The Ultimate Question
by Keith Starcher

Long-term, profitable growth—that has a nice ring to it, doesn’t it? That is the type of growth focused on in The Ultimate Question by Fred Reichheld.

The author’s premise is that this type of growth will not occur unless you are creating delighted customers and measuring your progress in doing just that. What is the measurement? Companies need only ask one question—the Ultimate Question—in a regular, systematic and timely fashion. These businesses want customers who are so pleased with how they were treated that they “willingly come back for more and bring their friends and colleagues with them.”

Bad Profits

Mr. Reichheld begins our journey to the Ultimate Question by defining bad profits—these are profits earned at the expense of customer relationships. “At times, customers must conclude that businesspeople lie awake nights thinking up new ways to hustle them.” (Just think of your celluar phone service, for example.) Bad profits are destructive to long-term, profitable growth because they create detractors.

Detractors stop buying from your company, switch to your competition (if they can), and tell others about their bad experiences with your company. They get even. Remember, the old adage, “an unhappy customer tells 10 friends?” With modern telecommunication technology, this can just as easily be 10,000 “friends.”

There is certainly a biblical perspective on how we are to treat our customers. One verse that comes to mind is Philippians 2:3-4, “Do nothing out of selfish ambition or vain conceit. Rather, in humility value others above yourselves, not looking to your own interests but each of you to the interests of others.” And so it is sad to read the following examples:

  • Retail banks now depend on “nuisance fees” for as much as 1/3 of reported earnings.

  • Mobile-phone companies realize that if they put customers in the calling plan that would be best for the customer, the phone company would cut their profits by 40%.

The examples could go on and on. Customers resent bad profits.

Good Profits

Good profits are earned “with customers’ enthusiastic cooperation.” Satisfied customers become part of the company’s marketing department. They become promoters. Our goal should be to create promoters, not detractors. How do we get started? Revisiting your company’s core values would be a great place to begin. For example, I wonder if eBay’s phenomenal growth can be attributed to their Community Values:

eBay is a community that encourages open and honest communication among all its members. Our community is guided by these fundamental values:

  • We believe everyone has something to contribute.

  • We believe that an honest, open environment can bring out the best in people.

  • We recognize and respect everyone as a unique individual.

  • We encourage you to treat others the way you want to be treated.

eBay has found ways to “operationalize” these values into their daily priorities and decisions. And more than 70% of eBay customers are promoters. The company encourages its members to “point out areas in which they believe eBay isn’t living up to its principles, and to identify new opportunities to better serve members.” These loyal members are the key to profitable growth.

Loyalty

But how can companies know how many of their customers truly love their company and how many hate it? The author’s research shows that a 5% increase in customer retention can yield anywhere from a 25% to a 100% improvement in profits. The research also showed that companies with the highest customer loyalty typically grew revenues at more than twice the rate of their competitors. And this customer loyalty stems from how each and every customer is treated by our employees. So why can’t we just make our employees care more about customer relationships?

Metrics

Financial results determine how managers are rewarded. But our accounting procedures can’t distinguish between good and bad profits. We measure success through the lens of financial accounting. Managers tend to focus on profits regardless of whether those profits “represent the rewards from building relationships or the spoils from abusing them.” Promoters and detractors don’t show up on anyone’s income statement or balance sheet.

A Practical Metric for Relationship Loyalty

The Ultimate Question, if asked systematically and linked to employee rewards, can help you manage for customer loyalty and the growth it produces. So what is the Ultimate Question?

“How likely is it that you would recommend this company to a friend or colleague?”

(Note: for a business-to-business setting, a question such as, “How likely is it that you will continue to purchase products or services from us?” may be better.)

The author created a Net Promoter® Score (NPS) which is simply to take the percentage of customers who are promoters (those who answer a 9 or 10 on a 0-to-10 scale) and subtract the percentage who are detractors (those who answer a 0-6 on a 0-10 scale).

What do you think your company’s NPS is today? And more importantly, what can you do to improve your NPS score?

The obvious answer is to increase the percentage of promoters and decrease the percentage of detractors. This will most likely require two separate and distinct processes.

Let’s be clear from the outset. A high NPS by itself is not the engine of growth for your company. NPS provides you with feedback on the quality of your company’s relationships with its customers. And although high-quality relationships are necessary for growth, there are other factors that must be in place as well—and some are very industry specific (e.g., your company’s ability to innovate).

Ask the Ultimate Question … and Not Much Else

After asking the Ultimate Question, you don’t want to ask much else. Bu you could add a feedback mechanism such as:

  • Any customer who gives you a failing grade is asked if they would like a company employee to contact them to better understand their disappointment and try to resolve their problem.

  • Or ask a second question, “What is the primary reason for the score you just gave us?”

  • Or for any rating below a 9 or 10, “What is the most important improvement that would make you rate us closer to a 10?”

It’s critical that you ask the Ultimate Question to the customers you care about the most—your core customers. You will need high response rates (if your response rates are less than 65%, you are not hearing from enough customers). And consider gathering and reporting this “relationship data” frequently. Once a year just won’t cut it. Think about reporting your NPS scores as frequently as you do your financial data. Otherwise, it is difficult to keep your employees’ focus on the development of loyal customer relationships.

Who is Accountable?

When it comes to Net Promoter metrics, be as precise as possible. Just as you look at your company’s profit by product line, geographic region, plant, etc, review NPS data at these levels as well. Hold individuals accountable for the NPS scores that their groups produce. Depending on your situation, you may be able to rank teams and individual members of your organization by an NPS that is the average of all the customers they served for a particular month.

According to the authors, there is a tried and true system that will help drive your Net Promoter Scores up:

  • Design value propositions that focus on the right customers. To do this, you must properly segment your customer base and then design a customer experience capable of delighting each targeted segment.

  • Deliver those propositions 24/7/365—every department and every employee must pull in the same direction (bust the silos).

  • Develop your company’s capability to do all this over and over again, renewing and reinventing the customer experience over time.

Sounds doable, doesn’t it? It is—if, and only if, the CEO and other senior executives believe this is the right way to do business and the only real path to true growth.

Building an Organization that Creates Promoters

The authors reference a survey of North American employees who had worked 10 years or more for the same company. The survey reveals that only:

  • 39% trust their leaders to communicate openly and honestly;

  • 33% believe that employee loyalty at their company is appropriately valued and rewarded;

  • 28% think their company values people above short-term profits;

  • 19% can be considered “promoters” (producing enthusiastic referrals for the company)

In fact, “detractors” outnumber “promoters” by a wide margin in businesses across North America. On a scale of 0 – 10, what percentage of your employees would answer a 9 or 10 (Extremely likely) to this question:

“How likely is it that you would recommend (my company) to a friend as a place to work?”

That’s a sobering (and a challenging) thought.

We have the example of those who have gone before us and built businesses that are “more than just profitable.” Let’s listen very closely to our customers and to our employees. Have we created a work environment that enhances relationship building among all our employees? For our customers, have we created a business that is delightful to work with? Are we courageous enough to ask these critical stakeholders the “Ultimate Question?”


Keith Starcher is President of DayStar Consulting, Inc., a firm serving small business owners by providing insights and ideas regarding marketing strategy and strategic planning. DayStar Consulting, Inc. provides insight, ideas, and impact for small business owners who desire to succeed from both a financial and biblical perspective. Dr. Starcher has 30+ years of experience in both Fortune 500 and small, family-owned companies. His primary objective in counseling small-business owners is to help them create a blend of resources and capabilities that lead to competitive advantage in the marketplace. Visit www.daystarconsulting.com/ for additional information.

Many more articles in Customer Service in The CEO Refresher Archives

   


Copyright 2006 by Keith Starcher. All rights reserved.

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