A New Metric for Investing: Buy "Beloved" Companies

Nearly two months have passed since the BP oil spill, and the company becomes more loathed with each barrel of oil that bubbles into the Gulf.

"With this oil spill, is there a humility there or is there skirting, accountability, and accusations?" That's the question Jeanne Bliss, customer service expert and author of I Love You More Than My Dog: Five Decisions That Drive Extreme Customer Loyalty, posted on a recent visit to Fool HQ. "That is the litmus test for the humanity of the organization and what drives their values. It's a test for customer loyalty. How you apologize should be a peace process with your customer, and it should be deliberate."

Indeed, BP has a lot more than apologizing to do before it can ever regain public support. But deciding to say "We're sorry," which the oil company has, is still an important step toward recapturing customer loyalty. As Bliss outlines in her new book, that decision is one of five types that companies should deliberately make to encourage their customers to love them. The others include deciding to believe, deciding with clarity of purpose, deciding to be real, and deciding to be there.

"When there is an inflection point or a fork in the road, [these companies] always move in the direction of customers and emphatically they move in the direction of their employees," says Bliss.

Why this matters
But why should companies strive to be beloved, and why should investors care? Beloved companies make informed decisions that differentiate themselves, according to Bliss. These decisions materialize into greater customer loyalty, profitability, and sustainability -- and hopefully higher stock prices.

Every beloved company Bliss has researched did not fail in the aftermath of 2008's financial crisis. Indeed, they all stayed above the competitive pack, and most sprang back faster than their competition, enjoying extremely strong years during 2009. Even during the recession, The Container Store continued expansion plans, adding several stores and hiring new employees. And Zappos reached $1 billion in annual sales in 2008, the year before it agreed to be bought out by Amazon.com (Nasdaq: AMZN  ) .

Let's take a closer look at the informed decisions that beloved companies make. Companies that pursue these paths deserve your consideration as promising investments.

Deciding to believe
In Bliss's view, strong companies believe in their customers and their employees. "By believing their customers can be trusted, they work every day to get rid of the rules, the regulations, the fine print, and the black box that creates wedges," Bliss said. She brought up the example of going to a store to return an article of clothing, and worrying that nobody will believe you. Companies that are beloved work hard to create a platform of trust. They interact on a very personal level.

They also hire people based on values. "By believing that employees can and will say and do the right thing, they get rid of management oversight, reviewing every action, and diminishing the ability of employees to think on their feet," Bliss said. "Because when you box people in with rules and regulation, innovation goes out the door, because people start checking off the list instead of doing what inspires them or what they know is right."

Deciding to be there
Beloved companies strive for reliability in how they run their businesses. "If your customer cannot tell stories about your interactions to other people, then you don't have a story to tell," Bliss said. She cited Amazon.com as an example. The online retailer sold its first book in 1995, but if it hadn't been successful with books, it couldn't have earned the right to sell housewares, appliances, and the variety of other products it now offers.

Deciding with clarity of purpose, and deciding to be real
These companies have absolute clarity about what they will and will not be. "If they begin with this purpose and embed it in the passion about what their goal is in customers' lives, they can make sure that in their decision making is something the whole organization is testing against," Bliss said. "These companies decide to be deliberately real. They create an environment [with] congruence of heart and habit in the decisions that they make."

Having clarity about saying sorry
As in BP's case, knowing what to say sorry for and when to apologize are important. "[Companies] need to be real and humble in order to be able to extend that," Bliss said. Every morning, Southwest Airlines (NYSE: LUV  ) has a morning overview meeting between management and the operations team to go over problem areas from the previous day. That way, Southwest anticipates and responds to problems before customers even have a chance to send a complaint. "All those things line up to an equally good apology," Bliss said.

Bliss cites Johnson & Johnson (NYSE: JNJ  ) as another example of a company with clarity of purpose. After becoming so operationally efficient that it lost its personality and identity, Bliss says that J&J clarified its purpose back toward serving its customers. When tainted Tylenol killed seven people, the company quickly responded by taking an estimated $100 million in products off the shelf -- because the top thing guiding the company's decision was protecting its customers.

"You need to have clarity," Bliss said, "so that your goals and your values guide your decision-making, and that is what shows up so fast."

Fool contributor Jennifer Schonberger owns shares of Johnson & Johnson, but does not own shares of any of the other companies mentioned in this article. You can follow her on Twitter. Amazon.com and Southwest Airlines are Motley Fool Stock Advisor picks. Motley Fool Options has recommended buying calls on Johnson & Johnson, which is a Motley Fool Income Investor recommendation. The Fool has a disclosure policy.


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