Create customer promoters, avoid detractors
April 1, 2006
BY MICHAEL KRAUSS
airline demoted me. They lowered my status in their frequent flier
program. First-class seats are looking much harder to reach. I
feel like such a loser.
It wouldn’t have bothered me if they’d called or written
to explain things. I only flew 35,000 miles last year so maybe
I deserved to get busted. But I have 950,000 miles with this airline.
At 1 million miles I get lifetime higher-level status.
Couldn’t they figure it out? By keeping me at the higher
level I’d be grateful. I’d advocate the airline’s
generosity and business savvy to my friends. I’d be a promoter,
not a detractor.
to hundreds of millions in technology investments, my airline
can market to me one-to-one. I was excited when I saw their bright,
multicolored packet in my mailbox announcing the 2006 travel continuity
program. My expectations were high. I thought my new travel card
and a few first-class upgrade certificates were inside. I never
thought I’d get downgraded.
Inside there was a packet urging me to compliment the airline’s
service quality. I think there was a promotion for a credit card
enclosed. I threw it all away in disgust.
I called the frontline troops at my airline. The call center representative
was polite and read me a script encouraging me to fly an extra
50,000 miles to regain my status for life. It felt like the stick
and the carrot approach: Lower my status and urge me
I grew upset. I started to argue. But then I got hold of myself
and thought, “What would Fred Reichheld think?” Talk
about trying to make a profit the wrong way. Rather than argue,
I decided to call Reichheld.
guessed Reichheld would say my airline’s not paying attention
to their Net Promoter Score. They’re earning bad profits
rather than good profits. Fact is, Reichheld and I never got around
to talking about my negative airline experience. We were too busy
discussing his fact-based analysis of the impact of promoters
and detractors on the corporate bottom line.
is the loyalty guru from Boston-based Bain & Co. and he has
a new book out called The Ultimate Question: Driving Good
Profits and True Growth. The book is a must-read for marketers
and CEOs. Reichheld demonstrates that the key predictor of future
growth is having customers who will recommend you.
calls them promoters--loyal customers who keep buying and urging
friends to do the same. These days they also go by names like
advocates, evangelists and adherents. Think about eBay, Google
and Amazon or Southwest and JetBlue. They built their business
on positive word-of-mouth.
According to Reichheld, if you take the percentage of your customers
who would definitely recommend you--your promoters--and subtract
the percentage who are your detractors--unhappy customers who
feel trapped in the relationship--you get the Net Promoter Score.
Promoters minus detractors equals Net Promoter Score. It’s
a simple score with powerful predictive capability, according
to Reichheld. “In a typical category, the NPS leader is
growing at more than 2 1/2 times the competition. That’s
powerful,” Reichheld says. Remember Reichheld’s the
customer loyalty guru who demonstrated that “a 5% increase
in customer retention could yield anywhere from a 25% to a 100%
improvement in profits.” Now he’s telling us customer
loyalty is not enough. Marketers need to create promoters and
Reichheld says that, “No airline had growth without a superior
ratio of promoters to detractors.” He points to JetBlue
with an NPS of 81% and Southwest with an NPS of 51%, suggesting
their growth is attributable to attracting promoters and avoiding
Reichheld does a rigorous analysis of Dell computer where 25%
of new customers are word-of-mouth referrals. Research shows 60%
of Dell’s customers are promoters and 15% are detractors,
yielding an NPS score of 45%.
Reichheld calculates each promoter is worth $328 to Dell through
purchases and referrals. Each detractor costs the company $57
through higher customer service costs and negative referrals.
Reichheld’s studies show detractors, on average, comment
negatively about Dell up to four times annually. It takes five
positive comments to neutralize one negative comment. Reichheld
demonstrates that converting half of the 15% of customers who
are detractors into regular customers could add $160 million to
Dell’s bottom line.
Reichheld believes the NPS framework can empower CMOs to get marketing
back to the mainstream.
“My favorite subject in school was marketing,” says
the 53-year-old Harvard MBA. Reichheld feels that marketing lost
its connection with business strategy. “It seems strategy
got pulled away. What got left was advertising and promotion,
not how it all fit together to create a winning experience for
customers and shareholders.”
Reichheld doesn’t blame the marketers. He thinks the issue
is a lack of proper measures. “Accounting has become the
universal language of business. Accountants can’t tell the
difference between good profits and bad profits,” Reichheld
says. “Cash flow comes out of customer wallets, but that
is not entirely obvious the way most companies measure their performance
and motivate their troops.”
Traditional satisfaction studies aren’t the cure. Reichheld
devotes an entire chapter and defines 10 reasons why satisfaction
studies fail. They aren’t linked to the company economics
and they don’t focus on Reichheld’s ultimate question:
How should marketers help management avoid chasing bad, short-term
profits and destroying relationships with promoters?
“You have to get feedback from customers,” Reichheld
urges. “You need reliable facts, not just ad hoc research
tools that anybody can twist to their needs. Find out who your
promoters and detractors are and get a sense of the root causes.”
Rather than having complicated political arguments in the boardroom,
Reichheld urges marketers to conduct in-market tests to determine
whether customers are being converted into promoters or detractors.
I can’t say enough good things about Reichheld. He’s
a really busy guy out promoting his book and serving Fortune 500
clients. I heard about Reichheld from Jackie Huba, co-author of
Creating Customer Evangelists. Huba heard Reichheld speak
at CEO Andy Sernovitz’s Word of Mouth Marketing Conference.
Then Gary Slack, CEO of Chicago-based b-to-b marketing services
agency Slack Barshinger, said Reichheld was a hit at executive
director Ralph Oliva’s Institute for the Study of Business
Markets annual conference.
I dropped Reichheld an e-mail to see if he’d like to chat.
Dan Pinkney of Bain was back to me in a millisecond. The next
business day I was chatting with Reichheld. He couldn’t
have been nicer. He outlined his analytical approach and explained
the concept of his book. No question was a bad question even if
Reichheld had heard it before.
I’m becoming a huge advocate of Reichheld’s. His ideas
are fact-based, persuasive and compelling. I’ve told all
my friends and I’m telling you: Go out and buy his book.
Oh. Did I mention that my wife received a packet from the same
airline on the same day? She got promoted. She’s not sure
why. She rarely flies that airline.
Krauss is a partner with Marion Consulting Partners based in Highland
Park, Ill., and can be reached at Michael.Krauss@Marionpartners.com