In 2004, the financial services firm Charles Schwab was struggling. Costs were spiraling upward and the stock price had plummeted. Yet just four years later, Schwab had regained its position as an industry leader, and its stock had tripled. A key part of the turnaround: Schwab’s Net Promoter® system, which helped the company provide world-class service while living up to the customer-focused values that are at the heart of its strategy.

“The beauty of Net Promoter,” says Schwab CEO Walt Bettinger, “is that it simplifies complex issues and helps people make the right decisions.”

By now, most executives are familiar with Net Promoter scores, a method of measuring customer loyalty. But what is the Net Promoter system that has helped Schwab and many other companies reach—or remain in—the top ranks of their industries? This post is the first in a series designed to answer that question.

A Net Promoter system is a management philosophy, a way of running a business. Net Promoter companies commit to a set of values and processes that help everyone focus on earning the passionate loyalty of both customers and employees. 

The business logic is straightforward. Loyal, passionate customers stay longer, spend more and recommend your company to friends and colleagues. Loyal, passionate employees go the extra mile to delight customers. That’s why loyalty correlates so strongly with profitable organic growth. On average, an industry’s loyalty leader grows more than twice as fast as competitors.

A Net Promoter system has three overarching requirements. Companies: Regularly survey their customers and sort them into three simple groups. The surveys typically include just two questions:

• On a zero-to-10 scale, how likely is it that you would recommend us (or this product or service) to a friend or colleague?
• What is the primary reason for your score?

Customers’ responses to the first question allow you to classify them as promoters (9–10), passives (7–8) and detractors (0–6). The responses also enable you to create a Net Promoter score (NPS®), which is simply the percentage of promoters minus the percentage of detractors. You can analyze NPS by business, region or any other subcategory, and you can track it from week to week to see how your loyalty-building efforts are working. 

Develop processes for short-cycle, closed-loop feedback, learning, recovery and action. “Closing the loop” involves sharing feedback from a customer—as soon as possible after it is received—with the employees most responsible for creating that customer’s experience. It also involves contacting customers whose feedback merits follow-up, so that you can probe deeper into their experience, remedy individual problems where possible and begin to address systemic issues.

Make it a top priority to earn the enthusiastic loyalty of customers and employees. Leadership commitment is essential because the system is always a balancing act. The CEO and CFO need to understand the vastly different economics of promoters, passives and detractors, support the necessary investments, and ensure that people throughout the organization have the tools for making appropriate trade-offs.

The simplicity of the Net Promoter score sometimes creates the misperception that it is just one more rating system. But the leaders of great companies such as Schwab understand that the score is just the catalyst. It is the full system that creates the conditions for real change and improvement. For a complete practical guide to implementing a Net Promoter system, go to www.netpromotersystem.com.

Written by Rob Markey and Fred Reichheld, authors of The Ultimate Question 2.0: How Net Promoter Companies Thrive in a Customer-Driven World. Markey leads the Global Customer Strategy and Marketing practice at Bain & Company and Reichheld is a Fellow at the firm.