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Forget complex measures of customer satisfaction,
retention, churn, or market share. There's only one number you need to track,
grow, and communicate with your front line: what are your customers are telling
their friends about you? Loyalty
guru Frederick Reichheld put relationship management on the map ten years ago
with his book, The Loyalty Effect. Now the director emeritus of Bain & Company
has just completed a two-year study, which concludes that the best predictor of
top-line growth can be summed up in one simple question: "Would you recommend
this company to a friend?" In a recent conversation
with FOCUS, Reichheld explained that customer satisfaction and retention studies
are overrated. Instead, the willingness to talk up a company to friends, family,
and colleagues is one of the best indicators of top-line growth: "When customers
act as reference, they put their own reputation on the line. They would only risk
their own reputation if they feel immense loyalty," Reichheld told FOCUS. His
findings point to a simple new approach to customer research: blunt as it may
seem, just ask them if they would recommend your company to a friend. Next, segment
customers into promoters, the passively satisfied, and detractors. This keeps
customer surveys simple enough to be reported in a timely matter to the front
line: "Front-line managers can relate to the goal of increasing the number of
promoters and reducing the number of detractors more readily than increasing the
mean of their satisfaction index by one standard deviation," explains Reichheld.
The value of evangelical
customers is rarely disputed, yet there's a lack of commitment behind the rhetoric.
Instead of measuring and managing promoters, managers get mired in complex customer
satisfaction research that's rarely even shared with the employees in the trenches
who can really make a difference. These research programs are "usually complex
loyalty indexes based on dozens of proprietary questions and weighted with a black
box scaling function, designed to generate more business for survey firms," says
Reichheld. "Contrast that scenario with one in which a manager presents employees
with numbers from the previous week showing percentages and names of branch office
customers who are promoters, passively satisfied, and detractors, and then issues
the charge to produce more promoters and fewer detractors." That transforms customer
feedback from market research into an operational tool. Reichheld advocates that
the "net promoter" number - the percentage of promoters minus detractors - can
be made transparent to front-line employees, creating a line of sight from the
executive suites to the front lines.
That isn't to say that standard market research techniques have no role. Many
techniques can help managers understand what factors are driving their net-promoter
numbers. But according to Reichheld, "too many people confuse the grade with the
diagnostic, and do neither well." Reichheld
encourages companies to put their money where their mouth is. In one illustrative
case, Enterprise Rent-A-Car went so far as to deny field managers promotion unless
their branch exceeded the company's average net promoter score. "That's a pretty
radical idea when you think about it," says Reichheld. "Giving customers, in effect,
veto power over managerial pay raises and promotions." Will
real-time communication of the net promoter score really be enough to improve
performance? Reichheld admits that more needs to happen to focus front-line employees
on improving the customer experience and encouraging customer evangelism. "Selective
hiring, orientation, training, recognition, rewards, promotion, and outplacement
are vital components. One important ingredient is the linking of promotion and
bonuses to the net promoter score at the individual and small-team level."
FOCUS asked Reichheld if the same segmentation
of promoters, passively satisfied, and detractors can be applied to employees.
A similar idea has been suggested by Gallup and Marcus Buckingham (co-author of
First, Break All the Rules), who divides the working population into the three
categories: engaged, not engaged, and actively disengaged. Reichheld agrees that
creating employee net-promoters is just as vital as for customers. So maybe there
really are two numbers management needs to watch: net promoters among customers
and among employees.
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