INTERVIEW: Net Promoter System creator on his new key metric and why 90% of companies are getting NPS wrong

Alex Sword


The Financial Services Forum

A new metric proposed by the creator of the Net Promoter System (NPS) could offer marketers a vital new role, he says.

Best-selling author and Bain Fellow Fred Reichheld has recently published “Winning On Purpose”, a new book which proposes the metric of “earned growth” as a way to augment NPS. The book emphasises the centrality of customer loyalty, arguing that only companies that put caring for the customer at the centre of their mission will succeed.

Reflecting on the roughly two decades since the NPS was first proposed, Fred argues that “very few people get it right”, going as far as saying people are misusing it 90% of the time.

The metric was designed to achieve operational feedback to inform the day-to-day behaviours of frontline teams, says Fred. It simply asks customers to rank on a scale of 1 to 10 how likely they would be to recommend the product, service or company to a peer.

Where companies are going wrong, he says, is in treating it as market research.

“If there’s more than three to five questions you’ve really lost the purpose of the metric.”

Another way that people are doing NPS wrong is linking it to frontline incentive structures, Fred explains.

“Because it’s not audited, people score it differently and you can’t compare one with the other.”

One anecdote from “Winning on Purpose” talks about how after a poor experience at a car dealership, Fred was told by the salesperson that anything less than a 10 in the NPS survey would be a failure and was then repeatedly asked for feedback in emails, which he ignored.

Such companies have “diminished the true care for customers,” he explains. “The minute somebody is caring more about the score than using feedback to get better, the customer understands it’s about you, not them.”

His proposed “earned growth” metric seeks to fill in the gaps of the NPS, aiming to transform customer centricity into a measurable accounting standard. The idea, sparked by US bank First Republic, divides revenue growth into whether it has been “earned” from existing customers or referrals or “bought” through sales and marketing.

“You need a hard metric for accountability,” he says, saying that NPS should play the role of a softer but very useful metric.

One financial institution that is referenced in the book as succeeding in earned growth is Vanguard, which he characterises as one of the earliest companies to recognise that “tiny differences in retention could have explosive differences in cash generation.”

“They hardly ever advertise and marketing spend is minimal, but they have grown through earned growth.

“[Vanguard’s success] shows the explosive power of acting in customers’ best interests.

“It’s hard to find another way to win. You can spend a jillion of investor money on acquiring customers, but if you’re not building earned growth, it’s a cover story for getting the execs rich.”

Fred argues that earned growth could provide a way of seeing which of the new fintech players are creating sustainable businesses and which are spending investor money to create an unsustainable model through marketing.


The role of marketers in the earned growth world

Readers may have noticed that Fred places the discipline of marketing under his umbrella of “bought growth”. Do marketers still have a part to play in this reimagined order?

“Marketers have a vital role. Most marketing organisations a flawed mindset which is a path to ruin for their careers and department budgets.”

Fred adds that there is an opportunity for marketing executives to be the voice of earned growth within their businesses.

“The smart marketers see the goal is not to acquire any Joe Schmoe customer, but understand how they are creating promoters. When you buy growth, you’re bringing in lousy customers – they don’t tend to stick around.”

Marketers should take charge of generating more referrals out of the promoters the company is creating, he says.

“This is a greenfield opportunity. Most companies don’t even measure referrals. I see this as a run to glory for smart marketing departments.”

So where does more traditional brand-building and advertising fit into this?

“The notion of creating promoters is vital, but there’s a lot of times your brand isn’t top of mind,” he says.

He says marketers should think of marketing investments as “how do I activate those latent promoters out there and energise them?”

Fred also argues that marketers should “get out of the way” as the interpreters of the customer voice.

“There’s too much of ‘I’m the high priest’, listening to the customer and turning it into a report.”

Fred situates his argument within what he characterises as a broader crisis within capitalism.

“Capitalism is running into serious challenges. Capitalists have to change their mindset. It’s no longer about maximising shareholder value; it has to be about making customers’ lives better.

He advocates companies holding themselves to the “golden rule” of treating others how they would want a loved one treated.

“It’s a different model of capitalism than is practised today. 10% of world leadership believe that their company’s primary purpose is to make lives better.

“Every stakeholder deserves golden rule standards, but if you don’t pick one stakeholder you have chaos. The winning businesses are picking the customer.”

“Winning on Purpose” is available from now.


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