Rob started off with a painful Bad Profits story about his experience with a car rental company. In addition to the refueling fee (on a car that was returned full!), he recounted the painful process they put him through to “try” to give feedback, and then to reclaim the charges.

Despite laughter in the room, you couldn’t help but marvel at the amount of time and effort that errors like this (combined with inflexible and bureaucratic processes) cause to customers. And all for a $25 fee.

Rob made the point that the $25 is like junk food: a way for companies to fill their hunger for cash in the short term, even though it can kill you in the long run. And this addiction is even more widespread when the economy contracts.

Loyalty Leaders avoid Bad Profits

Loyalty leaders find ways to avoid Bad Profits, and this gives them some long-term advantages.

They not only grow faster (2.2-2.6x faster), but they also have costs 15% below that of the competition.

One such company is Vanguard Group, a leading mutual fund company. 2008 was a terrible year for the mutual fund industry. The industry overall had net outflows of 225 billion in the US, while Vanguard had net in-flows of 71 billion.

How do they do this?

They give good value for all investors, but give even better value for their best customers, including those who are long-term investors. Because of this business model, they end up with a cost advantage that gives them stability in a downturn and helps them acquire new customers when others are scrambling for more “junk food” fees.

How many companies offer their long-term customers the best deals? Very often, the opposite is true…companies offer incentives to get new customers in the door, and often the tried and true customer gets a worse deal. Vanguard turns this idea on its head, which helps in down markets.

3 Common Traps to Avoid in a Downturn

When companies come under pressure economically, they need to be careful to avoid three common traps that can destroy long-term performance:

1. Chasing customers indiscriminately.

2. Cutting costs across the board, without regard to what is important for the best customers.

3. Cutting innovation budgets

On the last point of innovation, Rob pointed out that companies who innovate when others are distracted can get huge benefits as the economy rebounds. Two examples he offered were the iPod and the X Box, both new products that were launched in late 2001, in the middle of the high-tech meltdown.

How Do You Think of the “Design Target” Segment

Be picky, and choose the target customer segments you want to do business with and focus even more intensively on them when you are in a tight market. How do you try to identify these customers?

Your design target should have three key characteristics:

1. Has attractive economics

2. Loves what you can do best

3. Is representative of other attractive segments

Once you can clearly identify the design target, go about designing experiences to delight them. First of all, make sure you fix any problems that may be creating Detractors within this segment. Then, identify ways to delight them at the moments of truth that matter most, so you can create Promoters at every opportunity. Because most companies will find that they actually save money by creating more Promoters.

Guy Warren shared a fascinating story of the corporate turnaround at Misys and how Net Promoter fit in. He admitted they were up a creek without a paddle when he stepped in as the third executive of his business unit in 5 years. Their NPS was in the tank, and he had 5 written letters of complaint from CEOs in his first week on the job.

How did they approach this problem?

It was all about accepting change. As Darwin said, "It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change." And he pointed out that Misys had a good business, but it had not been responsive to change. Their strategy had been completely inside-out, and this filtered down to the way decisions were made.

So what did they do?

1. Values: They went to turn this on its head by focusing on the client. Thier strategy was "CLEAR"--following the acronym with these key values:

1. Client focus
2. Leadership
3. Excellence
4. Aspiration
5. Results

2. Incentives: "People are coin operated." If you tell people to improve customer experience but only compensate them on financial outcomes, they may well ignore it. So he has set out clear objectives for a 10% NPS improvement, independent of what happens with other key metrics. What does this do for them? It creates a window for people to make improvements in the customer experience, without having to base the entire case on financial data.

3. Customer Advisory Boards: They had been building banking software without direct input of banking users. That has changed completely. They now use multiple forums, including banks that are not even customers yet. This creates forums for the thought leaders in their industry to vet and influence their software development plans.

4. Goal Alignment: Guy showed a great chart that explained how executive metrics (including NPS), flow down to individual operating targets and goals within the business. For NPS, which represents 20% of executive bonus, the core underlying metrics they look toward to manage this are customer retention and employee loyalty.

They have taken the NPS from -44% to -11% in 2 years, versus an industry average of -2%. He admits that they still have a long way to go, but they are very proud of the massive improvements that have been made so far. And this has been reflected as well in their sales statistics. Their number of go-lives on new software implementations has skyrocketed, and they are now growing faster than the competition.

Fred admitted that he usually talks about profitable growth. But today, instead of discussing GROWTH, he discussed COSTS. That's what people are focused on today because of the economy.

How does loyalty save companies money? Here are just a few of the ways that Fred mentioned:

- Lower acquisition costs

- Fewer problems and complaints

- Longer tenure, which spreads fixed costs over a longer customer lifetime

- Lower risk of lawsuits

- Less need to spend on PR

- Employees get treated better, which reduces turnover

In my conference opening, I had pointed out that the hotel site sits adjacent to the London Wall, built in the 2nd century AD by the Romans. Fred pointed out that the concepts behind Net Promoter connect back to concepts from thousands of years before that...the idea that your reputation is the most valuable thing, as noted in Proverbs 22:1.

"A good name is more desirable than great riches. To be highly respected is better than having silver or gold."

As Fred put it, "How many people get turned into Promoters is essentially the same as Proverbs 22:1." And this connects directly to the economics of your business...including cost efficiency. As consumers we are looking for good value for the money...and that requires companies to be operating efficiently.

When you consider where to cut costs, look at the economics of detractors. They often are costing your company money. In one example he shared from work done by Bain & Company, it showed that detractors' lifetime costs can be 140% of lifetime revenues for the same group of customers.

What about employee costs?

Fred points out that in the accounting view of the world, employee salaries are a liability. So companies think of laying employees off when they need to cut costs. But it's not that simple. Employees are also the key source of value in your business. Keeping the right employees on board is just as critical as focusing on the right customers to drive efficiency and value in your business.

Fred discussed a new case study, from a company who spoke last year at our Net Promoter Conference, Travel Counsellors. This UK based travel agency, with work-from-home agents, has been defying gravity in a highly competitive industry by focusing its entire ecosystem on generating promoters. Top agents get consistently rewarded for generating promoters, and the top agent each year wins a new BMW!

As Fred told the story, I remembered my first phone discussion with the head of sales from Travel Counsellors (who I subsequently introduced to Fred). They told me the BMW story, and said that their NPS was in the 90%+ range. My first reaction was, "Are your agents gaming the system to win the car?" But as I talked to them more about the things they do to educate and motivate their agents to deliver exceptional customer experiences, I realized this was the real deal. And their revenue growth trajectory that Fred showed today proves the point. The company has grown steadily, and has gone from a startup 10-15 years ago to a business of over $280 million in 2009.

Fred also told the story of Apple Retail. By being creative with the experiences they offer in their retail stores (such as the Genius Bar), Apple has achieved annual sales per square foot of over $4000, compared to companies like Circuit City (which Richard Owen mentioned went bankrupt last fall), whose sales per square foot were closer to $550.

Fred's parting thought for the audience: You have 10 million minutes in your life. How will you measure your success? For your company, think about it as the number of Promoters you create, and your reputation will be your legacy.

Richard opened the conference with his take on the top 10 takeaways from his new book co-authored with Laura Brooks, called "Answering the Ultimate Question."

He shared his top 10 list of takeaways from Net Promoter companies.

1. The winner takes it all

Richard contrasted Verizon Wireless and Sprint, who are the leaders and laggards in NPS for US wireless. This shows up in their churn rates: Verizon's has been around 1 to 1.1%, while Sprint's churn rate is 2.4 to 2.7%. This may seem small, but is a huge gap in terms of industry performance.

2. Inertia is the enemy of greatness

Companies who get themselves into a bad position with their customers are unlikely to be able to recover from it. The only way for companies like that to recover is with a drastic switch in leadership.

3. Relative importance is all that matters

Absolute scores mean little; what really matters is relative scores among competitors. What is a good score in your industry?? The competitive set is who your customer compares you to, not who you think you compete against. If you are in retail, consumers may compare you to other

4. Pick your battles

Companies who are especially good at Net Promoter usually do ONE thing really well. LEGO, for example, is known for innovation. First Direct is known for employee loyalty. Amazon has focused a lot on logistics and reliable service execution. Most companies pick one thing to win on in the loyalty battle. So, know what you want to be good at.

5. Create the experience on the front line

Employees really matter. This is a huge challenge for companies who outsource important functions to third parties. NPS winners, by contrast, often have a very strong employee culture.

6. It's how your customers see YOU (not how you see your organisation)

Coordinate the way you get feedback. Don't just Net Promoter customers from every department in your company. It's not important to measure everything...what's more important is to measure the moments that mattter most from the customer's perspective. Consider whether you are measuring yourself, or measuring what matters to the customer.

7. Word of mouth economics trump advertising

If you have an advantage in WOM, you have a critical competitive advantage. For example, leading online retailers spend almost nothing on advertising. Richard postulates that advertising (traditional advertising) often serves as an alternative to good WOM economics. He mentioned recent findings from Satmetrix showing that companies with very high NPS get an expenential boost in actual WOM behaviors. This occurs because socially we are motivated to recommend more when we perceive that others will agree with us.

8. Follow the money

Companies must be sure to understand their core business economics and put NPS in that context. All feedback is not equal, understand which customers matter most to your long-term success.

9. Be like finance

If your company's NPS data as robust and consistent as your financial data? Is your information hoarded centrally? Or can it match up to financial data that is used throughout the organisation.

10. Don't confuse "simple" with "easy"

Richard wrapped up with the example of the iPod. On the surface, it might seem like a trivial product... How hard can it be to create a better solution than the iPod?? It turns out that this is really difficult, because making something simple is NOT EASY.

Net Promoter is like that. Its simplicity is a great strength, but that doesn't mean that it is easy. Your company has to leverage its simplicity by putting the right efforts in place around the metric. The most successful programs are treated like corporate transformation efforts. When companies do this, it ends up looking simple, but they earn it by putting in remarkable planning and effort.