Create customer promoters, avoid detractors

April 1, 2006

BY MICHAEL KRAUSS

My airline demoted me. They lowered my status in their frequent flier program. First-class seats are looking much harder to reach. I feel like such a loser.

It wouldn’t have bothered me if they’d called or written to explain things. I only flew 35,000 miles last year so maybe I deserved to get busted. But I have 950,000 miles with this airline. At 1 million miles I get lifetime higher-level status.

Couldn’t they figure it out? By keeping me at the higher level I’d be grateful. I’d advocate the airline’s generosity and business savvy to my friends. I’d be a promoter, not a detractor.

Thanks to hundreds of millions in technology investments, my airline can market to me one-to-one. I was excited when I saw their bright, multicolored packet in my mailbox announcing the 2006 travel continuity program. My expectations were high. I thought my new travel card and a few first-class upgrade certificates were inside. I never thought I’d get downgraded.

Inside there was a packet urging me to compliment the airline’s service quality. I think there was a promotion for a credit card enclosed. I threw it all away in disgust.

I called the frontline troops at my airline. The call center representative was polite and read me a script encouraging me to fly an extra 50,000 miles to regain my status for life. It felt like the stick and the carrot approach: Lower my status and urge me on.

I grew upset. I started to argue. But then I got hold of myself and thought, “What would Fred Reichheld think?” Talk about trying to make a profit the wrong way. Rather than argue, I decided to call Reichheld.

I guessed Reichheld would say my airline’s not paying attention to their Net Promoter Score. They’re earning bad profits rather than good profits. Fact is, Reichheld and I never got around to talking about my negative airline experience. We were too busy discussing his fact-based analysis of the impact of promoters and detractors on the corporate bottom line.

Reichheld is the loyalty guru from Boston-based Bain & Co. and he has a new book out called The Ultimate Question: Driving Good Profits and True Growth. The book is a must-read for marketers and CEOs. Reichheld demonstrates that the key predictor of future growth is having customers who will recommend you.

Reichheld calls them promoters--loyal customers who keep buying and urging friends to do the same. These days they also go by names like advocates, evangelists and adherents. Think about eBay, Google and Amazon or Southwest and JetBlue. They built their business on positive word-of-mouth.

According to Reichheld, if you take the percentage of your customers who would definitely recommend you--your promoters--and subtract the percentage who are your detractors--unhappy customers who feel trapped in the relationship--you get the Net Promoter Score.

Promoters minus detractors equals Net Promoter Score. It’s a simple score with powerful predictive capability, according to Reichheld. “In a typical category, the NPS leader is growing at more than 2 1/2 times the competition. That’s powerful,” Reichheld says. Remember Reichheld’s the customer loyalty guru who demonstrated that “a 5% increase in customer retention could yield anywhere from a 25% to a 100% improvement in profits.” Now he’s telling us customer loyalty is not enough. Marketers need to create promoters and avoid detractors.

Reichheld says that, “No airline had growth without a superior ratio of promoters to detractors.” He points to JetBlue with an NPS of 81% and Southwest with an NPS of 51%, suggesting their growth is attributable to attracting promoters and avoiding detractors.

Reichheld does a rigorous analysis of Dell computer where 25% of new customers are word-of-mouth referrals. Research shows 60% of Dell’s customers are promoters and 15% are detractors, yielding an NPS score of 45%.

Reichheld calculates each promoter is worth $328 to Dell through purchases and referrals. Each detractor costs the company $57 through higher customer service costs and negative referrals. Reichheld’s studies show detractors, on average, comment negatively about Dell up to four times annually. It takes five positive comments to neutralize one negative comment. Reichheld demonstrates that converting half of the 15% of customers who are detractors into regular customers could add $160 million to Dell’s bottom line.

Reichheld believes the NPS framework can empower CMOs to get marketing back to the mainstream.

“My favorite subject in school was marketing,” says the 53-year-old Harvard MBA. Reichheld feels that marketing lost its connection with business strategy. “It seems strategy got pulled away. What got left was advertising and promotion, not how it all fit together to create a winning experience for customers and shareholders.”

Reichheld doesn’t blame the marketers. He thinks the issue is a lack of proper measures. “Accounting has become the universal language of business. Accountants can’t tell the difference between good profits and bad profits,” Reichheld says. “Cash flow comes out of customer wallets, but that is not entirely obvious the way most companies measure their performance and motivate their troops.”

Traditional satisfaction studies aren’t the cure. Reichheld devotes an entire chapter and defines 10 reasons why satisfaction studies fail. They aren’t linked to the company economics and they don’t focus on Reichheld’s ultimate question: How should marketers help management avoid chasing bad, short-term profits and destroying relationships with promoters?

“You have to get feedback from customers,” Reichheld urges. “You need reliable facts, not just ad hoc research tools that anybody can twist to their needs. Find out who your promoters and detractors are and get a sense of the root causes.” Rather than having complicated political arguments in the boardroom, Reichheld urges marketers to conduct in-market tests to determine whether customers are being converted into promoters or detractors.

I can’t say enough good things about Reichheld. He’s a really busy guy out promoting his book and serving Fortune 500 clients. I heard about Reichheld from Jackie Huba, co-author of Creating Customer Evangelists. Huba heard Reichheld speak at CEO Andy Sernovitz’s Word of Mouth Marketing Conference.

Then Gary Slack, CEO of Chicago-based b-to-b marketing services agency Slack Barshinger, said Reichheld was a hit at executive director Ralph Oliva’s Institute for the Study of Business Markets annual conference.
I dropped Reichheld an e-mail to see if he’d like to chat.

Dan Pinkney of Bain was back to me in a millisecond. The next business day I was chatting with Reichheld. He couldn’t have been nicer. He outlined his analytical approach and explained the concept of his book. No question was a bad question even if Reichheld had heard it before.

I’m becoming a huge advocate of Reichheld’s. His ideas are fact-based, persuasive and compelling. I’ve told all my friends and I’m telling you: Go out and buy his book.

Oh. Did I mention that my wife received a packet from the same airline on the same day? She got promoted. She’s not sure why. She rarely flies that airline.

Michael Krauss is a partner with Marion Consulting Partners based in Highland Park, Ill., and can be reached at Michael.Krauss@Marionpartners.com or news@ama.org.