Strategic Discipline Blog

How do you measure customer loyalty? How important is customer loyalty? Fred Reichheld suggests that most companies are doing customer loyalty all wrong, and yet it is the one thing that when done right secures real growth for your business. In Fred’s presentation he discussed his books, The Ultimate Question, Loyalty Rules and The Loyalty Effect, mostly highlighting recent information in the latest offering, The Ultimate Question.

How much does loyalty affect your business? Fred’s research indicates Loyalty Leaders grow by an average of 2.6 times their competitors. The trick is here that most executives believe they are already delivering superior customer service [80% of executives when asked] while in reality just 8% of companies are executing at a superior level. Fred has developed a formula that measures customer loyalty that he calls the Net Promoter Score. You can visit his website at www.netpromoter.com to learn more. It is a quantifiable way to measure customer loyalty that major companies like General Electric are raving about. Dan Henson, CMO for GE says, “In the almost 20 years that I have worked at GE, NPS [Net Promoter Score] is the most powerful tool we have ever deployed. The reason is that it is so actionable.”

So what’s the big deal? Four loyalty behaviors drive growth. Loyal customers:

1.     repurchase,

2.     buy additional lines of your products or services,

3.     provide referrals and

4.     provide constructive feedback.

The last may be more critical then you might imagine. Where do most good ideas come from? If you’re listening, they can come from your customers. Customers and employees are the greatest sources of innovation, if only we pay attention. In fact Fred noted that employee loyalty is a close second to customer loyalty in ensuring company growth.

Fred discussed a number of great examples for customer loyalty including EBay, Costco, Southwest Airlines, Four Seasons Hotels and Resorts, Apple, American Express, Harley Davidson and PetsMart. One stood out as a shinning example for me.

Who is currently the largest rent a car company in the world? If you said Hertz that’s wrong, and it’s not Avis either. No, instead it’s Enterprise. They’ve built their business on customer loyalty, so much so that employees and managers cannot get promoted unless their location is in the top half of company rankings for customer loyalty. They ask a simple two question survey intended to discover whether the customer would recommend the business to a friend.   The answer to the first question leads to another question on whether they would come back.  If the customer had a problem they ask a third question to find out if they would be willing to speak to a branch manager to resolve or find out what happened. It’s interesting to note that customers who are often the most loyal were ones who felt they were mistreated at some point and some how were delighted with the resolution they received after they complained. How many of us are ignoring this opportunity?

Enterprise has a scale of 1-5 for scoring customer loyalty while Fred recommends using a 0 -10 scale.   Customers are asked whether they would recommend you to a friend or neighbor on a scale where 0 is extremely unlikely and 10 is extremely likely.  Promoters are only those in the range of 9 or 10. People scoring you as a 7 or 8 are neutral while those scoring you in the range of 0-6 are detractors. If you go to the netpromoter.net website you can see a list of brand names and their promoter and detractor scores.  Southwest Airlines has a 60% promoter score, while Enterprise is at 53%. Saturn has a 74% promoter score. I won’t give you some of the detractor scores, but they probably wouldn’t surprise you.

What’s this all mean? You want customers to score you as a 9 or 10 obviously because? They’ll repurchase, buy additional products and services, make referrals and give you suggestions on how you can improve. NPS is about the heart rather than the head. We spend a lot of time focusing on the best features, service and prices when what our customers really want is for us to know, value, listen to them and simply share the same values. 

How well are you doing in this area? I know we have a long way to improve our business, how about you?