Engaged Marketing Blog

Cut costs or increase customer focus? That is the question

By Chris Roberts | April 27, 2009

The response to the current economic crisis in Australia is a bit bipolar. On the one hand:

· A fast food chain had a value meal with a burger, fries, drink AND an ice cream sundae for just $4.99 which is very unusual.

· The local coffee shop offered me a free cake with my coffee.

· A HR recruitment agent emailed me and thanked me for referring a candidate to her even though my candidate did not get the job. This is a 1^st for me as I constantly get calls from HR recruitment agents asking if I know candidates but never a thank you post event.

On the other hand a more traditional response:

· I heard a legal firm in the city offered their lawyers a 12 month sabbatical at 25% of their current salary

· A leading construction firm got rid of 150 out of 200 office staff

· Pacific brands, an iconic Australian business, moved their manufacturing overseas

· More jobs are moving to India

Strangely it’s either a feast or a famine. So to survive businesses are either cutting costs or increasing customer focus.

At such a time it’s easy for businesses to consider the short term and lose sight of the long term impact. Cutting costs and shedding staff can result in disenfranchising customers and staff over the long term. Both stakeholders will remember how they were treated during tough times.

Once this recession ends it will be costly to recruit and train new staff and difficult to win back lost customers. Customer relationships are just like personal relationships you remember which friends supported you in tough times.

On top of this we are taught that increasing customer focus costs money.

So businesses are stuck between a rock and a hard place. So what do you do to survive in this financial crisis? Cut costs or increase your customer focus?

But what if you could do both? That is, increase customer focus and cut costs.

It seems impossible but studies by Bain & Co and Satmetrix show that NPS® loyalty leaders (brands with the highest Net Promoter Score in a category) typically grow at approximately 2 times the category average and ALSO enjoy lower operational costs.

Net Promoter Score® measures the likelihood that your customers will recommend you to others. It was co-developed by Satmetrix and loyalty expert Fred Reichheld of Bain & Company and starts by asking the most important question you could ask your customers which is “How likely are you to recommend us to a friend or colleague?” on a scale of 0 – 10 followed by the reason for the score.

A score of 9 or 10 is classified as a Promoter, 7-8 is a Passive and a 0-6 is a Detractor. The Net promoter score is the percentage of Promoters less Detractors.

So let’s look at why these organisations grow AND have lower costs.

Growth is simple. A high NPS score means customers are more loyal, more likely to buy other product lines and recommend you to their friends and family creating a new and highly trusted sales channel.

But what about lower costs? How does that work?

Again it’s quite simple, think about what happens when an organisation is focussed on increasing promoters and reducing detractors. Detractors are those customers who typically spread negative word of mouth about a business. However, they strongly believe they have a valid reason to do so.

In best practice Net Promoter Score® implementations organisations listen very carefully to detractors and take strategic and systematic action based on their comments.

Naturally the end result is that the organisation improves and streamlines their systems, processes, products and channels making the organisation more effective and efficient.

Additionally, those customers who are promoters for your brand become a trusted sales channel, which means that loyalty leaders can easily afford to spend less on advertising and other customer acquisition costs again saving costs.

In fact, if you flip it around the additional cost that organisation’s spend on advertising can be interpreted as a tax as a result of the organisation providing bland or even unsatisfactory customer experiences. Why? Well such organisations rely more heavily on advertising to attract new customers as their existing customers may not buy from them again, let alone recommend them to others.

So if you are truly looking for a long term strategy that may put you ahead of the pack in terms of growth now and in the future AND potentially also help you reduce costs then NPS may be the answer.

Net Promoter and NPS Net Promoter Score are registered trademarks of Satmetrix Systems Inc., Bain & Company and Fred Reichheld.

1 Comment

Brisbane Restaurant Feasts on Word of Mouth

By Chris Roberts | March 30, 2009

A few weeks ago we dined at the ‘Garuva Hidden Tranquillity Restaurant’ at the Valley in Brisbane.It was recommended to us by a friend. They did not tell us a lot except that we would find it interesting and that the food was great.

So we made a booking and rocked up. We drove past the street location several times but we could not find it – you see there was no sign outside saying ‘Garuva’. Finally we parked and found the entrance by foot. There was absolutely no sign or even a hint that this was our restaurant. Eventually we found the entrance a darkish corridor with a small fountain on the left hand side.

The hostess greeted us and led us to our table. That is if you can call it a table. The words from the Garuva web site describe it best. “Patrons sit on cushioned rugs on the floor with supported back rests, low tables and very dim lighting. All the tables (or booths) are enclosed by sheer curtains. The atmosphere is very private and especially intimate for couples.”

It has the ambience of an up market ‘Hippie bar’ in Goa, India. I mean that in the nicest possible way. Very Cool!!!

A bit more about the ambience, the music was cool and the sheets surrounding you give you a sense of privacy but you can still see patrons at neighbouring tables.

The service was unique as it felt like you were being served by someone like you, a peer. Almost as if you were a guest at a friend’s house. You were not served by someone who is too young or someone who is just doing a job. Not subservient and fawning and definitely not snobbish.

The staff reminded me of the people who work for Nordstrom the famous department store renowned for its service. They were like owners not employees.

What was the food like? A unique blend of eastern, exotic and modern cuisine.

Typically Garuva is always full. As described on the web site limitations apply on Friday and Saturday nights “ During the week Sunday to Thursday there is no time restriction, but Friday and Saturday nights when the restaurant is fully booked for 2 sittings, the first sitting is for 2 hours only”

Now here is the twist Garuva does not advertise, in fact it has never advertised since 1992.

It relies purely on word of mouth

So what drives word of mouth?

It’s the BUZZ factor. Conversation about Garuva would go along these lines “You know we went to this restaurant that had no sign outside, we had to sit on the ground, in our own cubicle, surrounded by sheets, the food was …..”

What are the lessons for other organisations

o Everything has to be great if you rely on word of mouth - If any aspect is not up to the mark such as the food, service chances of such strong BUZZ or word of mouth would not have been possible.

o In this case the conversation would have gone like this “Garuva is interesting BUT …..” as soon as you have a BUT you either get no word of mouth or with a caveat which is actually negative word of mouth.

So the lesson for organisations is to create a unique value proposition and deliver an end-to-end super customer experience with engaged staff.

Check out their web site http://www.garuva.com.au/

4 Comments

Many Net Promoter Score ® implementations will fail!!

By Chris Roberts | December 27, 2008

The popularity of The Ultimate Question by Fred Reichheld has resulted in a plethora of Net Promoter Score ® implementations in small and large organisations.

Looking at the headline you probably think I am another academic or market researcher criticizing NPS®. On the contrary I think NPS® is a great concept. So why do I think many NPS® implementations will fail?

To explain why I believe many NPS® implementations will fail it is important to understand what NPS is all about. In my view NPS® is about three key steps:

1. Asking the Ultimate Question “How likely are you to recommend ‘xyz brand’ to a friend or colleague?”

2. Asking the reason for the score.

3. Finally taking strategic and systematic organisation wide action based on 1 & 2 above to increase promoters, reduce detractors & try to neutralise every detractor you find.

It sounds very simple doesn’t it and that is precisely the issue. The fact that NPS® is simple to understand is its greatest strength also a potential weakness. Just because it is simple to UNDERSTAND does not mean it is easy to IMPLEMENT and EMBED in an organisation.

The popularity of The Ultimate Question has resulted in a series of DIY implementations that are destined to fail. You see steps 1 & 2 are relatively easy. The most important step in terms of deriving business benefit and driving growth is Step 3 which is not as easy. Obviously you do not get results just by asking the 2 questions.

Another way to look at Step 3 is using the ‘voice of the customer’ to re-engineer an organisation’s systems, processes, culture, service, products so that it is geared to create promoters and reduce detractors. This is a completely different to a traditional organisational mindset which is about making gradual and marginal improvements to products and services with a view to merely improving customer satisfaction.

So what do you need to consistently get your customers to rate you rate you 9 or 10 against the NPS® question?

Strong executive engagement – This can make or break your program. How do you ensure visible long term support?
Staff engagement – You cannot engage customers without engaging your staff first, so how do you engage them?
Using the voice of the customer to enhance key strategic initiatives.
Designing processes to deliver customer feedback to staff and functional areas that are in the best position to take corrective action.

So let’s look at a series of examples of doomed DIY NPS® implementations:

A major bank does not brief staff about its NPS® strategy or the rationale behind it but asks them to recite a script after every transaction that goes a bit like this “Did I provide you with 10 out of 10 service?” This does not really roll off the tongue naturally now does it? Do you think their staff are engaged? Obviously NOT!
Some car dealers ask customers to rate them highly on the NPS® question while the price is still being negotiated so obviously customers feel pressured to score them highly.
A popular retailer asks the recommend question but not the reason why. So they know their score but they have no clue as to the reason why. So they cannot take any corrective action.
A retailer that asks the Net Promoter Score ® question to prospects as well as customers. Now as a prospect how can you recommend a product/service without buying it and fully experiencing it?
A major utility asks the NPS® question as part of its sample based tracking survey but no corrective action is taken and front line staff are not even aware of the score.

The strangest aspect of this is that all these organisations believe they are doing ‘NPS®’. As these implementations inevitably will fail guess what they will blame. You guessed it, they will say something along the lines of “NPS® does not work we’ve already tried it”.

To exacerbate the problem there are so-called marketing gurus that write articles in marketing magazines that suggest organizations should just add the Net Promoter Score question to existing tracking surveys. NPS® is best used as an operational metric but for this you need a census approach as opposed to a sample based survey approach.

They also suggest that you don’t need external help, rather you can do-it-yourself. Obviously if it was that easy everyone would be doing it and actually reaping the results.

So what’s the solution? Get qualified help from the beginning with someone that has experience in developing and implementing organisation wide initiatives and a track record of delivering results.

Ideally engage a firm that is a licensed Net Promoter Loyalty Partner and ensure that the person who is working on your implementation is Net Promoter Certified.

Net Promoter and NPS Net Promoter Score are registered trademarks of Satmetrix Systems Inc., Bain & Company and Fred Reichheld.

7 Comments