In everyday life, asking someone to name “the ultimate question” might invoke responses of “What is the meaning of life?” or “Is there a God?”
In the corporate world, however, savvy business bookworms know that the ultimate question refers to the one simple question that, according to author Fred Reichheld, can determine your company’s future: “Would you recommend us to a friend?”
Tallying your Net Promoter Score
In his book, “The Ultimate Question; Driving Good Profits and True Growth,” (Harvard Business School Press, 2006) Reichheld discusses what he calls the Net Promoter Score, or NPS, a formula for measuring customer relationships “as rigorously as they now measure profits.”
The NPS formula is simple:
P – D = NPS (Promoters minus Detractors = NPS)
Reichheld’s definitions are as follows:
• Promoters: loyal enthusiasts who continue buying from the company and “promote” the company to people they know
• Passives: satisfied but unenthusiastic customers who can easily be stolen away by the competition
• Detractors: unhappy customers who feel trapped in a bad relationship with the company
According to Reichheld, the NPS provides “the single most reliable indicator of a company’s ability to grow,” using the NPS program’s five key elements:
- Metrics proven to link to growth
- Leadership practices that instill customer focus, passion, and values
- Organizational strategies to ensure adoption
- Integration with core business processes
- Operational systems to support the initiative
NPS vs. Customer Satisfaction Surveys
What often comes as such a surprise to companies using the NPS methodology to
evaluate their customers’ true levels of satisfaction is the contrast between their NPS score and their own customer satisfaction surveys. There are endless reasons why customers don’t accurately communicate their true dissatisfaction on most surveys, not the least of which is the poor design of the survey itself.
Reichheld provides concrete examples of how to create an accurate NPS evaluation for customers, as well as tips on how to properly distribute it. For many organizations that have followed the advice of “The Ultimate Question,” using the NPS evaluation allowed them to significantly improve their levels of customer service, which in turn boosted their revenue. (Something that Reichheld would argue is hardly a coincidence.)
“A few years ago, we began to implement a company-wide initiative called ‘The Client Promise.’ As part of this, we began to track our Net Promoter scores,” said Laura DeSoto, senior vice president at Experian. “In the past six quarters, Experian’s Net Promoter score has doubled and at the same time we have seen double-digit growth. We feel there is a correlation between our Client Promise initiative, our increase in customer loyalty and our revenue growth.”
At GE Healthcare, the company implemented the NPS program in 2005 and quickly learned what customers wanted, mainly: speed (36%), communication (25%) and competency (18%). After instituting extensive efforts in all three areas, GE Healthcare’s NPS rose from a baseline of 40% in 2006 to an incredible 58% in 2006 – an 18% increase in one year!
Simon Lyons, Global Head of Marketing and Communications at Aggreko, has seen the value of the NPS program. “Satmetrix (co-developer of Net Promoter) has changed how we think and manage our organization and we have seen immediate value added to our business. We now receive real-time, fact-based, actionable data, allowing us to focus on developing decisive propositions around the preferences of our customer segments.
“It also provides a transparent view of the value our customers see in the different elements of our service proposition, allowing us to frequently surprise and delight them with the speed of our response to, and resolution of, their issue.”
The NPS evaluation can also be given to employees and franchisees, which will allow the company to measure the satisfaction level of those who SERVE its customers.
“While we thought our franchise owners were very happy, it wasn’t until we applied the Net Promoter evaluation that we truly understood our level of franchisee satisfaction,” said Dr. Ken Gibson, founder and CEO of LearningRx, a national franchise that provides cognitive skills training to children with learning disabilities. “With the average company in America coming in around 11, our score of 69 just solidified that we were not only doing something we believed in, but also changing the lives of our clients and franchise owners for the better. This also allowed us trust that our employees and franchises felt invested enough – and believed enough in what LearningRx does – to do whatever it would take to make our customers promoters.”
Avoiding “bad profits”
One phrase woven throughout “The Ultimate Question” that may come as a surprise to many – especially accountants – is “bad profits.” Defined as profits that come at the expense of the customer relationship, some of Reichheld’s examples are enough to make any salesperson blush: unfair or misleading pricing; delivering a lousy customer experience to save money; pushing overpriced or inappropriate products onto trusting customers; or creating complex pricing schemes to “dupe customers into paying more than necessary to meet their needs.”
So why are bad profits such a big deal? Reichheld believes that they undermine growth by creating detractors, who can ruin a company’s past, present and future not only by word of mouth, but by demoralizing staff with their numerous complaints, complaints that can lead to expensive resolutions.
Long gone are the days when fear of complaint was limited by regional geography. Just imagine the damage that one talkative, dissatisfied customer can do now that most people have access to the Internet and its many “reviewer” Web sites!
Unfortunately, there are still circumstances in which companies can grow – even with low NPS scores. Areas in which monopolies exist, for example, don’t offer customers choices when they’re dissatisfied. Still, things can change, and even these companies can use NPS responses to look for ways to increase growth, expedite it, and sustain it…when the competition DOES come to town.
