Fred Reichheld Gives A Net Promoter Update
January 27, 2009 12 Comments
I was able to catch the closing session with Fred Reichheld at yesterday’s Net Promoter Conference in San Francisco. For those of you who don’t know Reichheld, he’s the author of the book The Ultimate Question and widely viewed as the “father” of Net Promoter methodology. I’ve spoken at the same events as Reichheld many times over the last few years, and it’s always a pleasure to hear him speak. He has a nice down-home delivery; as if your uncle was talking to you about Net Promoter.
But I’ve noticed a distinct shift in his message over the last couple of years. He used to be a jubilant evangelist for the magic of running your company by using a single question to customers: “How likely is it that you would recommend our company to a friend or colleague?” The answer to that “ultimate question” categorizes every customer as a promoter, detractor, or passive. If you take the percentage of promoters and subtract the percentage of detractors, then you end up with a single, simple metric: Net Promoter Score (NPS).
Interestingly, his message is becoming somewhat more somber, and is now converging with the advice I’ve been giving to clients for several years: scores only matter if they help you improve your business. Here was one of Reichheld’s opening statements:
The score, NPS, maybe was a mistake. It’s not the score, it’s what you do with the score to make promoters.
Unfortunately, too many companies get obsessed about their Net Promoter Score and don’t focus enough on customer experience improvement plans. This approach ends up with a lot of frustration with the (lack of) results.
As always, Reichheld provided valuable insights. Here are some of his comments that I found particularly interesting:
- He said that by naming things and creating structure, you change how people think. (I absolutely agree; one of the principles of my research has been to create structure around amorphous concepts).
- He chastised the group a bit for “not doing the hard work” of putting together solid business cases that link an increase in promoters to better business results. He said that economic effects are extraordinary, but you can’t get the business on-board until they see the details of the financial impact. Firms need to get their finance organizations involved so they make a case that the CFO will buy into.
- The three elements of the business case he mentioned were: Word of mouth referrals, retention, and share of wallet.
- Reichheld put up Apple as a good example for using their net promoter approach (partly because he is working with them as a case study for his next book). At the beginning of each shift, Apple store managers have a list of all of the “10s” (the top score) along with the associated verbatims from the previous day’s net promoter surveys. They ask the employee who was rated a “10” to describe what he thinks he did that drove the score.
- He said that the Net Promoter question works in about 80% to 90% of the cases he’s seen. But he also said that the one (or two) questions you use do not have to be the likelihood to recommend question. You just need to use a question that categorizes customer into these that are passionate about your company and those that are not.
- One attendees asked a great question: “How do you explain the Home Bank results (going out of business) when they had such high Net Promoter scores?” Reichheld responded by saying that NPS is not a magic bullet and that Home Bank shouldn’t have sold bad mortgages.
I’m thrilled to see that Reichheld’s message is starting to align more with mine. It takes a lot of hard work and commitment for firms to make progress along their customer experience journeys. Not surprisingly, this is what I’ll be discussing in my speech later today.
If you made it this far in the post, then you will likely be interested in a research report that I’m just finishing up called “Voice Of The Customer, The Next Generation.” I should be able to blog about it in more detail next month.
The bottom line: Here’s the ultimate lesson: create more promoters.
About Bruce Temkin, CCXP
Customer Experience Matters® 
How refreshing that Mr. Reicheld, author of the single best book on loyalty marketing (The Loyalty Effect, not The Ultimate Question) is beginning to help all of his followers out there to better understand NPS and realize it’s not a silver bullet. The simple truth: customer loyalty, in the form of advocacy, is not easy to measure, understand or act on. It does take hard work, like customer marketing in general.
Hopefully the thoughts and your observations above will be widely read. Thanks for the post.
Hi Phil: Fred has written several books. One is, as you mention, “The Loyalty Effect: The Hidden Force Behind Growth, Profits, and Lasting Value,” which was published in 1998. You’re right in pointing that one out as the seminal book. He also wrote “The Ultimate Question: Driving Good Profits and True Growth” which was published in 2006. Thanks for the comment.
Bruce, I think it is important to make sure we advise clients on the appropriate goal. Too often I hear clients talk about NPS or similar metrics as a goal — when in fact I feel they need to be viewed as an outcome. The goal should be to continuously improve customer experiences. If we focus on that as the goal, we will continue to improve and the metrics (scores and business results) and the customer behaviour/attitude will follow.
Bill: I absolutely agree. The goal is to treat customers better so they become advocates for your business. NPS represents a possible way of measuring the success of that effort. Thanks for the comment.
Bruce,
It is interesting to hear that the creator of NPS has acknowledged the shortcomings of his core idea. It has ofetn been criticzed by others and defended by those who have used it successfully. The NPS is overly simple and depends on the initiative of the companies that use it in order to give it deeper meaning. This assumes that the organization has a process and methodology in place. I believe that any tool that is to be effective needs to be created with an ability to analyze the data and offer solutions and processes based on established best practices. The NPS only offers a shallow first step.
Jill: Thanks for joining the conversation. I agree with your points, except for the last one. I’m not sure that NPS is a shallow first step. While the obsession about a single metric does not necessarily drive the enterprisewide efforts for improving customer experience, it has done a good job of making a large number of executives care about the topic and it has given them a common language around customers: Promoters, Passives, and Detractors. This mobilization of senior executives is incredibly valuable for making the kinds of changes that we are all speaking about. So even though I am often helping companies sort out their NPS efforts, I am thrilled that they view this as a corporate priority.
Bruce,
I was at the Satmetrix conference too and LOVED Fred’s speech for all the reasons you mentioned.
Too many people are looking for an easy way out. Score whores (as I call them) that ask the question, brag about their score and ask it again “hoping” it will go up.
Well – hope is not a strategy.
NPS, IMHO, is the tool that helps lift the operational-fog-of-war that exists in most companies today. Executives are making all kinds of decisions at the top, and have no idea if they matter to the customer.
The score is not important – what customers SAY is important, but only if you’re willing to listen.
Great post!
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Bruce,
Thanks for clarifying the “state of the art” of NPS. In my work with small businesses, I find that they (1) have no concept of “Customer Experience”, let alone managing it; (2) have no “senior staff” who gets excited about measuring Customer comments, and (3) would not know how to begin a sophisticated measurement / tracking methodology. Thus, I find that the simplicity of the single (or two) question(s) helps them get started along the road of discovering Customers (Call it “Stage 0” on your Customer Experience Journey…). Though NPS may not be a “perfect” methodology, my experience shows that “something is better than nothing” and NPS provides a solid starting platform the small business owner can understand and rally around. Once they get hooked, then we can begin the deeper journey your model describes. Thanks.
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can you share any surveys or experiences in linkage between customer nps and employee nps? not only from the numbers but how you view and act on the common themes in comments made by both customers and employees. We’ve done our first customer nps and I find the comments holding the insights and depth into what needs to be worked on, the score is just frosting.
Marv: I am absolutely convinced that there’s a correlation between customer experience (as measured by NPS or other type of measure) and employee engagement (as measured by an employee NPS or other measurement) in the aggregate. That’s why one of my 6 laws of customer experience is: Unengaged employees don’t create engaged customers. However, it is still possible for companies to treat their employees really well and sell crappy products; which would mean a high employee NPS and a low customer NPS.
Having said that, I have not done the research that quantitatively links these two measures (although I’ve been considerign it for a while). To some degree, this was a key finding in the book The Service Profit Chain and is evident in the examples described in Fred Reichheld’s books: The Loyalty Effect and The Ultimate Question.