“The simple metric that’s taking over big business,” is how Fortune last year described the Net Promoter Score (NPS).
NPS is based on asking customers how likely on a scale of one to 10 they are to recommend your company or product to a friend or colleague. Subtract the percentage who answer six or lower (“detractors”) from the percentage of those who respond nine or 10 (“promoters”), and you get the NPS.
NPS, which ranges from -100 to 100, is valued for being a single number that conveys how well a company is serving its customers. It’s used by at least two-thirds of the Fortune 1000 companies and since its creation in the early 2000s by longtime Bain & Co. partner Fred Reichheld has been available for free for anyone.
Now Reichheld has a new book out next week called Winning on Purpose: The Unbeatable Strategy of Loving Customers, elaborating on how companies use and misuse NPS, which Reichheld now calls the Net Promoter System. Written with Darci Darnell and Maureen Burns of Bain, the book is also a manifesto for “customer capitalism.”
“There is one (and only one) purpose that generates long-term prosperity for a business and benefits all stakeholders,” Reichheld writes. “That purpose is to enrich the lives of customers.” (p. 15)
Reichheld links such an approach to the “Golden Rule” articulated in the bible and present in various forms in many religions: “love your neighbor as yourself.”
Reichheld is a critic of both “stakeholder capitalism” and “shareholder capitalism.” He argues that executives’ vows to serve all of a company’s stakeholders, including employees and communities where they operate, risk not providing enough focus to drive performance.
Reichheld also thinks businesses driven for shareholder profit inevitably maximize for short-term gains and thus decline over the longer-term. He cites the underperformance of companies profiled in Jim Collins’ Good to Great following that classic book’s publication, and shows how companies with high NPS scores outperform the companies Collins profiled and their peers in the stock market over time.
Winning on Purpose is something of a victory lap for Reichheld, who recounts stories from the many companies using NPS, discusses practices at Bain and other firms he’s affiliated with, and provides extensive anecdotal detail about his own experiences, good and bad, as a consumer.
It’s also a clearheaded argument for the benefits of focusing on customers, replete with specific examples from real-life companies—including Apple, Chick-fil-A, Costco, Discover, Peloton, T-Mobile, Vanguard, and Warby Parker—and specific tactical advice about best practices and mistakes to avoid. And, while arguing for a singular focus on customers, Reichheld also believes deeply in the importance of supporting and managing employees. “There is no way that a company can sustainably love its customers without creating inspired and committed teams who share that purpose,” he writes. (p. 69)
Throughout the book, Reichheld provides an outline for what he calls “Net Promoter 3.0,” an articulation of how businesses can best use NPS and adopt customer capitalism. The principal elements of Net Promoter 3.0 include:
- Making enriching customers’ lives an organization’s primary purpose, and building strategy and norms around that.
- Having leaders embrace the Golden Rule approach and fostering a culture that embraces a long game.
- Unleashing NPS feedback flows. Giving employees throughout an organization specific feedback from NPS relevant to their improvement on a timely basis and continuing to innovate to collect and curate the right feedback.
- Quantifying earned growth economics. Reichheld proposes a new metric called “earned growth rate” (EGR), which is the underlying revenue growth from existing customers coming back and referring their friends. He says that a strong EGR is a sign of a healthy customer-focused business.
- Continuously improving customer experiences, pursuing innovation and services to further delight them.
To be sure:
- Reichheld himself acknowledges that it takes a lot of effort for companies to properly use NPS and get its benefits.
- Winning on Purpose at times feels like it’s ascribing too much weight to corporate values statements and executives gushing about their customer focus, when they don’t always align with the realities within companies.
- The book is promotional for Bain, whose activities include a business collecting and selling NPS-score data.
- Reichheld’s families’ own consumer activity—including specifics about his car buying and Amazon shopping adventures—is described at some length, at times verging on the mundane.
- Other non-survey means of analyzing customer satisfaction and loyalty, such as machine learning analysis of consumer shopping patterns, could potentially reduce the relevance of NPS going forward.
Memorable anecdotes and facts:
- Intuit is seemingly the first company to regularly report the NPS for each of its businesses, benchmarked to competitors.
- Apple Store founder Ron Johnson told Reichheld that he was inspired by the Golden Rule, aiming to “design a store based on love.”
- Costco marks up most products 14% above its costs. That autopilot markup once led it to sell Calvin Klein jeans that it negotiated a great wholesale deal on for $22.99, when it had just previously sold out a batch at $29.99 and they were selling elsewhere for $59.99. Investors were upset that it didn’t price them at least at $29.99 and increase its profit, but Costco’s management defended the decision as being part of how it earned customers’ trust.
- Reichheld recounts how Bain’s founders “got distracted from the core mission of helping teams deliver great results for clients,” and took the company to the brink of bankruptcy in 1990, before Mitt Romney led a successful rescue effort.
- Former Discover CEO David Nelms decided to send customers an email alert the day before they would be hit with late fees, despite his CFO’s warning that late-fee revenue would decline by $200 million annually as a result.
- “There is only one way to grow a business profitably. You make sure your customers are treated so well that they come back for more and bring their friends.”—Andy Taylor, Enterprise Rent-A-Car (p. xv)
- “People work hard for a paycheck, they work harder for a good boss, and they work hardest for a meaningful purpose.”—Steve Grimshaw, Caliber Collision (p. 14)
- “Relying on profits as our gauge of greatness is often misleading, because profits quantify value extracted from customers and employees rather than value created for them.” (p. 28)
- “Persistence provides a foundation for building loyalty. You have to keep at it. You have to expend energy, constantly, to fight against counterproductive currents and temptations for short-term solutions.” (p. 167)
The bottom line is that Winning on Purpose is potentially valuable for the many companies who use NPS or others who’d like to understand the strategic framework for best implementing it. It’s also a clear and passionate argument for companies focusing singularly on making the lives of their customers better—a thought-provoking thesis as more businesses shift from a primary focus on serving shareholders to embracing the values of stakeholder capitalism.