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The ultimate question: driving good profits and true growth
Financial Executive 06/01/06
by Jeffrey Marshall

Not all profits are created equal, and "bad" profits risk alienating customers, writes Fred Reichheld, author of two popular books on loyalty, The Loyally Effect and Loyalty Rules. Moreover, these bad profits can create legions of detractors who bad-mouth the company and switch their allegiance to competitors.

Reichheld, who is a director emeritus of Bain & Co., contends that "good" profits have the opposite effect: They turn customers into promoters who can help the company on its journey to sustainable growth. He posits a central question that companies should ask their customers: "Would you recommend us to a friend?" From this, he creates a "net promoter score" (NPS), which he claims represents the most reliable indicator of a company's growth.

The author has picked up some key endorsements for the concept. General Electric Co. CEO Jeffrey lmmelt has called the NPS "the best customer relationship metric I've seen," and has said that NPS will be established across all of GE's more than 500 business lines - and will help set executive bonuses.

One of Reichheld's central tenets is that traditional customer surveys are too long to ensure they will be filled out, ask extraneous or marginally useful questions and are often little more than marketing campaigns in disguise. Far better, he argues, to concentrate on the vital question of whether or not a customer is satisfied enough to recommend the product or the company, then follow up with more detailed questions.

Survey as many people as possible, Reichheld adds, but concentrate on core customers - those who are most profitable and would be the mostly likely promoters. In business-to-business situations, he adds, that may present particular difficulties. He urges recruiting a customer "quarterback" who can choose the right respondents and ensure that contacts are updated.

In an appendix, the author offers a list of U.S. and United Kingdom companies that he divides into "winners" and "sinners" based on their NPS scores. He doesn't name the sinners (the winners are identified), but the variance in scores between top (most promoters) and bottom (most detractors) can be striking.

Using meaningful examples from companies like Chick-Fil-A, Jet Blue Airways, eBay, Harley-Davidson and The Four Seasons Hotel Group, Reichheld has fashioned a highly readable, highly instructive book about one key aspect of loyalty and its relationships to profits. Thoughtful and easy to digest, it's also replete with good advice about how to measure, how to survey and, at bottom, how to succeed.

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