CHICAGO–The man who created the Net Promoter Score employed by numerous credit unions and thousands of businesses around the world says it remains the absolute best way to build a successful company or organization—or rebuild one—even if it’s often counter to what is taught in business schools, is misunderstood, malpracticed and even abused.
In fact, said Fred Reichheld, in many instances the way NPS is deployed is “just crap.” But when used as intended, what NPS is really about separates the successes from failures, he said, adding he believes NPS supports the innate advantages credit unions have.
Reichheld, founder of Bain & Company’s Loyalty Practice, created the Net Promoter Score (NPS) in 2003 and made it available for free. The concept that the best way to measure how a company is doing is to ask one simple question—“On a scale of 0 to 10, how likely are you to recommend our business to a friend or colleague?”--spread quickly and has become the standard for many organizations that have been more successful than those that don’t use it, according to Reichheld.
Speaking to Co-op Solutions’ THINK Conference Reichheld said the entire idea for NPS rests on a philosophy as old as the Bible: the Golden Rule.
“I was convinced the right way to run a business was to treat people the way you would want a loved one treated,” said Reichheld. “That was a minority position when I was in school.”
Indeed, Reichheld said what Net Promoter Score really translates into—and the term he prefers--is “lives enriched.”
“'How likely would you recommend us to a friend?’ was my measure for this golden rule of treating people right,” he said. “It was one question that best predicted loyalty behaviors and is the best predictor of future behaviors.”
Reichheld, who has an economics background said he has long been intrigued by the idea of “linking values."
“Promoters who are the nines and 10s feel that you have enriched their lives and they tell that to loved ones,” he said. “I think it’s worth measuring, rigorously, like a science. Recommending to a friend is an act of love. You want to share that with someone. That is the ultimate in success, because it not only signals that you have enriched their lives, you have turned them into your marketing and sales force.”
One CEO’s Philosophy
Scott Cook, CEO of Intuit, who worked with Reichheld for a time at Bain, shared a belief that the goal of any company should be to make customers’ lives better.
“We don’t deserve any profit until we have made our customers happy,” Reichheld quoted Cook as saying. “I think too many business leaders believe their job is to make their investors rich. That is just crap. Intuit shares its NPS results vs. competitors on Investor Day. Each of its businesses sets an NPS target vs competitors…”
Another example, according to Reichheld: Apple uses NPS to not just fix problems, but so employees can “feel the love from their customers.” Apple shares with its management team when employees get a 10.
“NPS exists at Apple to help their teams feel the inspiration they deserve to feel,” Reichheld stated.
‘Not True’
Reichheld shared with the THINK audience a Fortune.com report that said “skeptics” of NPS had largely been vanished and that the measure had become more than a metric, it had become a “religion.”
“But I knew this wasn’t true,” he said, adding that too many NPS-using companies have flouted the Golden Rule, have alienated customers and mistreated employees. As examples, he pointed to hotel resort fees, big mark-ups on gasoline near airports, account closing fees and more.
Just as bad, he said, some companies have managed to make a “Game” of getting high scores, such as Uber in which drivers say, “I’ll give you a 5 if you give me a 5.
“It’s ridiculous. It’s courtesy 5s. Drivers with a 4.7 or below are kicked off Uber. They are fired. There is such rating inflation. It means the whole system isn’t telling you anything. I had a 4.89-rated driver who was horrible.”
Reichheld showed his audience a sign at a hotel that urged guests to rate it as a “10,” and in cases where the guest was inclined not to do so, the guest was urged to come to the front desk and “we will make it worthwhile.”
“Lots of companies make employees grovel for 10s. It sort of pisses me off,” said Reichheld.
Doing it Right
But then there are companies that do it right, according to Reichheld, such as Costco. The CEO of the warehouse club told Reichheld, “If you put investors first you are going to be out of business before you know it. We put customers first. That is the goal here. Enriching the lives of customers is the purpose of a great organization.”
“It turns out that this is the philosophy that works,” Reichheld said. “When you understand net promoter and use it effectively, good things happen.”
Reichheld, who has written five books examining various aspects of customer loyalty, said his most recent book came after fighting cancer for five years and having time to think about “essentially how did this movement get so far off track and what do we need to get it back on track. NPS has shined a light on how you think about a great company.”
Not So Good or Great
“I have an important question for you,” he continued. “Who are your role models in business? I think greatness has been defined by the Wall Street Journal and other media that talk about whose financials are hot over the past three or six months.”
But that’s not the right measure, according to Reichheld.
As an example of that challenge to conventional wisdom, Reichheld compared the companies that have the highest net promoter scores with those featured in Jim Collins’ book, “Good to Great,” which has sold five-million copies and which he called a “great book.”
What the data clearly show, according to Reichheld, is the companies that are featured in his book as having high NPS have outperformed those featured in Good to Great, several of which have gone bankrupt, while a handful of others have paid “billions in fines” for abusing customers and employees, he said.
“How could these be thought of as great companies that are worthy of five-million pairs of eyes?” he asked. “The answer is they are not. This was a mistake.”
He called many of the companies in Good to Great “out and out losers.”
Reichheld said he has personally invested in the companies that are NPS leaders and they have outperformed the stock market and he has done “very well” as a result.
One company that is also doing very well and that uses NPS as the basis for its operational philosophy is Caliber Collision, which he said has “just crushed it” as its revenues soar to more than $5 billion. He quoted the company’s CEO as making the statement, below:
Similarly, Reichheld quoted Andy Taylor, CEO of Enterprise Rent-A-Car, the largest car rental company in the world, as saying the company seeks to treats its customers in ways that make them “want to come back for more and bring their friends.”
Thinking in those terms can be difficult for those leaders who are especially focused on the balance sheet numbers, according to Reichheld.
“Think about it. Generally accepted accounting principles don’t let you know how many customers you have, how many are increasing or shrinking their balances, whether they were referring their friends. It’s all invisible. Those just happen to be the most important things in business.”
But not every company gets it right, Reichheld said, adding the most common pitfalls in using NPS are:
- Focus on the score
- Unreliable score
- Flawed links to incentives
- Financial mindset
- No employee NPS
- Missing out on digital transformation
Two Types of Capitalism
Reichheld said he has also come to realize that people are seeing the world in different ways.
“I call it financial capitalism. That’s how 98% of the world sees things. They have a different understanding of purpose, of how you measure progress, of how you build a great culture, or how you generate growth. Think about this: do you think growth comes from great sales and marketing? Or do you think like a customer capitalist, where the only way to grow is to turn your customers into advocates where people are so excited about how you have enriched their life they have to share it with a friend.”
Avoiding the ‘Tax’
NPS leaders, said Reichheld, have the lowest sales and marketing expense as a percentage of revenue of any companies “because they don’t pay the tax—the tax of not being special. The tax is your sales and marketing expense.”
Acting in customers/members’ best interests leaves employees only feeling more inspired, according to Reichheld.
“When you feel like you are living the right life you have more energy to innovate and do the right thing. That set of loops is what is driving prosperity and growth, and we don’t measure it through our accounting. We just don’t get it. In this digitally connected world, where your customer can touch hundreds of thousands of others, your reputation isn’t built through advertising, it’s built by customers talking to customers. The only way to grow economically is to inspire your teams to innovate solutions for customers that makes them want to share with a friend.”
Reichheld cited several companies that have turned around their reputations and seen significant growth by going all-in on NPS, such as T-Mobile and Discover (which is rated above American Express on service). Discover’s senior management also spends two hours each month listening in on cardholder calls, he added.
From Navy FCU to Warby Parker
Using a slide to provide NPS data for the credit card space that showed Navy FCU is the highest ranked, or is among the highest ranked, in NPS, Reichheld said, “This is why I think you guys in the credit union movement should be excited. You have the right purpose, the right heart, and there are people who are structured the way you are structured who are demonstrating they can deliver the best NPS. I think until companies start using this kind of data to drive their priorities and decisions, in conjunction with financials but not driven by financials, you’re not going to get the right behaviors.”
As another example, he said 90% of Warby Parker’s customers come via referral.
“What you do in digital or physical has to be Golden Rule and make people feel like they have had a remarkable experience. This is such an attractive philosophy. Why is it so hard? Because we have been trained to think the way accountants think about business. It’s a long paradigm shift.”
Good News for CUs
Finally, Reichheld offered some good news for credit unions.
“Never forget as credit unions that we asked companies around the world, ‘What is the primary purpose of your business?’ Only 10% said it is to enrich the lives of their customers. Ninety-percent of businesses on earth believe their primary purpose is something else. This is the advantage you have.”