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here The Ultimate Question
Book NotesHow to Measure your Net Promoter ScoreAsking the ultimate question allows companies to track promoters and detractors, producing a clear measure of an organization’s performance through its customers’ eyes, its Net Promoter® Score. Bain analysis shows that sustained value creators—companies that achieve long-term profitable growth—have Net Promoter Scores (NPS) two times higher than the average company. And NPS leaders outgrow their competitors in most industries—by an average of 2.5 times.
NPS is based on the fundamental perspective that every company’s customers can be divided into three categories. "Promoters" 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 based on their answer to the ultimate question.
The best way to gauge the efficiency of a company’s growth engine is to take the percentage of customers who are promoters (P) and subtract the percentage who are detractors (D). This equation is how we calculate a Net Promoter Score for a company:
P – D = NPS While easy to grasp, NPS metric represents a radical change in the way companies manage customer relationships and organize for growth. Rather than relying on notoriously ineffective customer satisfaction surveys, companies can use NPS to measure customer relationships as rigorously as they now measure profits. What’s more, NPS finally enables CEOs to hold employees accountable for treating customers right. It clarifies the link between the quality of a company’s customer relationships and its growth prospects.
How do companies stack up on this measurement? The average firm sputters along at an NPS efficiency of only 5 - 10%. 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 Net Promoter Scores explain why so many companies can’t deliver profitable, sustainable growth, no matter how aggressively they spend to acquire new business. Companies with the most efficient growth engines—companies such as Amazon, HomeBanc, eBay, Harley-Davidson, Costco, Vanguard, and Dell—operate at NPS efficiency ratings of 50 - 80%. So even they have room for improvement.
In concept, it's just that simple. But obviously, a lot of hard work is needed to both ask the question in a manner that provides reliable, timely, and actionable data—and, of course, to learn how to improve your Net Promoter Score.
Good Profits, True GrowthToo many companies are addicted to bad profits—profits that come at customers’ expense and drain the value out of customer relationships. Whenever a customer feels misled, mistreated, ignored, or coerced, then profits from that customer are bad. Bad profits come from unfair or misleading pricing. Bad profits arise when companies save money by delivering a lousy customer experience. Bad profits are about extracting value from customers, not creating value.
Bad profits often boost short-term earnings; in the long run, they burn out employees and alienate customers. They also undermine growth by creating legions of detractors—customers who sully the firm’s reputation and switch to competitors at the earliest opportunity. Bad profits choke off a company’s best opportunities for true growth, the kind of growth that is both profitable and sustainable.
But it doesn’t have to be this way. Some companies grow because they have learned to tell the difference between bad profits and good profits—and to focus their efforts on the good kind.
If bad profits are earned at the expense of customers, good profits are earned with customers’ enthusiastic cooperation. A company earns good profits when it so delights its customers that they willingly come back for more—and not only that, they tell their friends and colleagues to do business with the company. The right goal for a company that wants to break an addiction to bad profits is to build relationships of such high quality that those relationships create promoters, generate good profits, and fuel growth.
Just as detractors have a bullhorn for spreading their negative word-of-mouth, promoters have one for spreading their positive word-of-mouth. Promoters bring in new people. They talk up a company and burnish its reputation. They extend the company’s salesforce at no cost. They make it possible for a company to earn good profits, and thereby to create growth that is both profitable and sustainable. Again, that’s what we mean by true growth.
What is the question that can tell good profits from bad? Simplicity itself: How likely is it that you would recommend this company to a friend or colleague?
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 the one number you need to grow. That’s why we call the question that produces it the ultimate question: it’s the question that will determine the future of your business.
Asking the ultimate question allows companies to track promoters and detractors and produces a clear measure of an organization’s performance in its customers’ eyes. Bain analysis shows that, on average, increasing this Net Promoter Score by a dozen points versus competitors can double a company’s growth rate.
By asking that question systematically, empowering front-line employees to make changes in response to what they hear, 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.
NPS stars
NPS leaders outgrow their competitors in most industries—by an average of 2.5 times. Below are the scores of some Net Promoter Stars:
Company NPS 1. USAA 82%
2. Homebanc* 81%
3. Harley-Davidson 81%
4. Costco 79%
5. Chick-fil-A* 78%
6. Amazon 73%
7. eBay 71%
8. Vanguard 70%
9. SAS 66%
10. Apple 66%
11. Cisco 57%
12. Federal Express 56%
13. Southwest Airlines 51%
14. American Express 50%
15. Commerce Bank 50%
16. Dell 50%
17. Adobe 48%
18. Electronic Arts 48%
*All NPS statistics are based on Bain or Satmetrix surveys with the exceptions of Chick-fil-A and Homebanc where we used data provided by those firms that was gathered in a reasonable (but not perfectly equivalent) fashion.
10 reasons Why Surveys FailYou cannot build an effective customer-feedback system on the shaky foundation of current satisfaction survey methods and practices. In the best tradition of late-night comedy, here are the top ten reasons why satisfaction surveys are a joke.
10. Too many surveys, too many questions
9. The wrong customers respond
8. Employees don't know how to take corrective action
7. Too many surveys are marketing campaigns in disguise
6. Survey scores don't link to economics
5. Plain-vanilla solutions can’t meet companies' unique needs
4. There are no generally accepted standards
3. Surveys confuse transactions with relationships
2. Satisfaction surveys dissatisfy customers
1. Gaming and manipulation wreck their credibility
Rules of MeasurementOnce convinced of the need to measure and manage customer feedback as rigorously as one measures and manages profits, the next question is how to develop an effective measurement process while avoiding the pitfalls of satisfaction surveys. It isn’t easy! Net Promoter Scores may be simple in concept, but gathering good data is hard work. It requires at least as much effort and resources as many companies currently spend (or squander) on satisfaction surveys.
Companies should follow these seven principles when calculating NPS:
1. Ask the Ultimate Question and very little else
2. Choose a feedback scale that works and stick to it
3. Aim for high response rates from the right customers
4. Report relationship data as frequently as financial data
5. Use granular data to make employees more accountable
6. Audit to ensure accuracy and freedom from bias
7. Validate that scores link to behaviors
Customer GridMost large companies are adept at dividing customers into segments and designing value propositions for each one. But those that deliver a truly outstanding customer experience go about the design process in a unique fashion. To segment their customers, they begin by looking both at the customers’ relative profitability and at where they stand on the promoter-detractor scale. Then they tailor their propositions strategically around this double categorization.
To see how this works, imagine that you have determined which of your customers are promoters, which are passives, and which are detractors. Presumably you also know or can estimate how profitable each of your customers or customer segments are. With this information in hand you can create a grid like the one shown above. Understanding the grid is the key to designing winning propositions for the customers you most want to reach.
The vertical axis on this grid indicates each customer’s profitability. The higher they are on the axis, the more profitable they are. The horizontal line separates high-profit from low-profit customers. The best threshold for this line is the point where returns match your company’s cost of capital. That way, you know that customers above the line are actually generating shareholder value.
The horizontal axis shows customers’ status regarding the ultimate question . Detractors are to the left, passives are in the middle, and promoters are on the right. The vertical lines separate the three categories. Maybe you also want to add a dotted vertical line at the average NPS for your industry, or separate lines for each key competitor.
Finally, draw circles in each sector indicating your customers or customer segments. The size of the circles should be proportional to the revenues each group brings in. Now you can see at a glance the real health of your company’s growth engine, and you can draw some quick conclusions:
• If most of the circles fill the left-hand side of the grid—and particularly if they’re up there in sector A—the diagnosis is clear. You are addicted to bad profits. You have been milking your customers, and they will leave at the earliest opportunity. As you can see, the grid applies the conceptual notion of bad profits to specific customer accounts. Any profits earned from customers who show up in sectors A or F are bad profits and need attention.
• If most of the circles are in the right-hand side—and particularly if they’re in the upper right (sector C)—the preponderance of your profits are good profits and you’re in great shape . Top firms typically have from 55 to 85 percent of their customers in sectors C or D.
• If most are in the middle—sectors B and E—well, join the club. That’s the standard pattern. Your customers don’t really love you, but they don’t hate you either. They’ll stick around until something better comes along. Meanwhile, you’re making at least some money.
In general, you want to use the grid strategically. It helps you determine which customer segments to focus on, where to allocate resources, and how to design appropriate propositions for each one. There are three priorities for pushing more customers toward the top right.
Priority 1: Invest in your core
Take a good look at those customers up in sector C, the upper right. They love doing business with you. They generate high margins. By definition, these are the people or businesses that constitute your company’s core clientele. They may even be more profitable than you think they are: remember how much additional benefit promoters bring you through referrals and positive word-of-mouth. These are the customers that should drive your strategic priorities.
Priority 2: Reduce bad profits
If sector C customers are your top long-term priority, sector A should be next. In fact, sometimes, the actions required here may be quite urgent. Customers in this upper-left sector don’t like doing business with you and are spreading negative word of mouth. They may defect at the first opportunity. Yet because they are profitable, you can afford to invest in solving their problems, hopefully even converting them into promoters.
Priority 3: Find additional promoters
Finally, you and your team must figure out how you can economically increase the population of customers in sector C. Realistically, the two choices are to move the promoters in sector D up by increasing their profitability, or moving the passives from sector B (who are already profitable) into the promoter category.
Case Study: Enterprise Rent a CarMeasuring what matters
In the early 1990s, Enterprise Rent-A-Car CEO Andy Taylor was worried, partly because he himself had been hearing more complaints than usual from customers. So he assigned a team of senior managers to work on developing a customer satisfaction survey. Ultimately, the question that would turn out to be central to the whole endeavor was: "Overall, how satisfied were you with your recent car rental from Enterprise?" The five boxes a customer could check ran from "completely satisfied" to "completely dissatisfied." Taylor and his team decided that the company would calculate the percentages in each category for this question. They would call the scores the “Enterprise Service Quality index,” or ESQi.
ESQi is based only on top-box results—the percentage of promoters—rather than net promoters, or promoters minus detractors. Making ESQi into a useful, credible tool turned out to be a long, involved, and contentious process but, Andy Taylor credits ESQi with being the single biggest reason that Enterprise has been able to maintain superior growth in its core business despite its enormous scale.
Taking ESQi seriously
• Step one
Enterprise decided to link ESQi scores to corporate recognition. At Enterprise, the granddaddy of recognition programs is the prestigious President’s Award, a coveted prize given to people who make truly exceptional contributions to the company.
• Step two
The company redesigned its monthly operating reports to highlight ESQi, listing every branch’s score right alongside the net profit numbers. The reports ranked every branch, region, and group manager in the company, so everyone immediately knew how he or she stacked up against everyone else. Moreover, the company announced that no one with a below-average ESQi score was eligible for promotion.
• Step three
Communication and morecommunication. “ESQi became a topic of every speech I gave internally,” says Taylor. “Customer satisfaction went on the agenda of every management and operations review meeting at all levels. When I was present, I would go right to the bottom of the ESQi rankings and pointedly ask the managers responsible to explain what was going on and what they were doing about it.
How ESQi drives improvement
ESQi itself, of course, is only a measurement; the real challenge is to keep on improving the scores. Enterprise’s improvement efforts fall into several categories:
Training.They developed a training program around the concept of the service cycle. Enterprise employees interact with customers at a whole series of points during a rental, from the initial call on through pickup, arrival at the branch, signing the contract, and so on. The training program sets standards for each point in the cycle, and includes tips on how employees can ensure a pleasant experience for the customer at every step.
On-the-spot fixes.Managers discourage the use of customer survey language in their branches. Branch employees won’t just ask a customer if they were completely satisfied; they’ll probe for what they can do to make the rental experience better, and then take immediate action. The goal is to make sure that customers come back repeatedly and tell their friends. But they also watch costs, because there is little benefit to any Enterprise manager who runs a branch that gets a high ESQi score but isn’t also growing profitably.
Experimentation.Individuals and teams try new approaches, new tactics, and new strategies, then watch to see whether these changes improve outcomes. In effect, Enterprise’s 6,000 branches and 12 monthly feedback scores allow 72,000 experiments to drive learning every year. Experimentation is particularly important when it comes to generating more promoters. Detractors presumably want their problems solved, but what do promoters want? As it turns out, generating promoters requires initiatives such as offering a free bottle of chilled water on the shuttle bus.This idea was pioneered by a driver who experimented with putting a small cooler in his bus; his branch’s growing ESQi score alerted others to the success of the innovation. In fact, most of Enterprise’s enhanced services, including picking you up at your home, office or repair shop, bubbled up from individual branch successes.
Closing the loop even faster.If you rent from Enterprise, you’ll experience an interesting phenomenon: when you drop off your car at the end of the rental, you will probably be asked two or three questions by the crew member who processes your return. How was our service? What could we have done to make your experience better? If there was a problem, how can we make it up to you? The crew member will make every effort to correct any complaints on the spot. In most branches, this kind of direct feedback is tabulated at the end of each day; it provides the agenda for the next morning’s pre-opening team huddle.
Learning from the best.Enterprise has found that the best ideas rarely come down from headquarters executives; they are developed, field-tested, and revised out in the branches.The trick for the company is to create forums in which the really good ideas can be identified and shared. This is why Enterprise spends so much time on ESQi at area, regional, and national manager meetings—and why the results are widely published. At national gatherings, some session leaders ask branch managers to display their ESQi scores on their name tags. Branch managers at these meetings thus know at a glance who has something to teach them. The ranking system ensures that when managers are looking for good ideas, they seek advice from the branches with the best scores rather than from those who are best at spinning impressive stories.
Why ESQI Works
• Tight focus.
Over time, the company dropped all those questions on the initial questionnaire in favor of just one: how satisfied were you with your most recent rental experience? If the customer is dissatisfied, the surveyor expresses regret and says, we would like to have someone give you a call about this whenever it would be convenient. That’s it. If marketing or any other department wants to learn about other issues, Enterprise commissions separate customized research. In effect, the customer survey was transformed from a market research instrument to a practical scoring tool—an operating system.
• Operational accountability.
Theorganizational process for managing the research was similarly transformed. Since it was line managers, not staff, who would be relying on the tool, it was moved out of the market research department entirely. Dan Gass, the manager responsible for running the new system, reports directly to Jim Runnels, the operating executive responsible for Enterprise’s rental business. While the phone surveys themselves are handled by an outside vendor, Gass stays closely involved. He regularly visits the vendor’s facility to talk with the phone staff. He monitors calls at least 15 hours a month. This alerts him to any major issues that require executive attention, and it helps him discover ways to improve the overall process.
• Timeliness and high participation rates.
Enterprise computers regularly upload a random sample of recently closed rental tickets to the survey vendor to ensure that customers are surveyed within a few days of renting a car. Because the survey is so short, the rate of customer cooperation exceeds 95 percent. That eliminates sample bias and enhances the reliability of scores.
Setting the industry standard
ESQi has enabled Enterprise branches to focus their creativity on delivering a better customer experience, not on artificially boosting accounting profits. The resulting customer loyalty has allowed the firm to expand into adjacent markets, such as airport rentals and used car sales, with the wind at its back. By jettisoning traditional satisfaction survey methods and replacing them with one reliable number, Enterprise continues to grow, to prosper, and to set the industry standard for generating more promoters and fewer detractors.
