The Ultimate Question

Is there such a thing in your world as bad profits? Or is any profit you get a good profit?
In the mind of Fred Reichheld, director emeritus and fellow at Bain & Co., and the author of Harvard Business School Press’ “The Ultimate Question,” some profits are, indeed, bad profits, and they can lead to your company’s demise.
“While bad profits don’t show up on the books, they are easy to recognize,” he writes. “They are profits earned at the expense of customer relationships.” He explains that bad profits come from unfair or misleading pricing; whenever a customer feels misled, mistreated, ignored or coerced; when companies save money by delivering a lousy customer experience; and any practice that extracts value from customers.
On the other hand, he writes, good profits are earned with customers’ eager cooperation; they are earned when your product or service so delights your customers that they willingly come back for more and tell their friends and colleagues to do business with you. “Satisfied customers become, in effect, part of the company’s marketing department, not only increasing their own purchases but also providing enthusiastic referrals.”
Reichheld argues that you can gauge the satisfaction of your customers, and therefore your percentage of bad vs. good profits, by asking one simple question of them: How likely is it that you would recommend this company to a friend or colleague? A 1-10 scale, with 10 being “extremely likely” and 1 being “not at all likely,” can then be broken down into three sets of scores. Customers who respond with 9s and 10s are considered “promoters,” customers who score you with 7s or 8s are considered “passive,” (they’ll leave you if a better offer comes along), and everyone else is considered a “detractor,” someone who speaks poorly of you and will leave you at the first opportunity.
Proven performance
The case studies in the book, such as that on Enterprise Rent-A-Car, are convincing. But closer to home, companies in the marine industry such as GE Capital Solutions and Crystal-Pierz Marine are using the concept to focus on customer satisfaction.
Reichheld’s method culminates with a Net Promoter Score, which essentially is your average number of promoters, minus the number of detractors. “NPS is to customer relationships what a company’s net profit is to financial performance,” he explains. “It’s the one number that really matters.”
He makes a compelling argument and demonstrates how narrowing down to this number can help your company drive growth. The concept made such an impression on Crystal-Pierz Marine President and COO Luke Kujawa that he has instituted a policy in which every employee throughout his 10-location operation is set up on a bonus program that pays out based on NPS and profit.
“The book makes a really good point on something we’ve always stood by – that brand loyalty is so much more important than just a CSI score,” Kujawa says. “For the first time, this gives us a way to track that. It gives us current data every month on a store-by-store basis and truly measures customer loyalty.
“One of the biggest things it has done for us is, with the bonus structure, every single employee is aware of our NPS, and it’s forced to be top of mind 100 percent of the time. Just that alone is moving the mark.”
Similarly, GE Commercial Distribution Finance, which recommended the book to Kujawa, uses the concept to, in Chairman and CEO Jeff Immelt’s words, “measure how customers view GE. Most importantly, we have been able to associate NPS improvement with growth. NPS is simple and we can use it across the company.”
“The marine group of GE Capital Solutions implemented NPS nearly two years ago,” says Bruce Van Wagoner, president. “It has helped us improve our understanding of our customers, and, in turn, we’ve been recommending NPS to our customers.”
It’s worked so well, in fact, the division is launching what they’ve coined NPS Everyday. Customers are sampled monthly and GE Capital Solutions reacts to the feedback on a daily basis. It’s customer focus with precision and speed – not bad for a simple set of questions.
The Ultimate Answer
In the book, Reichheld spends a considerable amount of time debunking traditional CSI methodologies. He provides a list of the top 10 reasons satisfaction surveys are a joke, and it honestly reads like one of the myriad conversations we’ve held with various members of the marine industry. Dealers claim that a lower percentage of satisfied customers respond (see No. 9 on the call-out list on this page); manufacturers contend that dealers don’t take corrective action (No. 8); and even we here at Boating Industry hear regularly about dealers who are manipulating their scores (No. 1).
He makes a strong argument. But the reality is that nearly every CSI questionnaire we have seen asks a similar question to the one Reichheld proposes. While he asks if the customer would be likely to recommend the product or service, most marine industry CSI cards ask if the customer would be likely to buy a product from the same company again. The two are synonymous, says Robert Rowe, executive vice president of Irwin Broh & Associates, a marketing research company that conducts CSI programs for marine manufacturers. “The industry is there in terms of recognizing that loyalty is the most important thing,” he says.
But more important than measuring loyalty, through whichever means you drill down to this ultimate answer, is doing something with the results.
“To the extent that you can get everyone focused on a single barometer or measure of whether or not you’re satisfying the customer,” Rowe explains, “that’s an admirable place to be. Everyone gets so caught up on the financials that they can let their customer satisfaction slip.”
Customer Satisfaction ISSUES?
The author argues 10 points against traditional CSI surveys.
1. Gaming and manipulation wreck their credibility
2. Satisfaction surveys dissatisfy customers
3. Surveys confuse transactions with relationships
4. There are no generally accepted standards
5. Plain-vanilla solutions can’t meet companies’ unique needs
6. Survey scores don’t link to economics
7. Too many surveys are marketing campaigns in disguise
8. Employees don’t know how to take corrective action
9. The wrong customers respond
10. Too many surveys, too many questions