Fred Reichheld has been thinking about the link between customer loyalty and a company's financial performance for 30 years. Somehow recently Fred has sparked a negative response from the market research community. So there you have it, a picture of Fred as the devil. Fred makes the point that Net Promoter is not intended to be the world's best predictor of future performance. Perhaps the best predictor of future performance is superior management based on intense focus on the customer. NPS is a tool for managers to drive a customer-centered strategy. That indeed is likely to lead to improved performance in the future.
NPS is different because it is motivational, it encourages people to want to invest in a relationship. The real goal is to turn everyone into a 10. Wouldn't we rather do business with someone whose customers are likely to strongly recommend them? Wouldn't you rather work for a company who delivers such value that customers strongly recommend? It is rather simple. More fundamentally, it strikes at the universal basis of good relationships -- the Golden Rule. Southwest Airlines, Four Seasons, and eBay, as examples, all practice the Golden Rule. Look at the eBay feedback system. eBay sellers need to maintain a good reputation by treating people right, otherwise their trust score dives.
How many people have gone to jail for fudging financial numbers? I think we read about it weekly. How many people have gone to jail for fudging loyalty scores? That would be zero! Fred's point is that our value system is controlled by the profit motive, without attention to long term value. Companies get away with bad profits all the time. Yet all of the companies who practice bad profits measure some form of customer satisfaction. Fred's slide pictured this as a gorilla (financial accounting) against a puppy dog (loyalty measures).
NPS is radical because it forces bad profits out of the system. NPS, if applied correctly, will come into conflict with short term gain. The Golden Rule does not come for free.
The business inspiration for NPS was Andy Taylor, CEO of Enterprise Rent-A-Car, who commented that the real way to know if your business is going to grow, is if your customers will come back and bring their friends. Enterprise took the customer satisfaction survey out of market research and put it in the hands of operations. To keep it simple he reduced the survey to two questions: "Would you recommend?" and "Why?" The field was made responsible. Promotions were tied to the results.
At Enterprise, cheating on or fudging the numbers will cost you your job. So the core learning here on NPS is primarily front-line, bottom-up oriented. Fred made the point that many people believe in NPS, but then turn it into a survey administered top-down and tied to bonus. NPS is intended to drive fast front-line changes that will improve customer experience; a measure that drives fast change.
Fred then presented the case for segmenting your business to focus on the strategic drivers of growth; accounts he calls "angels". Angels are accounts that are profitable and are promoters. Fred asked who in the audience knew their angels? I didn't see any hands.
Fred went on to talk about the Charles Schwab story of taking a -35 NPS in 2004 to a +23 in 2007. Success was a combination of a localized effort, training, and root cause analysis, etc.
Fred closed with a reiteration of linking the Golden Rule to NPS. It is simple in concept but there is a test to make sure you are applying NPS:
- Are you categorizing promoters?
- Is there a systematic process in place for reducing number of detractors?
- Is there a process in place to identify and grow profitable promoters?
- Is there leadership commitment?
Fred was asked what to do if you don't have close contact with your customers. He mentioned in response, that one way to remedy this is to build an online community for customers. He referenced his work with Intuit's Inner Circle customer community and Informative, which is now part of Satmetrix. He suggested this is a good way to get close to customers and to engage them in conversations that will drive improvements.
Fred reiterated this in a second question suggesting that a community is a good way to get customers talking, learn ways to make improvement even before rolling out a full-blown program.
Fred then responded to a question on NPS and employees (B2E). He believes we now need to look at how we can use NPS to transform employee management. He talked about how Bain ranked managers based on their NPS scores from their team members. The scores were published and the bottom half do not get promoted.
Throughout the session, Fred spoke to the battle between the Gorilla (financial accounting) and the Big Dog (loyalty scores with teeth). The issue is how to give power to the Golden Rule. Enterprise is a pioneer. All impactful implementations of NPS will drive cultural change that focuses on customer loyalty; The Big Dog.
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