"Beyond Customer Satisfaction" by Ken Bernhardt Regents' Professor of Marketing and Assistant Dean for Corporate Relations  Robinson College of Business, Georgia State University Atlanta Business Chronicle - March 24, 2006 There is a big gap today between how good a job companies think they are doing in satisfying customers and what customers actually think. A Bain & Company study of 362 firms that found that while 80 percent of managers believe they deliver a "superior experience" to consumers, only 8 percent of consumers surveyed agreed. Many people think that the key to building loyalty is to focus on customer satisfaction. A major research firm recently reported that 86 percent of companies are using customer satisfaction surveys. Yet a well-read Harvard Business Review article from several years ago entitled "Why Do Satisfied Customers Defect?" demonstrates that satisfaction doesn't guarantee customer retention. There is, in fact, a clear difference between satisfaction and customer loyalty.  While many companies may measure customer satisfaction, few correctly measure customer loyalty, the more important predictor of company growth.  A new book, The Ultimate Question: Driving Good Profits and True Growth, by Bain & Company consultant Fred Reichheld, documents how managers can accurately measure and grow their customer loyalty.  Studies reported in the book have found that companies with the highest customer loyalty typically grew sales at more than twice the rate of their competitors. Reichheld argues convincingly that companies need to ask only one question to accurately assess the strength of its relationships with its customers.  The "ultimate" question is "How likely is it that you would recommend this company to a friend or colleague?"  The scale runs from zero to 10 with zero being not at all likely and 10 being extremely likely to recommend.  A five is neutral.  The scores are divided into 3 clusters.  Customers who rated the company a 9 or 10 are called "promoters" because they behaved like promoters, with high repurchase rates and accounted for more than 80 percent of the referrals.  Those with scores of 7 or 8 on the scale were called "passively satisfied."  Their repurchase rates were considerably below those rating the company a 9 or 10, often by 50 percent or more.  These are the satisfied customers who may later defect when a better offer appears.  Finally, those rating the company from zero to 6 were called "detractors."  This group accounted for more than 80 percent of the negative word-of-mouth comments. These negative comments may diminish a company's reputation, discourage new customers, and undermine employee motivation. As Reichheld puts it, "They suck the life out of a company."  In the past, these dissatisfied customers or detractors might tell 10 people about their experience, but today, with the power of the Internet, they can tell thousands of other consumers. By subtracting the percentage of customers who are detractors from the percentage who are promoters, a "Net Promoter Score" can be calculated.  Based on considerable research, Reichheld makes a convincing argument that this "NPS" score will predict a company's growth rate relative to competitors - - higher scores indicate stronger loyalty and yield higher growth.  The Net Promoter Score can be calculated for particular customer segments, company divisions, geographic regions, individual stores, etc.   While this Net Promoter methodology worked well for most industries, Reichheld identifies other alternative measures which can yield comparable results in measuring customer loyalty.  Enterprise Rent-A-Car uses "Were you completely satisfied?" as its major question and has found that the answers to this accounted for 86 percent of the variation in customer referrals and repurchases.  Those rating the company a "5"on the 5 point scale, the equivalent of promoters, were 3 times more likely to return to Enterprise than customers giving lower ratings.  Nearly 90 percent of positive referrals came from these "top-box" customers. Other questions that can be helpful in understanding and tracking customer attitudes include asking about customers' intention to continuing buying from you and the reasons why or why not. Even when Reichheld's proposed single question is used, it would still make sense to ask those giving low scores for their reasons why. No matter what measurement used, the key is the follow-up.  Are you determining which customer segments are most important and most profitable to your business? Are you designing and delivering the right value proposition for these customers? Are you consistently delivering great customer experiences?  Employee involvement can be a major factor in achieving positive answers to these questions.  Cross functional teams can often identify solutions or "quick-fixes" to problems that lead to detractors. Experimentation, especially when it involves active participation from customers, can identify ways to convert those who are passively satisfied into promoters. Reichheld reports on a Bain study that found that only 22 percent of the world's major companies achieved real sustainable growth of at least 5 percent per year from 1994 to 2004 and the typical company loses one-third of its new customers within 3 years.  What do companies described in the book including Dell, Costco, HomeBanc Mortgage (an Atlanta company), Four Seasons Hotels and Southwest Airlines do to create high Net Promoter Scores and became growth leaders in their industries? They accurately measure customer loyalty and act on the findings by doing more of what promoters like and less of what detractors dislike, helping to ensure that they retain more customers and attain growth rates beyond what most companies are able to achieve.  If you are truly interested in growing your customer loyalty, I highly recommend this book to you.