in Pennsylvania. For more information, phone [phone] or e-mail [e-mail].