The Ultimate Question 2.0

By Fred Reichheld

There is one question that can help you define a great customer experience, leading to more customer loyalty and profits. Learn what it is and start using it today.

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We all want our customers to be happy. And we all know that happy customers is the only way to create long-term success in business.

The challenge is to understand how customers are feeling and how to create a customer experience that delivers more happiness and less frustration.

Traditional surveys aren’t up to the task. There are too many questions, and instead of action, they inspire paralysis by analysis.

Financial reports don’t help us either because they don’t distinguish between, as Fred Reichheld calls them, “good profits” and “bad profits.”

This book is all about asking a deceivingly simple question, calculating a score, and then taking actions to increase your score. It’s simple, and that’s why it works.

The Questions

The system that Reichheld suggests we use in order to increase customer loyalty is called the Net Promoter System (NPS for short).

The system has us ask 2 simple questions and then use the answers to create our path forward.

First, you ask the Ultimate Question, which is:

On a scale from 0 to 10, how likely is it that you would recommend us (or this product/services/brand) to a friend or a colleague?

Next, you ask a follow up question:

What is the primary reason for your score?

This open-ended follow up question allows you to hear the reasons for the score in the customers’ own words. This is important, because it avoids the leading questions that are often built into the customer loyalty questionnaires.

Promoters, Passives and Detractors

After asking the two questions, you sort people into different buckets based on their answers.

Promoters

These are people who answer the Ultimate Question with a 9 or a 10. This is a signal that their lives have been enriched by doing business with your company. They typically make repeat purchases and give your company a larger amount of their spending. They are also big word of mouth advocates and tell their friends, family and colleagues about their experience.

The goal is to have as many of our ycustomers be Promoters as possible.

Passives

These are people who answer the Ultimate Question with a 7 or 8. They are satisfied customers, but not loyal customers. The behaviours you see from these customers are different. They don’t make many referrals, and the ones they do make are not enthusiastic. If a competitor runs a promotion, they are likely to defect. These are customers that you cannot bank on sticking around for the long-run.

Detractors

These are people who answer the Ultimate Question with a 6 or below. They are the reverse of the Promoters – their lives have been diminished by doing business with your company. They are completely dissatisfied with their experience, and are likely to tell their networks about it.

Calculating Your Net Promoter Score

Now that you have figured out which buckets your customers go in, it’s time to calculate your Net Promoter Score.

This calculation is very simple as well:

NPS = % of Promoters – % of Detractors

Now that we’ve covered exactly what the Net Promoter Score is and how you calculate it, let’s move into why you should use this at your company, and exactly how to implement it.

Two reasons to use NPS

The Net Promoter System is based on two pillars – economic and inspirational.

The economic pillar of NPS is about understanding why it makes business sense to invest in customer loyalty, and what the ROI is on creating more Promoters and less Detractors. If you’re not the person in charge of the finances at your company, they you need to build the case for the person that is (usually the CFO). We’ll cover the economic reasons to use NPS in the next section.

The inspirational pillar of NPS is about helping enrich the lives of the people at our company by putting the Golden Rule at the centre of your decision making process. You’ve heard from many other books and experts how important it is to help your team find purpose in their work – treating others as you’d like to be treated as a customer is a concrete and tangible way to do it.

Good Profits/Bad Profits

At the core of the Net Promoter System is the idea that good profits are better than bad profits in the long-run, and that you use NPS to get more good, less bad.

Bad Profits

Bad profits are the ones earned at the expense of the customer. They are about extracting value from customers, not creating value for them.

They show up in many different ways. For instance, discounts, sales promotions and expensive advertising lead to a profit squeeze, which usually leads to more discounts, sales promotions and expensive advertising. It’s focussing on the wrong end of the problem.

The consequences of relying on bad profits are enormous. They blacken your reputation, and they alienate customers and employees alike. They make you vulnerable to competitors. The ultimately lead to poor results over the long run.

Good Profits

Good profits, you might have already guessed, come from loyal customers.

These customers ultimately lead to great business results over the long-run. A great example of this is Costco, which is the leader in customer-loyalty among warehouse retailers. They went from start-up to a Fortune 50 behemoth in less than 20 years. How much did they spend on advertising and marketing? Almost nothing. Their customers are so loyal that they have depended almost entirely on word-of-mouth for its growth.

Ok, but just exactly how much are they worth?

Now that we’ve covered the general, let’s get to the specific.

The first thing you need to do in order to calculate exactly what Promoters are worth to your business is to figure out the lifetime value of your average customer.

Then, using that as your baseline, calculate the same thing for your Promoters, Passives and Detractors. If you are like most businesses that go through this exercise, you’ll find that the lifetime value of Promoters are worth much more to your business.

There are many different business metrics at the heart of why this is the case:

• Retention rate. Promoters stick around at a much higher rate. This also means that your customer acquisition costs get spread out over a longer lifetime, leading to a more profitable customer.
• Pricing. Promoters are more often less price sensitive than Detractors, which means that you don’t have to rely on discounts and expensive marketing campaigns to keep them.
• Annual spend. Promoters spend more of their money with you than Detractors do.
• Cost efficiencies. You already know this intuitively – your best customers require the least amount of time and attention. So, they actually cost you less than Detractors.
• Word of mouth. Between 80 and 90 percent of positive referrals come from Promoters. So, each Promoter is not only worth the revenue you generate from them, but from the revenue you generate from the referrals they make as well. And to make this element even more powerful, the people that Promoters refer to your business are much more likely to become Promoters themselves than customers that find you through more traditional means.

Even if you can’t come up with an exact figure around how much a Promoter is worth to your business right now, you can estimate. For instance, a bank that worked with Bain & Co on a Net Promoter project calculated that they are worth $9,500 more to the bank than a Detractor.

On the other hand, Detractors are responsible for 80 to 90 percent of negative word of mouth, and actually have a negative lifetime value to your company. You can see why you’ll want to figure out how to not acquire these people as customers in the first place.

8 Principles of using NPS systematically

If you are going to use NPS in your business, there are principles that the authors have learned through hundreds of successful implementations that you’ll want to keep in mind.

Principle 1: Ask the Ultimate Question and very little else

The tendency of most people who use NPS for the first time is to want to add in a bunch of other questions. If you do want more detail after you’ve asked the Ultimate Question and one follow up (which should focus on having the person explain their score, or suggesting improvements that would make it more likely for people to recommend), the appropriate action to take is to call the person and interview them.

Principle 2: Choose a scale and stick to it

The 0 to 10 scale has many advantages. It makes intuitive sense, most of the world uses it as a measuring stick (like in hospitals asking about the severity of pain), and makes it easy to spot differences in behavior that a 5 point scale would miss.

Principle 3: Avoid confusion between internal scores (‘bottom-up’ or ‘touchpoint’) and external scores (top-down, benchmark or ‘relationship’ scores)

Larger companies will sometimes have external firms to do random checks on customers to produce a score that can be compared to customers of a competitor. These are helpful to benchmark performance, but they are not the same thing as the scores generated after specific touchpoints, like asking the question to a customer soon after they purchase. These touchpoint surveys are where you’ll find the “golden nuggets” you need to fine tune every part of your customer experience.

Principle 4: Aim for high response rates from the right customers

It would be great to get feedback from all customers, but you should begin with the customers you care most about – your core or target customers. The goal of NPS is to predict hard, quantifiable behaviors, and for that you need large sample sizes.

Reichheld suggests that if your survey response rates are lower than 65 percent, your process needs to improve. There’s a good reason for this. There’s a tendency for people to assume that the distribution of non-responders are like the distribution of responders. However, that’s not true. Non-responders tend to be Passives or Detractors, so a low response rate will almost certainly show you a better NPS score than you really have.

Principle 5: Report and discuss NPS data as frequently as financial data

If you only measure and discuss your NPS scores once a year or quarter, nobody will pay attention to it except when the results come out. Which, of course, is not often enough to drive the changes in your business that will lead to more Promoters and less Detractors.

Principle 6: Learn faster and improve accountability with more granular data

There are two things you can do to create more granular data.

First, you can ask the Ultimate Question at each customer touchpoint. For instance, after a customer service call, you could ask the customer whether or not you resolved their problem, and then the Ultimate Question.

Second, and this follows from the first, you should empower everybody in the organization that touches the customer to collect the information and insights needed to change internal behaviors.

Then, you hold the people responsible for those interactions for increasing the NPS associated with those interactions.

Principle 7: Audit to Ensure Accuracy and Freedom from Bias

The closer you get to granular insight and accountability, the more bias will creep into the process. Every time I buy a car I’m reminded by the sales rep that “anything less than a perfect score on the customer satisfaction report is considered a failure, so please give me a perfect score.”

There are multiple sources of bias which you’ll need to fight against, but one of the easiest ways to do that is to use a software system and email deployments to collect the information. If you do need to use phone calls to collect the information, using a third-party to do them will help eliminate most of the bias.

Principle 8: Validate that Scores Link to Behaviours

Finally, the entire purpose of the NPS process is to ensure that you are generating more of the customer loyalty-type behaviors that drive business results – referrals, buying more and taking time to give constructive feedback.

For instance, check in periodically with the people who are giving you 9s and 10s on the surveys to ensure that they are making referrals, buying more and giving you constructive feedback. If they are not, you need to revise the way you gather feedback until you are seeing the scores and expected behaviors lining up.

Closing the Loop with Customers

Finally, in order to make NPS a successful part of your daily workflow, you need to close the loop with customers.

Closing the loop on the front line level means following up with as many Detractors as possible to identify any insights you can gain into why their experience was a negative one. Once you’ve pooled the insights, make decisions on what needs to change and make sure all front-line staff are notified of those changes.

Closing the loop for mid-level managers means using feedback from your Promoters to create products and services that are designed to attract and retain more Promoters.

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