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The One Number You Need to Grow… Revisited

Posted By Alec Green On October 1, 2009 @ 3:50 pm In Consumer Experience,Featured,Social Media | 3 Comments

I was eating dinner with my family last night when we were interrupted by the ring of our landline telephone. I know what you’re thinking — “this guy still has a landline?” I presumed it was yet another telemarketer with yet another offer I simply couldn’t refuse.  But my children were being particularly unruly, so I seized the opportunity to grab the phone and beeline it to the furthest corner of my house.

The friendly voice on the other end of the line said, “Hello, Mr. Green?”  “Yep,” I replied, eager to feign interest in the latest home re-finance or cable television offer.  “This is Jill from Western Exterminator [1].  I wanted to ask you one question about your experience with our service.”

I paused for a moment.  Western Exterminator?  My home ‘pest control’ service?  I wasn’t sure why they were calling me during dinner, but…“Only one question?  Go ahead.”

“Mr. Green, on a scale of 1 to 10, 10 being highest, how likely is it that you would recommend Western Exterminator to a friend or colleague?

I thought for a second, and shouted out, “10!”  “Thank you, Mr. Green,” she replied.  “Have a nice evening.”

I chuckled as I hung up the phone, wondering why I just gave the highest rating possible to anything having to do with pest control.  I returned to the dining room, quickly diverted my attention away from my children who were now engaged in a WWF-style wrestling match on the floor, and thought more about Jill’s question.  The only time I ever think about my “relationship” with Western Exterminator is when I pay the bill every month.   I know they come to the house on schedule, Tony (our exterminator) has good hygiene and doesn’t say much, and I haven’t seen any rodents scurrying across the kitchen floor. So all in all, I’d say they’re doing a good job.  And if my friends or neighbors were looking for a pest control service, I would recommend them.

That Harvard Business Review Article

 

But I had to laugh because her question, her one question, reminded me of one of the more interesting marketing studies I’ve come across – “The One Number You Need to Grow [2]”.  The article was written by Frederick Reichheld, a Bain & Company consultant, and published in the Harvard Business Review in 2003.

At the time, Reichheld was thoroughly unimpressed with the state of customer loyalty measurement.  He found that companies were investing in complex customer satisfaction and market research surveys based on the theory that increasing customer loyalty and satisfaction was the key to a company’s growth.  Intuitively, this makes a lot of sense.  We’ve all heard the adage, “it’s far cheaper to retain a customer than acquire a new one.”  And maximizing revenue from the established customer base is a fundamental part of any marketing plan.

Reichheld decided to test this theory by surveying over 4,000 consumers and tracking their purchase patterns and referrals.  He analyzed their responses and expected to find a correlation between a company’s profitability and their customer’s reported satisfaction and number of purchases.

What he found was that the one question that correlated best with company profitability had nothing do with how satisfied the consumers were, or even how “loyal” they were to that company.  For businesses in most industries, Reichheld found that the most important survey question was:

“How likely is it that you would recommend our company to a friend or colleague?”

Back in 2003, before all the talk of social media, word-of-mouth marketing, and managing buzz, Reicheld fundamentally changed the way marketers thought about their customer acquisition and measured the effectiveness of their efforts.  His findings forced us to think less about increasing customer satisfaction, and more about developing promoters — those willing to risk their own reputation to recommend a product to their friends.

According to Reichheld’s research, the companies that consistently exceeded profitability targets all had customers that were exceedingly passionate. Customers that weren’t just loyal enough to provide repeat business.  But passionate enough  to recommend or promote the company’s brands to their friends, family, and colleagues.  This was the true sign of customer loyalty.

More importantly, it was the best indicator of which brands were poised for exponential growth. Reichheld’s research confirmed that those companies seeking best-in-class performance couldn’t rely on repeat business from their existing customer base nor their direct sales and marketing strategies.   Any business can be positioned to grow at a nice comfortable rate with loyal customers, a good salesforce, and a solid marketing plan.  But for any company to achieve hyper-growth, they have to cultivate a base of passionate promoters.

For the field of marketing measurement, this meant you could replace all the fancy, complex, and expensive customer satisfaction surveys with “the ultimate question.”  The very question Western Exterminator interrupted my dinner to ask.

Net Promoter Score

 

Reichheld developed a very simple scoring system to help marketers measure and manage their performance on the ultimate question.  Include a 1 to 10 scale, and ask respondents to rate the likelihood they would recommend your company.  Then take the responses and assign each customer to one of three segments:

  • “promoters” (those giving a 9-10 rating),
  • “passively satisfied” (7-8 rating)
  • “detractors” (0-6 rating)

 

Now brace yourself, we’re going to get into some pretty sophisticated analytics.

Subtract the percentage of detractors from the percentage of promoters, and calculate your “Net-Promoter Score” (NPS). According to Reichheld, those companies that have world-class customer loyalty and have a high potential for exponential profitability typically receive net-promoter scores greater than 75%.

Forget the 40-question customer satisfaction surveys, sophisticated statistical models, and focus groups with customers more interested in $50 and some free pizza.  Want to know if your company is on the fast track to success?  Figure out if you have significantly more customers willing to recommend you than those who are either indifferent or dissatisfied.

What an elegantly simple concept.  A one-question survey is cheap, easy to tabulate, and likely to get a better response rate.  And the NPS is easy to compare across offices, stores, or regions and track over time.  Although the study has received its share of criticism and doubters [3] over the years, the article remains a landmark study in marketing strategy and the NPS continues to be included in manager’s evaluations at such companies as GE Healthcare, Intuit, American Express, and Enterprise Rent-A-Car.

Should NPS be used as a critical performance metric for managers?   Or does it over-simplify a complex problem and provide little insight into actual consumer behavior.  Leave a comment and let us know your thoughts on the “ultimate question.”  Or just share your favorite I-had-my-dinner-interrupted-by-a-telemarketer moment.


Article printed from The Search Agents: http://www.thesearchagents.com

URL to article: http://www.thesearchagents.com/2009/10/the-one-number-you-need-to-grow%e2%80%a6-revisited/

URLs in this post:

[1] Western Exterminator: http://www.west-ext.com/

[2] The One Number You Need to Grow: http://harvardbusiness.org/product/one-number-you-need-to-grow/an/R0312C-PDF-ENG

[3] criticism and doubters: http://www.customersatisfactionstrategy.com/netpromoterscore.html

[4] From Business Intelligence to Bathtub Insights: http://www.thesearchagents.com/2010/12/from-business-intelligence-to-bathtub-insights/

[5] Search Marketing for Subscription Businesses: http://www.thesearchagents.com/2013/05/search-marketing-for-subscription-businesses/

[6] Get Real with Corporate Blogging: http://www.thesearchagents.com/2009/07/get-real-with-corporate-blogging/

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