Consumology

Long-term, profitable growththat has a nice ring to it, doesn’t it? That is the type of growth focused on in The Ultimate Question by Fred Reichheld.

The author’s premise is that this type of growth will not occur unless you are creating delighted customers and measuring your progress in doing just that. What is the measurement? Companies need only ask one questionthe Ultimate Questionin a regular, systematic and timely fashion. These businesses want customers who are so pleased with how they were treated that they “willingly come back for more and bring their friends and colleagues with them.”

Bad Profits

Mr. Reichheld begins our journey to the Ultimate Question by defining bad profitsthese are profits earned at the expense of customer relationships. “At times, customers must conclude that businesspeople lie awake nights thinking up new ways to hustle them.” (Just think of your celluar phone service, for example.) Bad profits are destructive to long-term, profitable growth because they create detractors.

Detractors stop buying from your company, switch to your competition (if they can), and tell others about their bad experiences with your company. They get even. Remember, the old adage, “an unhappy customer tells 10 friends?” With modern telecommunication technology, this can just as easily be 10,000 “friends.”

There is certainly a biblical perspective on how we are to treat our customers. One verse that comes to mind is Philippians 2:3-4, “Do nothing out of selfish ambition or vain conceit. Rather, in humility value others above yourselves, not looking to your own interests but each of you to the interests of others.” And so it is sad to read the following examples:

• Retail banks now depend on “nuisance fees” for as much as 1/3 of reported earnings.

• Mobile-phone companies realize that if they put customers in the calling plan that would be best for the customer, the phone company would cut their profits by 40%.

The examples could go on and on. Customers resent bad profits.

Good Profits

Good profits are earned “with customers’ enthusiastic cooperation.” Satisfied customers become part of the company’s marketing department. They become promoters. Our goal should be to create promoters, not detractors. How do we get started? Revisiting your company’s core values would be a great place to begin.

For example, I wonder if eBay’s phenomenal growth can be attributed to their Community Values:
eBay is a community that encourages open and honest communication among all its members. Our community is guided by these fundamental values:

•	We believe everyone has something to contribute.
 •	We believe that an honest, open environment can bring out the best in people.
 •	We recognize and respect everyone as a unique individual.
 •	We encourage you to treat others the way you want to be treated.

eBay has found ways to “operationalize” these values into their daily priorities and decisions. And more than 70% of eBay customers are promoters. The company encourages its members to “point out areas in which they believe eBay isn’t living up to its principles, and to identify new opportunities to better serve members.” These loyal members are the key to profitable growth.

Loyalty

But how can companies know how many of their customers truly love their company and how many hate it? The author’s research shows that a 5% increase in customer retention can yield anywhere from a 25% to a 100% improvement in profits. The research also showed that companies with the highest customer loyalty typically grew revenues at more than twice the rate of their competitors. And this customer loyalty stems from how each and every customer is treated by our employees. So why can’t we just make our employees care more about customer relationships?

Metrics

Financial results determine how managers are rewarded. But our accounting procedures can’t distinguish between good and bad profits. We measure success through the lens of financial accounting. Managers tend to focus on profits regardless of whether those profits “represent the rewards from building relationships or the spoils from abusing them.” Promoters and detractors don’t show up on anyone’s income statement or balance sheet.

A Practical Metric for Relationship Loyalty

The Ultimate Question, if asked systematically and linked to employee rewards, can help you manage for customer loyalty and the growth it produces. So what is the Ultimate Question:

“How likely is it that you would recommend this company to a friend or colleague?”

(Note: for a business-to-business setting, a question such as, “How likely is it that you will continue to purchase products or services from us?” may be better.)

The author created a Net Promoter® Score (NPS) which is simply to take the percentage of customers who are promoters (those who answer a 9 or 10 on a 0-to-10 scale) and subtract the percentage who are detractors (those who answer a 0-6 on a 0-10 scale).

What do you think your company’s NPS is today?

Keith Starcher is President of DayStar Consulting, Inc., a firm serving small business owners by providing insights and ideas regarding marketing strategy and strategic planning. Dr. Starcher has 30+ years of experience in both Fortune 500 and small, family-owned companies. His primary objective in counseling small-business owners is to help them create a blend of resources and capabilities that lead to competitive advantage in the marketplace and bring glory to God while doing so.

Keith also is an associate professor in the business department at Geneva College, Beaver Falls, Pennsylvania where he studies and lectures in marketing strategy and strategic planning at the undergraduate and graduate levels.

Keith began his career working with Westinghouse after graduating with a degree in metallurgy from Penn State. He continued his graduate studies at the University of South Florida obtaining both an M.B.A. and a Ph.D.

Dr. Starcher spent several years with General Electric and, prior to joining the full-time teaching staff at Geneva College, he was President of Zion Industries