Fred Reichheld Discusses the Importance of Customer Loyalty to Business Growth
Fred Reichheld is author of The Ultimate Question: Driving Good Profits and True Growth, and a true customer loyalty expert. Much of his career has been devoted to understanding and questioning what makes successful businesses so successful? His findings don’t consist of strict “dollars and cents” accounting measures, but rather focus on the fundamentals of good business.
“The only way to grow your business long-term is through this process of turning your customers into your sales force.”
- Fred Reichheld
His Net Promoter Score (NPS) does just that. Measuring your advocacy ratings by comparing promoters to detractors can provide valuable insights into how you are viewed by your customers and what your business priorities should be.
Listen to the podcast: Fred Reichheld Interview
Matt Mierzejewski: I’m here today speaking with Fred Reichheld, customer loyalty expert and author of The Ultimate Question. Fred, thanks for the time. To start off with, can you tell us a little bit about yourself and what you’re working on today and a little bit about your background?
Fred Reichheld: Well, I guess that’s easy. I’ve been working on pretty much the same thing for the last 30 years when I joined Bain & Company out of business school. Today I work with Bain half time as a Bain fellow, but that just enables me to focus even more intently on my central passion in business which is helping companies earn superior loyalty with their employees and customers.
Matt Mierzejewski: And so, much of that has to do with good profits and bad, and the difference therein?
Fred Reichheld: Well, you know this issue of good and bad profits just comes out of my experience that most businesses, especially big businesses use accounting as their primary measurement system. It’s the only one that’s audited, the only one where people go to jail if they cheat. Or the only reliable one.
And one of the difficulties that that raises is that accounting can’t tell us the difference between good profits and bad. There are plenty of profits that are completely consistent with generally expected accounting principles, but they’re just completely bad because they’re inconsistent with Golden Rule behavior. They’re abusive, they’re misleading and they destroy growth and loyalty.
Matt Mierzejewski: Great. So getting away from the profitability, if, in your own words you could explain what the Net Promoter Score is.
Fred Reichheld: Net Promoter Score is our attempt at creating a universal system that is so simple and intuitive that eventually everyone will use it as their accounting system for customer and employee relationships. And as the need for that universal system is obvious, every single vendor in the satisfaction and market research space comes up with their own, unique ‘mine is better’ black box system, because that’s how you earn profits; buy my black box, my expertise. I think the only way we’re actually going to make progress is if we just settle on something that’s open source, everyone has access to it and it becomes an accounting system. And that, I think, should be a Net Promoter System.
Matt Mierzejewski: Makes sense. So let’s say we have our Net Promoter Score. How does one move upward or downward? Namely upward!
Fred Reichheld: It’s not so much focusing on the score. It’s focusing on the categorization process that the key to Net Promoter is I’ve go to categorize customers. Did I win their loyalty? Are they promoters? Did I fail miserably and they’re detractors? And sure, you want to keep track of did I fail just a little bit and they’re passive.
But it’s this focus of the categorization that helps you focus your management priorities and your decision-making throughout the organization so that the companies don’t forget this obvious truth that there’s just no way to grow profitably without earning the loyalty of your customers. And that’s a vague idea but it’s a very crisp idea to say I need more promoters and fewer detractors. And I can measure progress along those dimensions.
Matt Mierzejewski: And for many of our online retailers, any specific tips?
Fred Reichheld: Yeah, make the categorization crisp and straightforward. Make sure everyone in your chain, your front line employees, your vendors and suppliers understand it and start making the appropriate investment to improve. The only way to grow your business long-term is through this process of turning your customers into your sales force. And once again, that’s a really nice sounding but vague idea. But the power of a crisp measurement process, you can actually drive that through your business.
Matt Mierzejewski: What advice would you give to management in conveying this to kind of the front line employees and how important that is?
Fred Reichheld: I think one of the challenges for top management is convincing them this is not just a slight improvement on the dozen historic failed processes that sounded good but never delivered anything on satisfaction. This is a core, hard process just like an engineer would design for minimizing error rates or failure rates. And it has to be understood as a hard core business process, an operational process and not as a research program, nice to check on every quarter when we have time.
Matt Mierzejewski: Fred, we appreciate the time today and good luck in your further customer loyalty expertise and we’ll look forward to reading some more of your stuff.
Fred Reichheld: Well, The Ultimate Question is still awfully relevant and I’m beginning work on the follow-up to that. This idea of you’ve got to get more promoters and fewer detractors is spreading very quickly and I’m feeling very hopeful we’ll see great progress over the next few years.
Matt Mierzejewski: Well, we’re big believers as well. Thanks for your time.
Fred Reichheld: Bye-bye.
Listen to the podcast: Fred Reichheld Interview