Book Review: The Ultimate Question, by Fred Reichheld, the Harvard Business School Press, ISBN 1-5319-783-9
Last year I wrote an e-book on Voice of the Customer. I should have stayed in bed.
As a matter of fact I did, spending 10 months of 2006 recovering from a stroke. I should have spent 3 hours of that time absorbing Reichheld’s new book “The Ultimate Question” because Reichheld convinced me that time spent on customer satisfaction measurement was time wasted
Reichheld’s concept is devastatingly simple. You can throw away all customer satisfaction interviews and replace then with one (ultimate) question:
On a scale 0f 0 to 10, how likely are you to recommend our company to a friend or colleague?
Anyone who gives you an answer 9 or 10 is a Promoter. Those answering 7 or 8 are Passively satisfied. A customer that answer 6 or less is designated a Detractor.
All you have to do is subtract the percentage of Detractors from the Percentage of Promoters and you come up with a Net Promoter Score (NPS) which correlates highly with growth and profits.
Put in a formula: NPS = P-D.
That’s it. Game over.
Promoters represent an active sales staff getting others to try out the company.
The Passives refer others at a rate less than half of Promoters and will switch allegiance at the whiff of a better deal.
The detractors are annoyed go around bad-mouthing the company, turning off prospects and demoralizing staff (they are good for 80% of negative referrals). “They suck the life out of a firm” declares Reichheld.
Imagine if you enjoyed 1,000,000 customers of which 60% are shouting “They are great people!!” while 40% were calling out just as loudly “They are no good crooks!!”
It is not a growth scenario.
But Reichheld takes more than 200 pages to tell his complete story, chock full of examples from such customer-oriented corporations as Enterprise Car Rental, Intuit Software, Southwest and Jet Blue Airlines, Dell and other icons.
Reichheld used the (unbillable?) hours of the Bain and Company consultants to verify the effectiveness of NPS with detailed analyses of growth and profits.
The average NPS of corporation in the USA is less than 10%
But the are some notable exceptions. Dell Computers enjoys a healthy 50%. Included in Reichheld’s list of “NPS Stars” are
Apple Computers, 66%
Fed Ex, 56%
Southwest Airlines, 51%
Bain consultants found that am industry NPS leader was 2.5 times more profitable than their closest competitor. No wonder that General Electric is rolling out NPS across divisional lines as a kind if Six Sigma for loyalty.
The disruptive element of Reichheld’s story is his devastating critique of customer satisfaction measurement as a “pseudo science”. It is not positive news for customer satisfaction researchers.
Richheld gives a number of reasons in his chapter “Why Customer Satisfaction Surveys Fail”, as summarized briefly below:
10. Too many surveys, too many questions. Companies and customers get swamped with megabytes of Customer Survey questions and answers. Which they can’t process properly.
9. The wrong customers respond. We know that the top 20% of customers generate 80% of revenues (and a majority of Promoters), but in their search for randomness, this 20% generates just 20% of answers. This bank may conclude that short office hours are a major source of dissatisfaction. While the top 20% hardly ever go to the branch office, handling business by telephone or the Internet.
8. Employees don’t know how to take corrective action. Deluged with anonymous data front line employees don’t have the time or means to probe the customer’s real reason for anger, and take corrective action.
7. Too many surveys are marketing campaigns in disguise. I plead guilty! I have preached “Customer Interviews” as one of the most powerful marketing actions available to B to B companies. Not to hype results in an advertisement as Reichheld points out, but to collect hidden customer data which can’t be unearthed by data mining.
6. Survey scores don’t link to economics. Bain researchers found that 60 to 80 percent of customers who defect rate themselves “satisfied”. Hardly a close link between satisfaction and revenue/profit performance.
5. Plain vanilla solutions can’t meet company needs. Cookie Cutter research sold by market research vendors often yields data that is not relevant to firms paying for it—but it is profitable for the vendors.
4. There are no generally accepted standards. Surveys use a variety of scales and scoring methods so that benchmarking is difficult or impossible. The answer: A simple metric such as NPS.
3. Surveys confuse transactions with relationships. A transaction may go well or poorly for the consumer—but it is quickly over. Measuring a consumer about the transaction will tell you if it was good or bad but it won’t give an answer if the consumer is a Promoter or Detractor.
2. Satisfaction surveys dissatisfy consumers. Reichheld cites anecdotal evidence to support his statement. And if you have ever listened in at a call center you will verify it. Why else are non-response rates going up—climbing?
1. Gaming and manipulation wreck their credibility. Linking income levels and bonuses to satisfaction scores is an invitation to cheating—and it does happen. That’s why auto dealers put large-type examples of satisfaction surveys on the walls to “train” customers how to fill in the formal corporate examples.
The best part of the book, in my opinion is Reichheld’s discussions of “Bad Profits” vs. “Good Profits”.
“Bad Profits” are short-term gains a company makes from overcharging customers, advertising bursts, discounts and rebates, acquisitions and just plain cheating customers. These profits are short-term and are not sustainable, yet companies get hooked on them.
“Good profits” are derived from Golden Rule Marketing—treating customers as you would like to be treated—and thus gaining a larger share of Promoters than your competitors.
Years ago I offered up the idea of Golden Rule Marketing during a speech at a technical school in the “Bible Belt”. In retrospect, I wish I had developed the idea further.