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In this Harvard Business Review Ideacast, Fred Reichheld and Rob Markey, authors of The Ultimate Question 2.0, discuss customer loyalty in a world in which changes in corporate reputation are amplified and accelerated by social media.
Read the transcript below.
SARAH GREEN: Welcome to the HBR IdeaCast from Harvard Business Review. I’m Sarah Green. Today, we’re talking about customer loyalty. I’m here with Fred Reichheld and Rob Markey of Bain and Company. They developed the landmark Net Promoter Score® and Net Promoter System®. Their book, The Ultimate Question, was a Wall Street Journal bestseller and has just been released in an updated, 2.0 edition.
Fred, thanks for being here.
FRED REICHHELD: Pleasure to be here, Sarah.
SARAH GREEN: And Rob, it’s great to have you with us.
ROB MARKEY: I’m thrilled to be here.
SARAH GREEN: So Net Promoter® has been used in literally hundreds of companies, and companies our listeners have heard of. For instance, I see there’s a quote in the book from a senior vice president at Apple who says that the book is required reading for all their leaders. They use it every day in every store. But some of our listeners may not know what it is. So just tell us quickly, if you’re not familiar with it, what is this thing?
FRED REICHHELD: What is Net Promoter? Net Promoter, really, is just a systematic process that enables leaders to keep their entire organization focused on delighting customers. And when I say systematic, it helps them focus every department, in every location, every day, on of all the customers they touched, how many we’re delighted. So it just helps them learn and turn customers into a loyal customers.
ROB MARKEY: Now, the foundation of it is the Net Promoter Score, which is a way of sorting customers into promoters, passives, and detractors based on the question, “How likely would you be to recommend this company to a friend or colleague?” And you take the 9’s and 10’s on this 0 to 10 scale, and you subtract out the 0’S through 6’S, and that yields a Net Promoter Score.
What’s more important, perhaps, is that the Net Promoter System also involves closing the loop with customers and with employees, so that you learn what actions you took create promoters and what actions you to create detractors. You call them up and ask them questions and get your employees dealing with them.
FRED REICHHELD: Not just once a quarter, but every day, as part of their standard work flow.
SARAH GREEN: So I see that’s the promoter part, but what about the detractor part? I mean, shouldn’t you be concerned if you ask someone would you recommend us to a friend, and they say no?
ROB MARKEY: Absolutely. In fact, one of the most important parts of the Net Promoter System is this idea of calling all the detractors and not only finding out why they were detractors, but doing something about it. If I’m angry with a company, and I tell them, and then they don’t respond, I feel like I wasted my time. In fact, it angers me.
FRED REICHHELD: It’s the worst, because they obviously don’t care. It’s the most disrespectful thing imaginable, is to ask you what do I need to do to fix it, and then get ignored.
ROB MARKEY: And in a world where a customer’s voice is amplified by the internet, and by Twitter and Facebook, and all these things, you can’t afford to let angry customers run around telling all their friends how terrible it is to do business with you.
SARAH GREEN: I want to pick up on that, actually, because the 2003 article that sort of launched this idea was in 2003, in HBR. And then the first edition of the book came out in 2006, and now it’s 2011, and now we have the social media–Facebook, Twitter–all the stuff that wasn’t really in place before. How has that changed your thinking, and how have other factors changed your thinking on this idea over time?
FRED REICHHELD: It really hasn’t changed it all. It has always seemed to me that your reputation is everything, and your reputation isn’t what your public relations department says, or your advertising, or your marketing. It’s what people who know you, your customers your employees, what they say about you and how you behave. I think what social media has done is just amplified it. It’s accelerated that process of making your reputation change and move, so people can’t live on their laurels the way they used to be able to do. Right now, you have to earn your reputation, and social media gets it out there in front of more of your prospective customers and current customers.
ROB MARKEY: I think social media have helped awaken some leaders to the fact that there’s all this stuff going on around them with customers talking to each other. And because you now can listen in on those conversations through social media, suddenly leaders have this awareness that a lot more is happening than they control through their advertising or through the direct contact with customers.
FRED REICHHELD: It’s funny. The basic process that became Net Promoter was the Enterprise Rent-a-car system. Andy Taylor, the CEO of Enterprise, said, Fred, when I go to cocktail parties and I hear about things that our customers have had happen to them, that it’s embarrassing to me. It’s my name on the door. And what social media does is it just makes that such a loud–it’s not just at the cocktail party. It’s out throughout the universe that they know are you a good person or aren’t you? Do you live up to your word and treat people according the Golden Rule? Do you enrich lives or do you abuse them? And I think smart leaders have recognized they have to get on top of that and make it a fundamental part of their business, not just the customer satisfaction thing that we do every quarter.
ROB MARKEY: You know, Sarah, if your question was what’s changed in the years since we published The Ultimate Question, the original book, I’d say that the big thing that’s changed is that we’ve recognized that there’s this entire system around the Net Promoter Score. That the successful companies are not just measuring and not just closing the loop, but they’re also creating all the foundational infrastructure around that to enable their employees to learn, both good and bad, how their actions impact those customers and do something about it.
FRED REICHHELD: We sort of thought it would be a 10% rewrite, but as we got deeper into the book, it turned out to be a 75% rewrite. It’s essentially a new book, because we created Net Promoter as an open source system. Anyone can try it. There are rules around it, and what we’ve done is tried to gather the insights from that exploding community of creative intelligence. As people like Apple, and Vanguard, and American Express, and others have tried this, they’ve learned. And it’s their best practices that we’ve tried to capture in this new edition.
SARAH GREEN: Well, let’s talk a little bit more about this idea in companies. We mentioned Enterprise. We mentioned Apple in the first question. How do Net Promoter companies really put this into practice?
ROB MARKEY: Well, I think the best ones, they start with a leadership team that’s really committed to profitable, sustainable, organic growth through customer loyalty. And they never lose sight of the fact that what they’re trying to do is create a world where customers are served every bit as well as they would like to be served.
FRED REICHHELD: And turn into promoters who become your sales force, your marketing campaign, your public relations department, as a volunteer army. Which completely changes the economics of the business.
ROB MARKEY: And then it’s followed by these same leaders implementing this at the front line by instilling in their employees not only the goal of creating more promoters and fewer detractors, but also putting in their hands the tools to do that. The feedback on the interaction I just had with a customer the other day about whether that was good or bad, and what about it was good or bad. The coaching that helps me learn how to improve. The policies, processes, that will help satisfy customers that are supported by investment decisions built on customer lifetime value.
FRED REICHHELD: And simple things like just sharing the best practices. One of the things we observe when Apple puts this to work, in their daily download, the shift huddle in every store, they talk about who created promoters yesterday–because they have an IT system that lets them know that–but then when employees hear each other talk about how they created a 10, those ideas spread. And it really makes–the greatest gift you can give as a leader to your employees is the ability to earn 10’s from your customers. I think it leads to a meaningful existence, it leads to a profitable career, and it leads to someone that’s proud and energized. And so helping people understand best practices at earning 10’s is at the core of all this.
SARAH GREEN: So OK, I think that sounds really great and really inspiring. But we all know that sometimes when we come into work in the morning, our best laid plans go out the window. Are there any kind of common mistakes that you see companies making with this?
fRED REICHHELD: How many hours do you have?
[LAUGHTER]
FRED REICHHELD: This is, I guess, the funniest thing. One of the attractive things about Net Promoter is how simple and intuitive it seems. And one of the biggest surprises is how many people stumble putting it to work in their business. And I think probably because they presume it must be so simple. They delegate it to a junior person in the organization. They’re not serious about all the change that it would imply. In many ways, this is a different way of doing business. And it’s an enormous amount of change for most big business cultures, and therefore, leaders have to be very serious about how they approach it, how they roll it out, who’s going to help them achieve it. Rob, you should just list some of the–
ROB MARKEY: Yeah, I mean I’d say, the biggest mistake, the number one mistake we see over and over again is that someone will say, oh, if I just measure this Net Promoter Score, I’m going to be all set, and somehow everything in the business will change. So I’m going to delegate this to market research. Or I’m going to delegate this to some guy in operations who’s going to figure out, you know, go figure out how to get my Net Promoter Score.
And the score is just the beginning. Not a single great company– not Apple, not Vanguard, at American Express, not any of the companies we talk about in the book–not one of them got to be a loyalty leader by measuring a score. They got there by using the score as the foundation to help them create better products, make the pricing more rational, get rid of silly policies and procedures, develop customer experiences that are really “wow” kinds of experiences and are remarkable. That’s how they got there. And delegating this to the market research guys will never get you there.
Instead, unleashing the power, the creativity, of thousands of employees by putting in their hand something operational, that’s what’s required.
FRED REICHHELD: I mean, it’s essentially inspiring to front line employees to know that their bosses are committed to helping them treat customers so well that they earn a 10. But living up to that is the key. There are an awful lot of changes required, to listen to the constraints that are creating detractors, to changing policies, to changing strategies. Because a lot of companies are bringing in customers who have no business coming in the door. They could never turn them into a 10 profitably. And companies need to be a little bit more clear thinking.
SARAH GREEN: So this is kind of a wild card question, but as you guys are talking, I’m starting to think about Groupon and some of the problems that companies have had with Groupon, and are you bringing in the right kind of customers who will become repeat customers? What do you guys think about that?
ROB MARKEY: Let me put it this way. Tony Hsieh, the founder and CEO of, Zappos he’ll tell you that the reason they don’t discount, and they don’t use coupons, and things like that, is because it undermines the fundamental value proposition of the company. It brings in customers who are totally focused on price and not on the relationship, and not on the value that Zappos can create. And while I think Groupon is interesting and creates lots of possibilities for companies to bring in some new customers, it’s very dangerous.
FRED REICHHELD: I think by bringing in new customers because of a price promotion or a marketing gimmick, you are setting yourself up for a very serious problem, because you won’t be able to build the loyalty of those individuals as well as you would with those customers who come in, say, because a friend referred them. The referral process gets someone who actually knows your business, knows their friend or colleague, and is making a connection that this company would be good for you. And that’s a potential asset. Who comes in on an advertising campaign that’s sort of, it’s a dog’s breakfast?
ROB MARKEY: I don’t want to attract to my business just the people who are shopping for the best discount. I’m getting all the low margin customers, and the minute that my competitor comes up with a lower price offering, that customer’s out the door. And so if you’re in a business where you think, oh yeah, I’ll attract a lot of customers, I’ll lose money, but ultimately–I think you're getting on a treadmill that’s hard to get off of.
FRED REICHHELD: Yeah. Because high levels of churn create enormous cost inefficiencies that make your value proposition diminish. It makes it hard to be good for any of your customers. And we’re not saying there’s no place for incenting trial. We’re just saying you better be really thoughtful about how you do it, because you get the wrong customers for the wrong reason, sometimes.
SARAH GREEN: Well, Fred, Rob, I feel like we have just barely scratched the surface, but unfortunately, that is all the time we have today. Thank you so much for coming in.
FRED REICHHELD: Thank you, Sarah. It was fun.
ROB MARKEY: Good being here.
SARAH GREEN: That was Frederick Reichheld and Rob Markey of Bain and Company. The book is The Ultimate Question 2.0. For more, visit hbr.org.
Net Promoter®, Net Promoter System®, Net Promoter Score® and NPS® are registered trademarks of Bain & Company, Inc., Fred Reichheld and Satmetrix Systems, Inc.