The One Number You Need to Grow

The One Number You Need to Grow

By Frederick F. Reichheld

 

The CEOs in the room knew all about the power of loyalty. They had already transformed their companies into industry leaders, largely by building intensely loyal relationships with customers and employees. Now the chief executives—from Vanguard, Chick-fil-A, State Farm, and a half-dozen other leading companies—had gathered at a daylong forum to swap insights that would help them further enhance their loyalty efforts. And what they were hearing from Andy Taylor, the CEO of Enterprise Rent-A-Car, was riveting.

Taylor and his senior team had figured out a way to measure and manage customer loyalty without the complexity of traditional customer surveys. Every month, Enterprise polled its customers using just two simple questions, one about the quality of their rental experience and the other about the likelihood that they would rent from the company again. Because the process was so simple, it was fast. That allowed the company to publish ranked results for its 5,000 U.S. branches within days, giving the offices real-time feedback on how they were doing and the opportunity to learn from successful peers.

The survey was different in another important way. In ranking the branches, the company counted only the customers who gave the experience the highest possible rating. That narrow focus on enthusiastic customers surprised the CEOs in the room. Hands shot up. What about the rest of Enterprise’s customers, the marginally satisfied who continued to rent from Enterprise and were necessary to its business? Wouldn’t it be better to track, in a more sophisticated way, mean or median statistics? No, Taylor said. By concentrating solely on those most enthusiastic about their rental experience, the company could focus on a key driver of profitable growth: customers who not only return to rent again but also recommend Enterprise to their friends.

Enterprise’s approach surprised me, too. Most customer satisfaction surveys aren’t very useful. They tend to be long and complicated, yielding low response rates and ambiguous implications that are difficult for operating managers to act on. Furthermore, they are rarely challenged or audited because most senior executives, board members, and investors don’t take them very seriously. That’s because their results don’t correlate tightly with profits or growth.

But Enterprise’s method—and its ability to generate profitable growth through what appeared to be quite a simple tool—got me thinking that the company might be on to something. Could you get similar results in other industries—including those seemingly more complex than car rentals—by focusing only on customers who provided the most enthusiastic responses to a short list of questions designed to assess their loyalty to a company? Could the list be reduced to a single question? If so, what would that question be?

It took me two years of research to figure that out, research that linked survey responses with actual customer behavior—purchasing patterns and referrals—and ultimately with company growth. The results were clear yet counter intuitive. It turned out that a single survey question can, in fact, serve as a useful predictor of growth. But that question isn’t about customer satisfaction or even loyalty—at least in so many words. Rather, it’s about customers’ willingness to recommend a product or service to someone else. In fact, in most of the industries that I studied, the percentage of customers who were enthusiastic enough to refer a friend or colleague—perhaps the strongest sign of customer loyalty—correlated directly with differences in growth rates among competitors.

Certainly, other factors besides customer loyalty play a role in driving a company’s growth—economic or industry expansion, innovation, and so on. And I don’t want to overstate the findings: Although the “would recommend” question generally proved to be the most effective in determining loyalty and predicting growth, that wasn’t the case in every single industry. But evangelistic customer loyalty is clearly one of the most important drivers of growth. While it doesn’t guarantee growth, in general profitable growth can’t be achieved without it.

Furthermore, these findings point to an entirely new approach to customer surveys, one based on simplicity that directly links to a company’s results. By substituting a single question—blunt tool though it may appear to be—for the complex black box of the typical customer satisfaction survey, companies can actually put consumer survey results to use and focus employees on the task of stimulating growth. 

Taken from

http://hbr.org/2003/12/the-one-number-you-need-to-grow