The ultimate question

24.07.2006
Fred Reichheld calls them "sinners." Indeed, you'd like to tell them where to go. It's the car rental company that charged you US$8 a gallon for gas when you forgot to fill up on the way to the airport. It's the hotel that charged you more for telephone calls than for your room that day you lost your cell phone. And it's the brokerage firm that urged you to buy a dog of a stock while its underwriting arm was earning huge fees from that company.

Reichheld, founder of the Loyalty Practice at management consulting firm Bain & Co. in Boston, says many companies treat their customers shabbily for a simple reason: It can lead to short-term growth and help managers meet their financial goals. If you can get $8 for a gallon of gas, why leave that money on the table? But in his latest book, The Ultimate Question: Driving Good Profits and True Growth (Harvard Business School Publishing Corp., 2006), Reichheld argues that customers will put up with getting mistreated and fleeced for only so long. They will jump to one of your competitors at the first opportunity, bad-mouthing you all the way.

In contrast, the best-run companies, the "winners," are the ones that live by the golden rule, Reichheld says. They treat customers as they themselves would want to be treated, and that leads to real growth in revenues, profits and market share year after year. Winners like Enterprise Rent-A-Car Co., USAA, HomeBanc Mortgage Corp. and Southwest Airlines Co. consistently delight their customers, and their customers sing their praises.

Many companies don't even know if they are winners or sinners, Reichheld says, but winners have a high proportion of customers who answer yes to the "ultimate question": "Would you recommend us to a colleague or friend?" Customers who answer yes are "promoters," Reichheld says, and those who answer no are "detractors." The best companies have net promoter scores (percentage of promoters minus percentage of detractors) above 50 percent. Sinners often have a negative NPS -- more detractors than promoters -- and the NPS of the typical company lies between 5 percent and 10 percent, he says.

Companies looking for long-term success should first determine their own NPS, learn how to segment customers according to their profitability and then take actions to boost their NPS and profitability. It's a simple concept, but not one that's easy to implement. IT can help, Reichheld told Computerworld's Gary Anthes.

How important is IT in measuring and managing your NPS? What's the most vital process in a business? It's figuring out how to create more profitable promoter customers. That generates growth, makes employees proud, makes investors rich, and builds your brand and reputation. Obviously, you should have the most relevant and reliable information so you can manage that process more intelligently. A really good IT system can support that, but most fail miserably.