Is the net promoter question the one most companies need to answer?

All companies claim to be dedicated to customer service. Many even state this aim in their mission statements, slogans or advertising. But few actually come anywhere near achieving it. For most of us, the “wow” experiences are far, far outweighed by the memories of seemingly endless queues while those supposedly serving us get on with more important activities, such as folding stock, cashing up their tills or just chatting with their colleagues. And for all the entreaties about the customer being king, the overall impression is of service on the terms of those providing it rather those receiving it. It can be hard not to feel that executives do not take the notion seriously at all.

A QUESTION OF LOYALTY

Rob Markey of Bain

Rob Markey is more charitable, though. A partner in the management consulting firm Bain & Company, he says: “Lots of companies invariably want to create a great company. They want to treat employees with dignity and respect in a way that earns loyalty.” The problem, he adds, is that it is “really hard to do”. The concept of creating loyalty – among both employees and customers – and enjoying the benefits of that is not intellectually demanding. It is just that “other things” distract executives. Chief among these is the pressure from investors and others to produce short-term performance, and profit and loss accounts are imperfect at capturing information in such areas as future intention to buy.

However, thanks to Markey and his Bain colleague, Fred Reichheld, business leaders have less excuse. Having worked on this issue for many years – Reichheld wrote a seminal book on the subject, “The Loyalty Effect”, back in 1996 – the pair have come up with a system that enables companies to understand what their customers really think of them and to see what the effect of this rating will be on their future health. It’s a “tool kit” that lets leaders earn the loyalty of their customers over the long run, explains Markey.

The net promoter scoring system

At the core of the concept is the realisation that customers of any business roughly fall into one of three groups – they either love it, hate it or don’t care one way or the other. Executives find out where they figure by asking just one question – “The Ultimate Question” (as in the book of that name recently published in an updated version by Harvard Business Review Press). Basically, this question simply asks customers whether they would recommend the business. In other words, it wants to know whether they will be that most valued form of marketer – the word-of-mouth promoter. The answer is simple and easy to understand and can form the basis of the Net Promoter Score, which shows how a company is faring in terms of customer relations. By asking the question regularly, the company can track its performance in this area just as it currently does with financial measures.

The broker is a big net promoter advocate

In between the first version of the book, published five years ago, and the current one, updated in the style of the day with a “2.0” after “The Ultimate Question”, the Bain team has developed the Net Promoter Score into a system. Yet it is at pains to point out that it is not prescriptive. Most companies opt for the zero to ten scale, but others use one to five. Some companies phrase the question slightly differently, others give the system a slightly different name. For example, the broking firm Charles Schwab, which credits the system with its return to health after a period in the doldrums following the original retirement of its founder, calls it the Client Promoter Score, while others range from the prosaic Customer Loyalty Score to the more ebullient Raving Fan Index.

THE 3-STAGE MODEL

However, Markey and Reichheld make clear in the new book that there are three fundamental elements that are vital to make the system work.
First, companies must systematically categorise promoters and detractors in a timely, transparent way. “The categories and resulting feedback must make intuitive sense to frontline employees, not just to statisticians, and this information must be systematically compiled and communicated throughout the organisation so people can take action and track their results. Otherwise, what’s the point?”

Second, companies must create closed-loop learning and improvement processes and build them into their daily operations. “NPS doesn’t accomplish anything unless companies actually act on what they learn.”
Third, CEOs and other leaders must treat creating more promoters and fewer detractors as mission critical. “NPS isn’t something that can be relegated to the market-research department. Earning the loyalty of customers and employees is either central to a company’s philosophy and strategic priorities or it isn’t – and if it isn’t, adopting an improved customer feedback process won’t make much difference.”

Markey and Reichheld have plenty of examples of companies that use the approach. For example, it credits the approach of Apple’s retail stores to customer service and enthusiasm – even when faced with long lines of customers – with assisting the parent company’s huge success and explains Enterprise’s successful expansion into airport rentals and used car sales in terms of the reputation for customer service it gained in its core market of car hire.

DOES IT WORK?

In the UK, British Gas Services has used the concept to help turn around its home heating installation business, which was losing money and attracting huge numbers of customer complaints. The company developed a rigorous NPS scoring process that involved NPS being reported daily for all its 75 districts and for each individual installer and sales adviser. It also established a system whereby engineers who installed boilers rang the customers the next day to see if there were any questions or concerns. In this business, Net promoter scores increased from 45 per cent to 75 per cent over two years, while customer complainst declined by 75 per cent. This enabled British Gas to reduce the numbers of people handling complaints and also enabled managers to spend more time leading their teams. Bad debts dropped by 90 per cent since happier customers are more likely to pay bills. As a result, cash flow turned positive and profit margins increased to double digits. Eddy Collier, the British Gas executive in charge of the initiative, is quoted in the book as saying: “NPS helped us stop the bleeding and turn the ship around – it was an incredibly efficient way to put each and every customer at the heart of everything we do and get the business back to health.”

It may be efficient. It may also be obvious once you think about it – after all, Markey asks rhetorically what is business about other than delighting customers in the hope that they will come back. But Markey and Reichheld do not pretend that it is easy. As Reichheld writes in the introduction to the new book: “NPS ultimately is a business philosophy, a system of operational practices, and a leadership commitment, not just another way to measure customer satisfaction.” He adds: “To be sure, I believe that NPS can make a business more successful. But I also believe that caring about your customers is the right thing to do. It makes for a better company, a better society, and a better life.”

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Comments

  1. Mike says:

    $author, great post. Will visit your blog more from now on

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