The man behind NPS says most leaders still miss the point

Fred Reichheld is a legend in the field of customer loyalty. If you’ve ever received a text or email asking to rate a product or service, you can thank Fred for that. Although the system isn’t without its critics, it’s estimated that NPS (Net Promoter Score) is now used by two-thirds of Fortune 1000 companies.

Since its initial development in the early ‘90s, Fred developed the NPS system to measure how likely customers were to recommend a company to a friend. His latest book, Winning on Purpose: The Unbeatable Strategy of Loving Customers, builds on the early system and is a must-read for any businessperson pursuing sustainable success.

In this exclusive interview, we talk to Fred about the good and the bad of the NPS system, how it’s developed over time, how NPS is a key indicator for the quality of a company’s leadership, and much more.

Where did your passion for customer loyalty come from?

My uncle ran a series of large Fortune 500 businesses. As I got to know his colleagues, investors, and customers, I felt like those business communities were the best communities I had ever encountered. They were better than churches, schools, and non-profits; they really treated people right but there was a high level of accountability. That model just wasn't widely shared in business school.

The idea that your primary duty was to your shareholders and maximising shareholder value made everything else okay, even if it was ethically shady, was just so inconsistent for me. So, I suppose the drive was, how do I reconcile these two worldviews? Which one is right? As I've come to recognise, the only way to build a prosperous and sustainable business is the high road of treating people right.

So, I've tried to develop tools, techniques, frameworks, and practical solutions that help leaders take that path. But, although I'm proud of what we've achieved, only 10 per cent of business leaders today believe that the primary purpose of a business is to make their customers’ lives better. That's just mind-boggling to me because it's the only purpose that actually leads to positive outcomes in the long run.

Are you proud of the adaptation of the NPS system?

We’ve made good progress. I’m astonished at how this community, which has adopted these ideas, has grown, put them to work, and shared them. Apple was one of the early adopters of NPS because their mission was to enrich the lives of their customers, and when they saw the system, they said, “Finally, here's a practical way of measuring progress on this mission.” The idea that every Apple store employee gets instant feedback from a customer shows that they know how to use the system.

It's designed not to get people in trouble. They don't rank everybody by their score and embarrass the people in the bottom quartile, as a car dealer does. When their employees innovate and succeed in making customers love doing business with Apple, they want them to feel the love in a way that they know their bosses, and their bosses’ bosses, are going to be able to see and celebrate.

Take that concept and multiply it by the 1,000s of practitioners who have used NPS effectively, and you build a whole foundation of ideas of how a business should be run. As I mentioned, it’s so revolutionary to traditional MBA thinking. It's fashionable today to talk about all your stakeholders as equally important. That's just wrong. Obviously, you have to serve all your stakeholders, but your purpose has to be to make one of those stakeholders’ lives better, and the customer is the only one that makes sense.

Because when you solve a customer's problem and make them happy, not only does it encourage them to come back and recommend the experience to friends and family, but it also makes it a better place. When you put your team in a position where they can enrich the lives of their customers, you, in turn, have enriched those employees’ lives because of that act of service.

You came up with the NPS system around two decades ago. How has it developed since then?

When I started by focusing on the economics of loyalty, the metric I used was retention rates. It's a good metric. Retention continues to be an important way of measuring whether you made customers happy or not, but it is too late in the process. Often, your customer leaves after a long period of disappointment, and so it's hard to assign accountability; it's hard to get that customer back and solve the issue in a timely way.

I was searching for what would help businesses get a snapshot in real time. I came, probably grudgingly, to the idea that it had to be a survey, because I'm not a fan of surveys; I think they often waste people's time. I spent a lot of time in my graduate courses at Harvard, understanding sampling issues and statistical accuracy, and I know that most people won't go to the trouble to understand all those things.

That said, I worked out that if I must have a survey, how close could I get to perfection with just one question? The answer was pretty darn close. The question we found was that the best signal of a customer's life being enriched was: how likely would they recommend this to a friend? We developed it on a scale of zero to ten. It saves people the hassle of answering 5, 10, or 20 questions and gets the friction out of the way.

But where did the system go wrong? Customers stopped thinking about the difference between the overall relationship between NPS and an individual transaction. They would also start linking survey scores to frontline bonuses, which creates bias in the system and leaves it open to gaming or cheating. Nevertheless, people need accountability. Now, of course, every Net Promoter survey done by my rules will have a why and open text verbatim to explain why and how to get better, and that’s where the real feedback and the richness come from.

Despite its criticisms, could you give us some examples of the best uses of the NPS system that you’ve seen?

A good example is Apple. The traditional thing that big companies do is buy tech that makes the headquarters-based employees more powerful and gives them smarter insights. However, the best ones, such as Apple, empower frontline teams with apps as they want the information out in the front line.

Enterprise Rent-A-Car is another great example; they were the company that had what was really the forefather of NPS. They had two questionnaires that went out to a sample of customers at every branch, and they held the team accountable in an appropriate way, because the scores were in front of them. Andy Taylor, who was the CEO of the company at the time, explained to me that they call customers who give a failing grade. The branch manager calls them, apologises, probes for the root cause, tries to figure out how to learn, and then shares that with the branch team. That idea of local learning and closing the loop is very powerful.

One of the best examples I’ve seen recently is from my daughter. She ran a customer service operation for an American wine retailer called Total Wine & More. She knows I like just one question, but she told me she added a second one, and the question is, “Is there anything we could have done better or to make your experience even better?” These questions led to some very powerful insights.

For example:

Why did you give us a 10?

“Jerry at the checkout was incredible.”

What can we do better?

“The light is out in the streetlamp behind your store where I park, and it makes it feel creepy at night.”

That's a problem worth solving.

Would you say there is a direct correlation between NPS and good leadership at a company?

I can talk to a leadership team for 20 minutes, and a handful of their frontline employees for another 20 minutes, and I'll know straight away where they stack up in NPS versus their competitors. It is purely a cultural belief system. Often, there are a lot of people in an organisation that want to put in an NPS system, but leadership doesn't really believe in customer centricity. Some leadership even think of it as a tick-box exercise. They put in NPS, but then they keep putting in policies that are abusive of customers, such as banks charging crazy fees and hotels tacking on a hidden resort fee.

I was talking to a young finance reporter, and she said something just totally brilliant. She said, “So what you're saying, Fred, is that when you encounter one of these bad prophets, techniques, or someone is begging for a score, that's really a signal that the leadership of that company is not high quality.”

That's the signal that you shouldn't be buying from a company like that; you don't want your kids working at a company like that. Those bad behaviours might make accounting earnings go up this quarter, but they essentially ruin the potential of that business to achieve long-term sustainable growth, because the only sustainable profitable growth is this flywheel of treating customers well, so they come back for more and bring their friends.