So we went back to the drawing board. What we needed was a foolproof test—a practical metric for relationship loyalty that would illuminate the difference between good profits and bad. We had to find a metric that would permit individual accountability. We knew that the fleeting attitudes expressed in satisfaction surveys couldn’t define loyalty; only actual behaviors can gauge loyalty and can fuel growth. So we concluded that behaviors must be the real building blocks. We needed a metric based on what customers would actually do.
After considerable research and experimentation, some of which you’ll read about in the following chapters, we found one such metric. We discovered the one question you can ask your customers that usually links so closely to their behaviors that it is a practical surrogate for what they will do. By asking that question thoughtfully and systematically, and by linking results to employee rewards, you can tell the difference between good profits and bad. You can manage for customer loyalty and the growth it produces just as rigorously as you now manage for profits.
Customer responses to this question yield a simple, straightforward measurement. This easy-to-collect metric can make your employees accountable for treating customers right. It’s one number that lets you determine how much progress you are making in your quest to become customer-centric. We called this question the ultimate question because it helps you see whether you have succeeded in your mission to enrich the lives you touch. Upon reflection, though, perhaps we should have called it the penultimate question since it always needs to be followed up by one additional question: why?
Asking the Ultimate Question
What is the question that can tell good profits from bad? Simplicity itself: how likely is it that you would recommend this company, or this product or service, to a friend or colleague? The metric that it produces is the Net Promoter score.
Net Promoter score (NPS) is based on the fundamental observation that every company’s customers cluster into three groups, each with its own distinct patterns of behavior. Promoters, as we have seen, are loyal enthusiasts who keep buying from a company and urge their friends to do the same. Passives are satisfied but unenthusiastic customers who can be easily wooed by the competition. And detractors are unhappy customers trapped in a bad relationship. Customers can be categorized according to their answer to the question. Those who answer nine or ten on a zero-to-ten scale, for instance, are promoters, and so on down the line.
A “growth engine” running at perfect efficiency would convert 100 percent of a company’s customers into promoters. The worst possible engine would convert 100 percent into detractors. The best way to gauge the efficiency of the growth engine is to take the percentage of customers who are promoters and subtract the percentage who are detractors. That’s what NPS is—promoters minus detractors.
In concept, it’s just that simple. All the complexity arises from learning how to ask the question in a manner that provides reliable, timely, and actionable data—and, of course, from learning why the customer feels this way and then learning how to take actions that create more promoters, produce fewer detractors, and thus improve your score.
How do companies stack up on this measurement? The range of scores varies by industry, as shown in exhibit 1-1. But the leaders in each industry demonstrate some very impressive levels of growth-engine efficiency. For example, Net Promoter stars such as Apple, Amazon.com, Costco, and USAA operate at NPS efficiency ratings from 60 to more than 80 percent. So even they have some room for improvement. But the average firm sputters along at an NPS efficiency of only 10 to 20 percent. In other words, promoters barely outnumber detractors. Many firms—and some entire industries—have negative Net Promoter scores, which means that they are creating more detractors than promoters day in and day out. These abysmal scores help explain why so many companies can’t deliver profitable, sustainable growth, no matter how aggressively they spend to acquire new business.
EXHIBIT 1-1
Net Promoter score ranges and leaders by industry (U.S.)
Source: Satmetrix 2011 Net Promoter Benchmark Study of U.S. Consumers; Bain analysis.
Our research over a ten-year period confirms that, in most industries, companies with the highest ratio of promoters to detractors in their sector typically enjoy both strong profits and healthy growth. This might seem counterintuitive. After all, the high-loyalty firms tend to spend much less on marketing and new-customer acquisition than do their competitors. They also focus intensely on serving existing customers and are highly selective in pursuing new customers, which you might suspect would limit these firms’ growth. But the data doesn’t lie: NPS leaders tend to grow at more than twice the rate of their competitors. And do you remember the 9 percent of companies that had registered sustained, profitable growth over a ten-year period? The Net Promoter scores of those companies, on average, were 2.3 times the scores of the other firms in their respective industries.5
Most business leaders desperately need to become more customer-centric in order to grow. They need it to boost their stock price. They need it to attract and motivate talent. Whatever language they may use, they probably know that creating more customer promoters is vital. But without a simple, practical way to assign accountability and measure progress, they can’t align their organizations around this goal. Indeed, most don’t realize how deeply addicted to bad profits they have become. Inflated customer-satisfaction scores have lulled them into complacency—yet our research shows that for the average firm, more than two-thirds of customers are passives (bored) or detractors (angry). Given this sad fact, most attempts to buy growth simply burn up shareholder funds. The efforts amount to throwing money into advertising and sales only to dissipate the impact through the poisonous emissions of unhappy customers.
Bad profits have undermined true growth and have given business a bad name. But it’s not too late to change. Some companies have already begun.
Scott Cook was worried. His financial-software company, Intuit, was on a slippery slope, and he wasn’t sure what to do about it.
Granted, his problems might not have looked overwhelming to an outsider. Intuit had grown like gangbusters ever since its birth in 1983. Its three major products—Quicken, QuickBooks, and TurboTax—dominated their markets. The company had gone public in 1993, and by the end of the decade was racking up sizable profits. Intuit had also been lauded by the business press as an icon of customer service, and Cook—a mild-mannered, bespectacled Harvard MBA who had done a stint at Procter & Gamble before cofounding the company—had a gut-level grasp of the importance of customer promoters. “We have hundreds of thousands of salespeople,” he told Inc. magazine as early as 1991. “They’re our customers.” Intuit’s mission?