Customer Loyalty and Employee Engagement
Posts tagged Loyalty
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.
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.
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.
How Marriott made me a rabid Promoter for the price of a bottle of water
May 11th
I am, as they say in customer loyalty circles, a Promoter of the Marriott chain of hotels.
Last year alone I spent over 60 nights in Marriott hotels, enough to earn my gold status for the next two years. I’ve referred countless friends and colleagues to various Marriott locations. I even set up a corporate rate for Volusion, which has resulted in well over 100 additional nights. Most hotel chains would love to have a customer like me – and the truth is that Marriott won my lifetime loyalty for the price of a bottle of water.
You see, I wasn’t always a one-hotel chain guy. I used to be equally loyal to three different chains. One night I was staying at a Courtyard by Marriott that I had stayed at twice before. I have a regular routine that I follow – shortly after checking in, I will go to the closest store and pick up a couple bottles of water (depending on how long I am staying) to bring back to the room. This trip was no different.
However, when I returned to my room, I discovered that the room I was in did not have a mini-fridge. It wasn’t that big of a deal, and I had all but forgotten about it until I received Marriott’s post-stay customer survey.
I filled out the survey as I normally did – Marriott routinely earns high marks from me. The last question of the survey asked what they could have done to make my stay more enjoyable. I put a short comment about how I was bummed at the lack of mini-fridge because I like to keep some water in the room.
The next day, I received the following email from the General Manager of the property:
Thanks so much for taking the time to complete our survey regarding your recent stay – we appreciate your feedback. I am glad to see that you enjoyed your stay and I just wanted to respond to your comment about not having a fridge in the room. We have about 24 rooms that do have refrigerators (I see that you had one on your stay before this one) but if one of those rooms is not available, just ask us for one and we will be happy to put one in your room. We value all of our guests, especially our rewards members and want to do everything we can to ensure we provide a great room and a high level of service. I hope the next time you are in town, you will stay with us again and I will ensure you have a fridge in your room.
I was suitably impressed. However, I was really blown away the next time I stayed at that same location. During check-in the desk agent informed me that they had ensured that I had a room with a mini-fridge in it. When I arrived in my room there was a bottle of water already waiting for me with a hand written note from the hotel manager.
One of the most important components of any customer feedback program is the final step – closing the loop. It’s where you let the customer know that you have heard and understood the feedback that they provided. This Marriott GM performed one of the most effective close-the-loop activities I’ve ever seen, and all it took was a simple survey, some basic CRM functionality, and 10 minutes of the manager’s time.
Whenever someone asks about the return on investment for Customer Feedback programs, I always cite this example. The tangible benefit to Marriott has been over 200 nights (around $26,000.00) from me, my company and people I referred. Not too shabby for a $2.00 bottle of water.