Fred Reichheld, Author, The Ultimate Question

Fred Reichheld's blog has moved

Follow Fred’s latest posts on the Net Promoter Website at:
http://www.netpromoter.com/netpromoter_community/blogs/fred_reichheld

If you have more questions, e-mail us at [email protected].

Sincerely,

Net Promoter Team

Don’t Miss San Francisco!

I know travel budgets are tight, but if I were you I wouldn’t miss the opportunity to join us in San Francisco the last week of January for the 2009 NPS Conference. After all, referral from loyal customers may be the only way many companies can grow in this difficult economy. So NPS is more timely than ever, and the San Francisco conference should be a great investment.

NPS at Schwab II: Lessons for Recessions

Whenever someone asks me how fast improvements can be made in NPS performance, I point to the remarkable example of Charles Schwab, described in my previous blog. But Schwab’s extraordinary improvement wasn’t the end of the story—this is an ongoing saga. Today the company is confronting a challenge that others may be facing as well.

NPS at Schwab I: Lessons for a Turnaround

I spoke at the Forrester Financial Services Conference in New York City this past summer. It was a particular pleasure for me because I also got a chance to hear Walt Bettinger, Charles Schwab’s new CEO, describe how his firm utilized Net Promoter in its remarkable turnaround.

WOW?

Some people claim that the key to earning loyalty is to WOW your customers. I don’t know about you but to me that language seems a little bit over the top. “WOW” sounds like a mantra from some pop-culture guru, not a serious business proposition. And yet any company implementing NPS must find a way to convert customers into promoters. This usually requires doing something noteworthy—something so surprising that customers take notice and talk about it to others.

Making the Golden Rule Relevant

What could be less controversial than the Golden Rule? “Treat others the way you would want to be treated if you were in their shoes.” This intuitively attractive notion is a cornerstone of most of the world’s major religions. It is an idea that we all encounter in childhood, and most of us adopt it as part of our moral compass.

The Great Debate: Should NPS Drive Compensation?

There is a debate raging across the Net Promoter community about whether to link Net Promoter Score (NPS) to management and front-line compensation. There are good arguments pro and con. The pro group (which includes some notable firms such as GE) argues that if customer loyalty is to be taken seriously, then the NPS metric must be measured rigorously and hardwired into bonus calculations. After all, most bonuses today are determined by short-term financial results. If these financial incentives aren’t balanced by NPS, we will be forever trapped in a cycle of bad profits and declining growth. Moreover, any CEO who extols customer loyalty as a top priority, yet fails to hold employees financially accountable for earning superior loyalty, is sending a loud signal that loyalty is nice but not vital.

Miami Was Hot - Now on to London!

The recent NPS conference in Miami was an extraordinary event. More than 400 attendees heard from a wide variety of firms that are successfully implementing NPS, including Aon, eBay, Symantec, Four Seasons, A&E Television Networks, and GE. I was most impressed with the speakers’ candor, commitment, and creative problem solving. It’s obvious to me that NPS practitioners in many different industry sectors are coming rapidly down a steep learning curve.

Are You Doing Net Promoter?

You don’t need to inhale to be doing Net Promoter. You don’t need to ask only one ultimate question. You don’t even need to call it Net Promoter. To be a Net Promoter practitioner, there are just three things your organization needs to be doing:

1. Systematically categorizing customers into promoters, passives, or detractors. If you prefer, you can call them loyal advocates, fair-weather friends, and adversaries.
2. Creating closed-loop processes so that the right employees will directly investigate the root causes that drive customers into these categories.
3. Making the creation of more promoters and fewer detractors a top priority so employees up and down the organization take actions based on their findings from these root-cause investigations.

It's About Time

I was reminded what a small world this is when a survey from my mobile-phone provider popped onto my telephone’s email screen. The survey contained only one question: How likely is it that you would recommend us to a friend? Of course, I couldn’t pass up the opportunity to learn how this company was utilizing such feedback, so I keyed in the score I felt the company deserved—a three (out of 10).

A few days later, I discovered a message on my home answering machine from a manager at the store where I purchased my last phone. So I called her back, and after a couple of rounds of phone tag we finally connected. It turned out she was the area manager, responsible for a handful of local stores. She explained that she had received my feedback, and she wondered if I could explain the reasons for my score.

Creating Promoters at American Express

Not long ago I gave a speech about how much companies can afford to invest in creating customer promoters. I ended the talk by stressing how important it is to understand who the target customers are and what their loyalty is worth. Afterwards, an industrial sales manager came up to the stage and described his recent experience with American Express—a company I often cite in my talks as a loyalty leader, since its NPS is the highest in the credit-card industry.

HBR Highlights the Bad Profit Problem

More and more people are recognizing corporations’ addiction to bad profits—and the need to kick the habit. In the June 2007 edition of the Harvard Business Review, for instance, Gail McGovern and Youngme Moon highlight the addiction in an article titled “Companies and the Customers Who Hate Them.” The authors catalogue several of the sectors in which customer-unfriendly practices have become industry standard, including retail banking, rental cars, mobile phones, credit cards, and health clubs. They also point out that new entrants to these industries are rapidly gaining share by adopting customer-friendly polices.

Customer Feedback: The Right Response

Let me contrast two approaches to responding to customer feedback. The first comes from my recent experience with a hotel chain that engages in predatory pricing for long-distance calls made from its in-room phones. I invested the time to complain to the headquarters staff. In response I received a two-page letter from the general manager of the hotel explaining that their pricing was no worse than competitors. Moreover, he noted, providing phone service was far more expensive than I might think.

The letter went on to bemoan the large fixed costs of operating the phone system and argued that even-higher pricing might be required as more and more customers defected to their cell phones. Instead of listening to my feedback - that I was offended by phone rates more than 200 times standard landline rates - the manager missed an opportunity to increase my loyalty. I won't recommend the hotel to friends, and I will certainly not bother investing more time providing feedback to that hotel.

Don’t Forget About Promoters

NPS fits hand in glove with most firms’ Six-Sigma process-improvement efforts, so many organizations have appointed their process-excellence staffs to lead NPS implementation. This makes sense in many ways, especially in the early rounds of NPS program development and rollout. The process-excellence folks know how to measure, and they know how to analyze the root causes of what they’re measuring.

The Right Target for Response Rates

What is the right target for response rates for a high-quality NPS survey process? That was the question I was asked at the recent Net Promoter Conference in New York City. Prior to this conference, I would have answered that response rates between 30% and 60% seem like a reasonable goal for a well-designed relationship survey. Now, I am convinced that these targets (which many consider radically aggressive) are actually far too low.

The Right Number of Questions for NPS Surveys

Practitioners of NPS seem to agree that it is a revolutionary approach for gathering granular, timely feedback from customers. They also think that it’s a useful process for integrating organizational structures with incentives so that front-line employees are eager to listen and respond. But as with any new approach to management, there are plenty of questions and issues that need to be addressed.

One recurrent source of confusion is my insistence on keeping NPS surveys extremely short, just two or three questions. A short survey seems impractical when we all know that determining the score is just the first step. We need to learn not only the absolute score but also what must be done to improve it. So naturally we want to ask more questions.

Don’t Believe Everything You Read

“NPS is the most powerful tool we have ever deployed at GE.” This evaluation comes from Dan Henson, a 20-year GE veteran who is now the company’s chief marketing officer. His comments, based on several years of experience implementing NPS across a wide range of businesses, stand in stark contrast to a recent article in an academic market-research journal. That article, written by two professors, not only concluded that there is no connection between NPS and business growth or profits, but also cautioned that using NPS “is misguided and potentially harmful.” Meanwhile, NPS has become a centerpiece of GE CEO Jeff Immelt’s growth agenda, and his company is rolling it out to every one of its businesses around the world.

NPS DOES NOT WORK!

For a while now, a few anonymous bloggers have been claiming that NPS does not work. One such critic went public with his objections during the Q&A following a recent speech of mine. This was a giant step forward because it opened up the possibility for dialogue and learning.

So what is the argument? My critic claimed that his data proved that NPS did not explain the differences in growth among online retailers. He believed that the core argument for NPS is that NPS ratings correlate with growth —so if NPS doesn’t correlate with growth in a particular industry, then NPS doesn’t work.

There are a couple of misconceptions here. Let’s take them up one at a time.

The True Source of Corporate Reputation and Profitable Growth

Summer 2006 email exchange with my son Chris, a young professional in NYC

Hi Dad,

Could you remind me of the name of the bank you mentioned on the phone a few months ago? I’ve banked with Chase for almost seven years. It seems like all they do is find creative ways to charge extra fees. I have finally had it with them and want to know where I should move my account. What do you recommend?

Thanks,
Chris

************

Questions about NPS – and Some Answers

Some forum members have raised questions regarding the relationship between Net Promoter Score (NPS) and growth. This blog entry will address some of these concerns and suggest practical solutions for two of the issues:

Can a one-question survey predict growth as accurately as a long survey?

If you can convince a customer to spend time answering dozens of questions, you can predict that customer’s behavior more accurately than you can with one question. The problem is, most customers in this busy world won’t give you that much time—witness typical survey response rates from 2% to 20%—and you couldn’t afford the surveying and data-processing expense if they did. So most firms take a middle ground and sample customers with surveys of twenty questions or so.

While these surveys provide good forecasts for the behavior of the customers who fill them out, they do not produce good estimates of growth for the business. The culprit is sample bias [1]. Statisticians can never figure out exactly which customers take the time to respond [2]. Are they the most lonely, compulsive, compliant customers in the population—or are they the most loyal? And how should you adjust for this sampling bias to generate results for the entire customer base? In B2B the problem is even thornier, because the senior execs who drive purchase decisions are the least likely to tolerate lengthy surveys.

NPS—Why Some People Hate It

Some people feel deeply threatened by the growing popularity and acceptance of Net Promoter Scores (NPS), and they have launched campaigns attempting to discredit the concept. Satisfaction-survey firms regularly excoriate NPS supporters in conferences, on web pages, in book reviews, and in blogs. The phrases they use—“NPS is a danger to your company’s profits”; “NPS hinders the building of better customer relationships”; “any statistics student would laugh”; and “NPS is the ultimate bait-and-switch scam” reveal an emotional urgency that transcends the putative logic of their arguments.

One senior airline executive confided that a group of his internal market researchers had banded together to try to “refute the Fred factor” so that senior management would not continue on the path to replacing their old (failed) feedback process with NPS. One satisfaction-survey firm has gone so far as to threaten me with lawsuits and has recruited well-connected friends to pressure me to stop commenting on the weaknesses of traditional satisfaction surveys.

Where Does NPS Work Best?

One of the questions I am asked most frequently is this: “In what kind of business does NPS have the greatest potential to improve results?” Perhaps because so many of the company examples that I use in my book and in speeches are consumer-oriented, some people wonder if NPS may be less relevant to business-to-business firms. They may presume there is less potential in B2B because the complex decision-making process for a corporate purchase makes it difficult to gather good NPS data. (For more on this topic see Dr. Laura Brooks' blog Are Non-Respondents Truly Detractors?)

In fact, NPS is highly relevant to the business-to-business sector. Many of the most enthusiastic adopters of NPS (GE, Thermo Electron, and SAP, for example) are using NPS in B2B applications—and are discovering that one of its greatest advantages is its ability to simplify complex relationships. The clarity of one question cuts through the clutter of managing a relationship that may involve many different individuals. The adoption of NPS tools in the B2B sector has been so rapid that some observers are even concluding that the primary relevance of NPS is in the B2B space.

GE Joins the War Against Bad Profits

There is good news to report from the battlefront. GE has joined the growing list of companies that have embraced NPS as the weapon of choice in the struggle to eliminate bad profits and re-energize profitable growth. GE Healthcare piloted NPS during 2005, and the results were so promising that this year GE is deploying NPS across all of its businesses worldwide.

In GE’s 2005 Annual Report, CEO Jeff Immelt indicated his personal commitment to the Net Promoter initiative, devoting a full paragraph of his letter to stakeholders explaining the NPS rollout):

“Lastly, we are using a simple metric called Net Promoter Score (NPS) to measure how customers view GE. NPS creates a view of customer loyalty. The absolute score is less important than the trend. We learn from both promoters and detractors. Most importantly, we have been able to associate NPS improvement with growth. NPS is simple and we can use it across the Company. Our ultimate goal is to use improvements in NPS as a measure in how leaders get compensated.”

Car Rental Experience That “Hurts”

I usually rent from Enterprise, especially on personal trips, but on our recent Florida family vacation I used Hertz. Big mistake! Sure, I started with a nice $75 discount coupon compliments of my AAA membership, but when a traffic jam made us almost an hour late returning to the airport, we were mugged with bad-profit policies.

First, for the one extra hour we used the car, Hertz charged us 50% of the cost of an additional day. Wouldn’t 1/24th make more sense? Then it added on a charge of almost $75 because the tank on the Toyota sedan was only half full. The Hertz employee who checked us in was obviously embarrassed by these unreasonable fees when he handed us the bill—he warned us that the next time we rented from Hertz we should be sure to buy the protection policy that covers gasoline refills. I thought to myself that selling “protection” sounded more appropriate to organized crime than a car-rental business.

My Bank Finally Went Too Far

I finally decided to close my Bank of America account. I had given this firm the benefit of the doubt after it bought my account from Fleet, which had previously bought my account from Bank of Boston, which had bought it from BayBank—which used to be a very customer-friendly bank.

It seemed like B of A was set to improve on the steady erosion in customer service I have experienced over the years. I read that Ken Lewis, B of A’s CEO, was committed to turning this bank into one of the world’s most-admired companies. I also heard that branch-manager bonuses are based on the proportion of customers who are “delighted” with their branch service.

Stop Wasting Money on Satisfaction Research!

If your company is like most, you hire market research firms to steal precious time from your customers with their ineffective surveys. What are the customers satisfied with? What are their grievances? Maybe you pass out comment cards or questionnaires as well. At large companies, the whole operation may cost in the millions.

And what’s it worth? I have to be blunt: not very much. Sure, everyone has the right intentions, but it’s results that count—and most customers today are not very impressed with their suppliers. In fact, most wouldn’t even recommend the companies they buy from to a friend or colleague. If conventional satisfaction surveys worked, would most companies have net promoter scores that hover just above zero?

Stop The War on Customers -- by Asking The Ultimate Question

In anticipation of the January print-date of The Ultimate Question, I have begun visiting journalists at the major business publications. They all ask me some variation of the following question: So what made you decide to write another book? The honest answer is that although I am proud of The Loyalty Effect and Loyalty Rules, they have failed to accomplish my ultimate goal.

Welcome and Introduction: Bad Profits, Good Profits, and the Ultimate Question

I want to personally welcome you to the Net Promoter website and hope that together, we can build a productive community that helps your organization measure and manage the quality of relationships just as thoughtfully and thoroughly as it now measures profits.  The ultimate goal, of course, is to treat people in a way that encourages them to invest their time, energy, money, and creativity in building better and deeper relationships.  The practical benefits of such loyalty are growth and economic prosperity.  When customers, employees, suppliers and investors invest in creating better, more valuable relationships, the "loyalty effect" will fuel profitable growth (listen to the audio profile on this topic or read the text transcript).