Customer Loyalty and Employee Engagement
David Mitzenmacher
David Mitzenmacher is passionate about helping companies create a competitive advantage through customer loyalty and employee engagement. He is currently Chief Customer Officer at Volusion where he helps over 30,000 entrepreneurs succeed online. He was previously the Director of Customer Experience at Rackspace, and held similar leadership roles at a variety of high-growth companies.
Homepage: http://davemitz.com
Posts by David Mitzenmacher
7,960 Footsteps: A Measure of Loyalty
Feb 8th
Customer experience professionals look at loyalty using a broad assortment of metrics. We measure Net Promoter Score, Retention Rate, WOM Mentions, Share of Wallet, Customer Lifetime Value, and countless other indicators that help us to better understand the level of loyalty our customers have towards our companies.
But what about counting footsteps?
I recently attended a training event held in San Francisco, California. The training was held at a Westin Hotel – not a bad hotel by any stretch of the imagination, but it wasn’t a Marriott. (I’ve previously written about the fact that I am a rabid promoter of the Marriott brand of hotels).
Rather than staying at the hotel where the event was held, I instead opted to stay at a Marriott located several blocks away, walking to and from the Westin multiple times each day. This decision cost me about 7,960 additional footsteps over the course of my trip.
As I walked to the event one morning, fighting my way through a sea of tourists as the clouds started to let down a light rain, it occurred to me that this was loyalty economics at their best – that I, as a Promoter of Marriott, had chosen to give them my business even when presented with an alternative that was significantly more convenient.
The business case for customer loyalty is simple: loyal customers will spend more money, buy additional products, refer more business, and share better feedback. When you go the extra step for your best customers, they’ll go the extra 7,960 steps for you.
Net Promoter: The Right Tool for the Job
Jan 26th
This past weekend I was lucky enough to have a few spare moments to spend in my garage workshop. I spend most of my time during the week working on strategic initiatives, so it’s a nice change of pace to run a hand plane across a piece of wood and see immediate, tangible results.
As I surveyed all of the saws, chisels, planes, and other assorted tools in my workshop, I started thinking about the reason for owning all of these tools – and the lessons that can be applied to the field of Customer Experience
Selecting the Right Tool for the Job
One of the most important (and most frequently overlooked) rules in woodworking is to always use the right tool for the job. The more cynical amongst us might suspect that this maxim was created by tool manufacturers to sell more products – but experience tells me that using the wrong tool can be dangerous to the user, inefficient, and damaging to both the tool and the work piece. This holds true even when comparing a superior tool to an inferior tool.
Consider, for example, the chisel. Considered by many to be the most important tool in woodworking, a well sharpened chisel is a thing of beauty. I recently had the good fortune of borrowing a friend’s Lie-Nielsen Skew Chisel – a remarkable piece of craftsmanship that retails for about $130. This tool is well balanced, maintains a sharp cutting edge, and stays true against the work piece.
But this $130 chisel is inferior to a $1 pry bar from the dollar store – if the job is prying something loose. While the expensive chisel might objectively be a better tool, it is useless when used for the wrong job.
What Does a Chisel have to do with Net Promoter?
Critics of Net Promoter often argue that NPS is inferior to other, more thorough methodologies. They argue that Net Promoter is fundamentally flawed, illogical, and not statistically valid.
This raises the question – If NPS is so deeply flawed, why then have CEOs at companies such as General Electric, Charles Schwab, Intuit, Zappos, Cisco and American Express adopted its use? Some critics claim that it is because CEOs simply aren’t smart enough to understand the complicated business of customer loyalty.
I don’t buy that. I cut my Net Promoter teeth at Rackspace Hosting, where Net Promoter is championed by CEO Lanham Napier. Now, a little bit about Lanham’s background – he studied Economics at Rice and earned an MBA from Harvard Business School. He started his career at Merrill Lynch, and was later hired on at Rackspace as their Chief Financial Officer. He earned the top job based on his remarkable performance as CFO and has since led the company to achieve over a billion dollars in annual revenue on an industry-leading churn rate of just 1.9%.
I share Lanham’s background to illustrate my point – does this sound like someone who is too stupid to comprehend customer loyalty? That’s what some market research vendors and career academics would have you believe, but I’m not buying it.
The more likely explanation is that Lanham, having evaluated the work that needed to be accomplished, selected Net Promoter (flaws and all) because it was the best tool for the job at hand.
The Job of Cultural Transformation Requires a Tool like Net Promoter
CEOs, Customer Experience Leaders, and other operating managers who want to increase customer loyalty understand that customer experience is the result of the actions of every single employee in the company – especially the front lines where most customer interaction takes place.
Inspiring customer-centric thinking amongst employees won’t come from thick binders produced by market research vendors, nor will it come from peer reviewed academic journals. A company cannot become truly committed to customer loyalty without capturing the hearts and minds of the culture.
In order for a company to truly become customer-centric, every employee must find customer loyalty relevant to the work they perform every day. They need a common vocabulary for discussing loyalty, a shared set of tools for increasing loyalty, a standardized dashboard for tracking loyalty, and a clear line of sight to how they can improve loyalty.
This requires making tradeoffs – leaders like Lanham understand that it is acceptable to forego the higher level of statistical accuracy that more complicated methodologies may offer in order to gain better buy-in and ownership from their employees. These leaders understand the trade-offs of taking loyalty out of the hands of the market research department – who might produce objectively “better” data – to ensure that loyalty lives in the operating system of the business.
Very few (outside of the publicist at Reichheld’s publisher) truly believe that Net Promoter is the “ultimate” business system – that is to say, the right tool for every job. But for the crucially important job of interweaving customer loyalty into the DNA of an organization, you’d be hard pressed to find a tool that is more sharp, balanced, and true than Net Promoter.
The Net Promoter System on a Napkin
Jan 25th
Therefore, since brevity is the soul of wit,
And tediousness the limbs and outward flourishes,
I will be brief- William Shakespeare, Hamlet
If brevity is the soul of wit, then simplicity is the soul of inspiring others. It has been my experience that creating a customer-centric revolution within an organization requires the ability to convey your vision as simply as possible. To that end, I thought it would be a fun exercise to attempt to explain the Net Promoter System on a single napkin.
Net Promoter on a Napkin
The end result of this exercise is posted above. Obviously, this illustration is overly simplistic, leaves out some key concepts, and is limited by my poor artistic ability. With all of those caveats, I still found this to be an incredibly worthwhile exercise. The next time you have a complex idea that you must communicate to a broad group, try drawing it out on a napkin first. The limited space will force you to ruthlessly edit out the fluff to let the essence of your idea shine through.
Net Promoter: Are You Playing Not to Lose?
Jan 16th
Playing Not to Lose is a pejorative used in sports to describe a coach, athlete or team who is so paralyzed by the fear of losing that they stop trying to win. All of their attention is focused on avoiding mistakes, causing them to miss opportunities to put points on the board towards a victory.
In my opinion, many companies are also guilty of Playing Not to Lose – by focusing their Net Promoter program exclusively on minimizing Detractors.
Don’t get me wrong – reducing Detractors is vitally important work. After all, having fewer Detractors than Promoters is at the heart of the Net Promoter Score metric.
But if the end goal of your Net Promoter program is simply to avoid Detractors, you don’t have a loyalty program – you have a complaint department. To take full advantage of the Net Promoter growth engine, you must focus on amassing an army of Promoters and then – here’s the important part – energize those Promoters towards taking actions that benefit both themselves and your company.
The following list, while far from exhaustive, contains four ways you can transform your Net Promoter program by playing to win.
Include Promoters in your Close-the-Loop Process
“Closing the Loop” refers to the two-step process of sharing a customer’s feedback with the employee(s) responsible for the experience, and talking directly to the customer to take appropriate action on the feedback provided.
Many companies using the Net Promoter system have a Closed Loop process in place for responding to feedback from Detractors – a vitally important activity. But few companies regularly and systematically close the loop with their Promoters.
Closing the loop with Promoters gives you the opportunity to thank them for their loyalty. No one likes to feel taken for granted, not even your raving fans. Let your Promoters know that you appreciate their feedback and their business. Ask questions to find out what you could be doing to make them even more loyal. Build rapport with your most important customers – your Promoters.
Extending your Closed Loop to include Promoters also has positive benefits on employee engagement. It allows your employees to hear praise, not just complaints. When employees hear first-hand how they have made a positive impact on a customer’s experience with your company, the end result is a more engaged and loyal staff.
Special Benefits for Promoters
American Express (a company of which I am a Promoter) has an advertising campaign that centers around the slogan “Membership Has Its Privileges”. The campaign is effective because it quickly conveys Amex’s value proposition– get an Amex card, and you too can get exclusive perks not available to the general public.
Likewise, being a Promoter of your company should come with privileges. Promoters are customers who engage in long-term economically positive behavior, and as such, are your most valuable customers. Reward them as such.
There are many ways that you can reward your Promoters – exclusive offers, opportunities to participate in focus groups, or simply a hand-written “Thank You” card are all ways that you can help your Promoters know that you appreciate them.
Spark Referrals
By very definition, your Promoters are customers who are extremely likely to recommend you to a friend or colleague. Yet many companies are often hesitant to ask their Promoters to do exactly that – refer new business.
There is no shame in encouraging Promoters to tell others about your company. Platforms like Extole and Amplifinity give your Promoters the tools to share their passion for your company with their friends and colleagues, and allow you to reward your Promoters for referring business. That’s a win-win situation.
Promoter-focused Analytics
Many companies incorporate text analytics and statistical analysis into their Net Promoter program to unlock the information hidden within their customer feedback.
These tools are often used to identify opportunities for improvement – but they can also be used just as effectively to find ways to increase engagement amongst your Promoters. What type of language do your Promoters use to describe your company? What attributes do your Promoters tell you are Critical to Quality? What do your Promoters value?
By understanding the underlying data, you can prioritize actions to further expand the love that your Promoters already have for your company.
The companies that are truly “winning” at Customer Loyalty – companies like Apple, Zappos, and USAA – aren’t simply trying to minimize Detractors. World-class companies are intentional about amassing and energizing an army of Promoters.
Accounting for Customer Experience
Jan 11th
A recent report by the Temkin Group found that only 17% of respondents believed that the executives at their company regularly prioritize long-term customer loyalty over short-term financial results. (Full report available here)
There are plenty of reasons why companies get stuck in short-term thinking, including competing priorities, pressure from investors to deliver quarterly results, and misaligned compensation plans. But I believe that much of the blame for under-investment in customer loyalty lies squarely on us – Customer Experience leaders – and stems from a lack of Finance and Accounting knowledge within our field.
Most Customer Experience professionals connect with their work on an emotional level. Since we are all customers ourselves, it is very easy to internalize the customer experience mission and make it personal. We aren’t just punching a clock – we are helping to rid the world of sub-standard customer service.
We spend much of our time in a bubble with like-minded souls – going to Customer Loyalty conferences, retweeting articles about Zappos, reading books about Nordstrom, and networking with people who eat, sleep, and breathe customer experience.
This emotional attachment to the mission of customer experience serves us well when it is time to inspire employees, transform cultures, and win customers. But it does us no favors in the board room unless it is balanced with the ability to articulate the value of customer loyalty in terms of cold hard cash.
Too often, customer experience initiatives are pitched on a “mom and apple pie” platform. The business case (if you can even call it that) consists of a Seth Godin quote, an infographic illustrating the cliché about dissatisfied customers telling 10 people, and a screenshot of someone trashing your brand on Twitter. Undoubtedly, the whole thing falls apart as soon as someone asks to see the underlying financials.
Likewise, well meaning Customer Experience leaders find themselves unable to prevent the installation of Bad Profits because they show up to the meeting armed with anecdotes, not spreadsheets.
It is not uncommon to hear Customer Experience professionals at networking events ask questions like:
- “How can I get my CEO/COO/CFO to understand the importance of our customer experience initiatives?”
- “How can I present an argument against short-sighted thinking like outsourcing, nuisance fees, and other bad profits?”
- “Why does my program budget keep getting slashed?”
To Customer Experience leaders who are currently struggling with these issues, I’d highly advise that you put down your tattered copy of Raving Fans and start reacquainting yourself with the dark arts of Finance and Accounting. Here are some great free resources from MIT’s Sloan School of Management to get you started:
Introduction to Financial and Managerial Accounting
Economic Analysis for Business Decisions
As you start to learn to articulate the business case for customer loyalty in financial terms, you might just discover that you and your CFO were actually on the same page the whole time – you just needed to learn to speak their language.
Elements of a Successful Net Promoter Survey Invitation
Jun 16th
One of the keys to success for your Net Promoter Score program is generating a high response rate. Unlike many other customer feedback frameworks, Net Promoter is designed to emulate a census, with target response rates of 50% of more.
The are many factors that contribute to your overall response rate, one of which is the execution of your survey invitation. Many new NPS practitioners don’t know where to start when creating a survey invitation. The chart below lists some of the factors that I have used in my survey invitations to generate response rates of up to 68%.
Click on the image to enlarge
Once your Net Promoter program evolves, you will no doubt develop your own best practices that work for your particular business and customer type. This chart is intended to give you a place to start.
3 Easy Steps to Calculating Net Promoter Score
Apr 16th
Calculating your Net Promoter score is easier than you may think. Here’s an illustration that shows the three easy steps you take to calculate your NPS.
Click to enlarge
Calculating Net Promoter Score with Microsoft Excel
Jun 9th
If your Microsoft Excel kung-fu is a little rusty, calculating your Net Promoter Score can seem intimidating. But worry not … it’s a lot easier than you might think!
Let’s say you have an Excel spreadsheet containing all of your survey responses. Each row in your spreadsheet contains a unique response. To make things easy, let’s assume that the answer to the ‘likelihood to recommend’ question is contained in Column A. Your spreadsheet should look a little bit like this example:
Sample Spreadsheet
To calculate your Net Promoter Score, simply paste the following formula into any cell (one caveat: you cannot paste this formula into the same column that contains the answer to your ‘likelihood to recommend’ question or else you will get a circular reference error.)
=ROUNDUP((100*((COUNTIF(A:A,">8")-COUNTIF(A:A,"<7"))/COUNT(A:A))),0)
NPS formula is pasted into cell B&
If the answer to your ‘likelihood to recommend’ question appears in a different column, simply change all instances of A:A the formula above to reference the appropriate column name. So, for example, if the answer to your ‘likelihood to recommend’ question is in Column E, replace all three instances of A:A with E:E as illustrated below:
=ROUNDUP((100*((COUNTIF(E:E,">8")-COUNTIF(E:E,"<7"))/COUNT(E:E))),0)
What is Net Promoter?
Jun 9th
What is Net Promoter?
Net Promoter is a methodology for measuring customer loyalty. It was developed jointly by Fred Reichheld, Bain Consulting and Satmetrix. Net Promoter was first introduced by Reichheld in an HBR article entitled “The One Number You Need to Grow“, and was later the topic of his book “The Ultimate Question“.
At the heart of the methodology is the idea that customer loyalty can best be predicted by the answer to a single question – “How likely are you to recommend (company name) to a friend or colleague?“. Respondents answer on a scale of 0 (not at all likely) to 10 (extremely likely). Based on the response to this question, respondents are categorized as Promoters (9-10), Passives (7-8) or Detractors (0-6). A company’s Net Promoter Score is simply the percentage of Promoters minus the percentage of Detractors.
Net Promoter is unique amongst loyalty measurement systems in several respects:
- Net Promoter calls for a census-approach, advocating sending the survey out to all customers with the ultimate goal being an obscene response rate of >60%. This differs from traditional thinking, which advocates sampling the customer population.
- Net Promoter surveys tend to be very sparse. Reichheld argues that loyalty surveys should consist of just two questions – the “ultimate question”, and a single text response field to capture additional customer comments.
- Proponents of Net Promoter view it as a holistic framework. It is not just a survey – it is a set of business processes that surround the survey. “Closing the loop” with respondents and engaging the entire organization are considered vital components of a successful Net Promoter program.
There is considerable controversy around Net Promoter, much of it based on valid criticism. There is substantial data that indicated that the Ultimate Question may not, in fact, be the ultimate question when it comes to predicting customer loyalty. That said, I’ve found it to be a good-enough metric coupled with an exceptional framework that makes it easy to kickstart a customer-centric revolution within most organizations.
Further Reading
The Ultimate Question by Fred Reichheld
Answering the Ultimate Question by Richard Owen and Laura Brooks, PhD.
A Tale of Bad Profits
May 15th
In his book The Ultimate Question: Driving Good Profits and True Growth, Fred Reichheld introduced the concept of Bad Profits as such:
Too many companies are addicted to bad profits—profits that come at customers’ expense and drain the value out of customer relationships. Whenever a customer feels misled, mistreated, ignored, or coerced, then profits from that customer are bad. Bad profits come from unfair or misleading pricing. Bad profits arise when companies save money by delivering a lousy customer experience. Bad profits are about extracting value from customers, not creating value.
Bad profits often boost short-term earnings; in the long run, they burn out employees and alienate customers. They also undermine growth by creating legions of detractors—customers who sully the firm’s reputation and switch to competitors at the earliest opportunity. Bad profits choke off a company’s best opportunities for true growth, the kind of growth that is both profitable and sustainable.
When people first hear about Bad Profits, they normally nod their heads in agreement. After all, the excerpt above reads like motherhood and apple pie – of course you don’t want to boost short-term earnings at the expense of long term customer value.
But if everyone so readily agrees that Bad Profits are undesirable, why do they exist? I don’t believe that anyone starts out trying to create Bad Profits. They are often born out of good intentions coupled with misaligned priorities and a lack of accountability to the customer.
I was recently chatting with the owner of a local company that repairs office hardware such as copiers, computers and whatnot. We got to talking about customer loyalty, and he mentioned that his company was currently experiencing an exodus of customers. When I probed further, he told me the tale of how a bad profit was threatening the future of his company.
Up until about a year ago, he had three managers in his company – a Sales Manager, a Customer Service Manager who oversaw the Field Technicians, and an Office Manager. Customer loyalty was high and revenues were respectable. Then the Customer Service Manager left the company.
The Sales Manager was well respected, and since he also had employees in the field, the Field Technicians were moved underneath him. On the surface this was a sensible, well intentioned decision.
But the Sales Manager’s priorities, goals and compensation were still highly stacked towards generating additional revenue. With the absence of the Customer Service Manager to hold him accountable, it did not take long for him to begin viewing the Field Technicians as another arm of his sales force.
And so began the installation of a Bad Profit. Field Technicians were quickly required to sell additional products and services when they went on service calls. The thinking was that since they were already in front of the customers, they might as well try to sell something.
At first this appeared to be a brilliant plan. Additional sales started pouring in from the Field Technicians, and the Sales Manager looked pretty clever for a couple quarters. That is, until clients’ service contracts started expiring. Suddenly contracts that they had held for years were not being renewed. Customers began migrating to other providers because their trust, satisfaction and loyalty had been depleted in the name of bad profits. Unfortunately, the company is now so dependent on this revenue that weaning the business off of the Bad Profits will be a long and painful process that may or may not be successful.
The worst part about Bad Profits is that once your company allows them in, they are very difficult to eliminate. To prevent Bad Profits you must constantly stay on guard against misaligned priorities, question ideas that seem too good to be true, and ensure that someone in your organization has the responsibility (and the authority) to act in the best interests of your customers at all times.