Why the customer remains king

A keen observer of how businesses treat those they serve has devised a formula delineating loyalty

If you think the adage "the customer is always right" is a no-brainer, you may be surprised to know how many businesses have not learned that lesson and how seriously not doing so damages their long-term profitability.

Rob Markey, a partner with the consulting firm Bain & Company, believes breeding customer loyalty is the best way to create a market-leading business and he has defined a methodology for doing so, which he calls the net promoter system.

Markey now aims to bring the system to China with his book The Ultimate Question 2.0: How Net Promoter Companies Thrive in a Customer-Driven World, which has just been published in Mandarin.

"Whether you are selling planes, engines or toys, whatever business you are in, the ultimate question that defines the future of the company relies on your customers' answers to one question: 'How likely are you to recommend us to your friends and colleagues?'" Markey said during a forum with 300 Chinese business leaders at a Peking University Executive MBA class recently.

This simple question forms the core of the net promoter system, a management approach to business that eschews "bad profits" that exploit customers and favors ethical profits from enriching lives, a practice Markey says many international companies such as British Gas Services and American Express exemplify.

Markey, head of the global customer strategy and marketing practice of Bain & Company, has worked in this field for 23 years and spent a lot of that time observing how companies treat customers.

"I've wondered for some time why some companies' employees are angry with customers and yell at them, while those of other companies make great efforts to serve them," he says.

"Customer-centricity" is the path to growth because it drives customer loyalty, helping make a company mission-driven as well as profit-driven, Markey says. Bain & Co found that the "loyalty effect" typically boosts profits by between 25 and 100 percent by increasing customer retention rates by about 5 percent.

This is "because loyal customers come back more often, buy additional products and services, refer their friends, provide valuable feedback, cost less to serve and are less price sensitive".

As simple as it may sound, many companies fail to focus on customers because they are too fixated with accounting figures, which do not completely reflect the long-term situation of a company, Markey says.

"From the accounting and financial system, managers can see the company's income, cost and the production line situation, but many don't have measuring tools to tell them what economic values different kinds of customers could bring."

An important question companies should ask to get an accurate picture of its long-term prospects is: "How likely are you to recommend us to your friends and colleagues?"

Under his net promoter system this question is answered on a scale of zero to 10, with respondents then divided into promoters (a score of nine to 10; loyal enthusiasts who will keep buying and refer others, fuelling growth); passives (a score of seven to eight; satisfied but unenthusiastic; vulnerable to competitive offerings); detractors (a score of zero to six; unhappy customers who can damage your brand and impede growth through negative word of mouth).

This leads to the creation of a net promoter score, which is the percentage of customers who are promoters minus the percentage who are detractors.

"Once you know where your constituents sit on this scale you can take steps to increase promoters and decrease detractors," he says.

Variations in net-promoter scores between companies can be clearly seen, Markey says, with market-leading companies such as Apple, Amazon and Costco having scores of about 80 percent compared with mid-market firms' scores of 10 to 20 percent.

Overall, net-promoter score leaders in the US (companies with the highest scores in their category) grow at more than double the rate of average companies, Markey says. And while only 9 percent of US companies surveyed by Bain & Co have registered sustained profitable growth of more than 5 percent over the past decade, those 9 percent have net-promoter scores 2.3 times those of industry averages.

Han Weiwen, a partner in Bain & Company, says the net-promoter score is about changing a company's culture.

Three or four years after Bain had started compiling and disseminating scores, customers began telling it that they might be wrong, he says.

"There are some specific indexes and some technical skills for it, but the whole net-provider score involves a system that should be understood more from the cultural angle."

Using the system demands three key elements, he says.

"They need to systematically categorize customers into promoters and detractors to produce a net score that monitors the quality of customer relationships, and communicate this throughout the organization."

Second, they should create what he calls a closed-loop learning and improvement process to increase promoters and reduce detractors at an operational level. By this he means a company should investigate the source of bad customer relations and put things right.

Commonly, companies collect customer feedback and react to it several months later, Markey says, and this is ineffective in tackling problems that may exist.

When a company gets customer feedback, it should send it to employees quickly and ask them to take prompt action to solve the problems, which would strengthen ties with customers, he says.

Third, companies should treat creating more promoters and fewer detractors as a critical mission at board level. Developing loyal relationships with customers is critical to the NPS strategy, he says.

To achieve these three elements is part of a wider process of change, he says, of which the net-promoter score is just a part.

Markey says the score helps a company understand its market position, unlike much market research that is often not focused on an outcome. It helps companies to "listen to their customers" effectively and act upon the information they receive efficiently.

The net-promoter score system is suitable for companies of any size, Han says. "In small companies, many things are incomplete, so it will be easy to do something new and change direction, which for big companies could be difficult."

Net promoter scores can also be useful in energizing employees, Markey says.

"If you want your employees to be energetic and happy about their work you need to let them know that they can create very high net-promoter scores and that their work will be recognized.

"Using the system also means letting employees know how to use the system. They will decide what's the problem and how to react and make changes. So it is also a way of granting power, which will make employees feel better."

Han says many companies that have used the system, leaving their competitors in their wake. These include giants like General Electric and much smaller community companies. Many Chinese companies have also used the system, including supermarket chains, garment industry and insurance companies, he says.

Yao Qiang, deputy general manager of Power Construction Cooperation of China, says that because the net-promoter score represents a customer evaluation, it needs to be part of a continuing process. As customers change, their requirements change too, so the net-promoter system makes companies automatically change to adapt to internal innovation and outside change.

chenyingqun@chinadaily.com.cn

(China Daily Africa Weekly 07/12/2013 page22)