Wednesday, November 16, 2011

The Ultimate Question

Fifteen years ago, I attended a talk by Fred Reichheld, then a Bain consultant and now a Bain Fellow.  Reichheld's message was simple.  Treat your customers right and earn their loyalty.  That's cheaper than being trapped on the treadmill of constant customer churn and the expense of attracting new customers to replace those you've lost or driven away.

Reichheld supported his argument with cold facts showing the increased profits and growth that came from a focus on customer retention.  He later compiled that material in The Loyalty Effect published in 2001.

His message resonated with me, because I've always believed that if you keep your customers happy, revenue and profits will flow.  The fact that it resonated is probably why I remember the talk to this day. 

Last night I heard Reichheld again, in conversation with Roger Martin, Dean of the Rotman School at University of Toronto, who's just been named one of the Top 50 Business Thinkers.  Reichheld talked about his new book The Ultimate Question 2.0, the follow-up to his previous book The Ultimate Question.

To Reichheld, the ultimate question is "How likely is it that you would recommend our company to a friend or colleague?"  Responses are scored on a scale of 1 to 10, ranging from 'not at all likely' to 'extremely likely'.  The Ultimate Question introduced the concept of a Net Promoter Score which is obtained by subtracting the percentage of people who respond 1-6 from the percentage of those who respond 9-10.  In other words, the score is intended to measure the people who really really like your product or company after netting out the people who don't like your product or are indifferent.  It's a harsher metric, but one that gives you a better idea of how people really feel.  We know that people can err on the side of politeness when  answering such polls, so neutrality should really be considered a knock on your product.

The Ultimate Question 2.0 fleshes out the concept with examples of companies who have adopted  the Net Promoter Score as the core of their business philsophy.  You can't just start surveying people and calculating a Net Promoter Score - that is just a superficial and meaningless approach.  You have to follow up with the people who responded to the survey and get to the bottom of why they rated you the way they did.

Reichheld talked about Intuit, the software company behind Quick Books and Turbo Tax software.  Intuit has adopted NPS and embedded it deep in their culture.  Product designers talk about the Love Factor: at Intuit, it's not enough to keep customers satisfied, you need to make them love the product.

Reichheld is wonderful to listen to - down to earth, articulate and avuncular. He talked about good profits versus bad profits.  Bad profits are when you make a short term gain, but at the cost of alienating your customers.  He gave a couple of examples of such bad profits - phone companies that lock you into miserable contracts, or airlines that falsely advertise low prices and then stack on the extra charges.    Reichheld argues that although they may deliver a quick hit to profits, such tactics will never result in a company that is successful in the long term.

Reichheld acknowledged that he was becoming more moralistic as he grew older.  Age gave him the freedom to advocate his ideas, not just because they make good business sense, but simply because they were the right way to treat customers.  What a nice philosophy.

1 comment:

A. Richard said...

Great summary of a captivating talk. Thanks for sharing Lib!