Product Description

CEOs regularly announce ambitious growth targets, then fail to achieve them. The reason? Their growing addiction to bad profits. These corporate steroids boost short-term earnings but alienate customers. They undermine growth by creating legions of detractors—customers who complain loudly about the company and switch to competitors at the earliest opportunity.

Based on extensive research, The Ultimate Question shows how companies can rigorously measure Net Promoter statistics, help managers improve them, and create communities of passionate advocates that stimulate innovation. Vivid stories from leading-edge organizations illustrate the ideas in practice.

Practical and compelling, this is the one book—and the one tool—no growth-minded leader can afford to miss.

Product Details

• Amazon Sales Rank: #20608 in Books
• Published on: 2006-02-01
• Released on: 2006-03-31
• Original language: English
• Number of items: 1
• Dimensions: .95" h x 6.45" w x 9.70" l, 1.10 pounds
• Binding: Hardcover
• 210 pages

From the Author
What is NPS?

NPS stands for Net Promoter Score. Just as net worth represents the difference between financial assets and liabilities, Net Promoter quantifies the difference between customer assets and liabilities. With one question, we can sort customers into three categories: Promoters who are loyal and enthusiastic; Passives who are satisfied but unenthusiastic; and Detractors who are unhappy but trapped in a bad relationship. Quite simply, you calculate the NPS score by applying the formula P - D = NPS, where P and D are the percentage of promoters and detractors.

Is there a correlation between NPS and growth in a company?

Yes! In a 2003 study based on more than 150,000 customers, we found a very strong correlation between net promoter scores and a company's growth relative to its competitors. From the airline industry, to retail banks, to delivery services, to personal computers, firms with the best NPS demonstrated superior growth. Companies that have achieved sustainable growth over a ten year period have double the NPS of others.

What companies are already utilizing NPS?

NPS has begun to spread like wildfire. Jeff Immelt, CEO of General Electric, has announced that NPS will be deployed across all 500+ GE business lines--and will drive executive bonuses. Other firms who have adopted NPS include Intuit, American Express, MSN, Schwab, Thermo-Electron, and many others spanning both the consumer and business-to-business sectors.

Can high NPS scores translate to greater economic success? What are some examples?

While NPS scores in and of themselves do not guarantee profitable growth, high scores are a strong predictor of economic success. HomeBanc, a mortgage company in Atlanta, has a whopping NPS score of 84 percent. As might be expected from this score, HomeBanc's productivity levels average 60 percent higher than industry standards. The firm's growth exceeded 25% each year for the past decade - more than doubling the industry rate.

Why does NPS work?

Promoters and detractors behave differently and generate fundamentally different economic consequences for the firm. While today's accounting systems camouflage this fact, the best way to profitably grow is to get more promoters and fewer detractors. The benefits of promoters include higher retention rates, higher cross-sell rates, constructive feedback, cost efficiencies, and most important of all, they are the source of highly crucial word-of-mouth that drives corporate reputations and customer referrals.

You talk about good and bad profits. How can any profit be considered bad?

Consider those resentful overage and usage fees from your cell phone supplier, or those plans that manipulate you into buying more minutes than you need. These practices generate bad profits. Whenever a customer feels deceived, coerced, or disrespected, then earnings from that customer are bad--they come at the customer's expense. Bad profits convert customers into detractors who blacken a firm's reputation and choke off a company's best opportunity for true growth, the kind of growth that is both profitable and sustainable. The pursuit of bad profits alienates customers and demoralizes employees. Good profits come from satisfied customers who not only provide repeat business but bring new customers to the company.

What is probably the most crucial factor in a company's economic success? Why?

Word-of-mouth has much more power in today's economy than one might think. Word-of-mouth works both ways: detractors spread negative word-of-mouth and cause people to turn away, while conversely, promoters spread positive word-of-mouth and bring new people in the door. Promoters account for more than 80% of positive referrals--and only promoters can build great brands and corporate reputations.

What are some of the ways bad profits undermine growth?

Bad profits create customers who feel disgruntled by their experience with a company. Often, these customers find ways to get even in ways that hurt a company's growth. For instance, detractors drive up service costs by reporting numerous problems, demoralize employees with complaints and demands, and gripe to friends, acquaintances, colleagues and relatives. All of these will have a negative effect on a company's economic success, illustrating why bad profits are so destructive. The average firm today has turned 33% of its customers into detractors--some firms exceed 50% detractors! The average NPS is less than 10%. The quest for profitable growth becomes a near-hopeless struggle when firms have almost as many detractors as promoters.

About the Author
Fred Reichheld is a Director Emeritus of Bain and Company and a Bain Fellow. He is the Author of The Loyalty Effect as well as of influential articles in Harvard Business Review and the Wall Street Journal. His Work has been featured in leading publications including the New York Times, Business Week, the Financial Times, and The Economist

Customer Reviews

Easy to read, simple approach, but with fundamental flaws.
Reichheld proposes you just need to ask one question in order to drive business success. This is "How likely is it that you would recommend this company to a friend or colleague". This is commendably simple and the resulting `promoters minus detractors' used to derive the Net Promoter Score (NPS) gives an easy to understand measure of how well your business is doing.

However, this approach has not gone down well with his peers. He bravely acknowledges the storm of criticism (p183), but then does not address the fundamental flaws they raise, arguing merely that people are against it because they can't believe something so simple can be effective.

Two fundamental flaws which he doesn't deal with are:
* A simple measure like NPS doesn't tell you what needs fixing. A measure which tells you you're not doing very well, but which doesn't guide you towards the priorities for improvement is frustratingly useless.
* While simplicity is a good thing to have, the NPS can be a danger to your company profits. You can't buy customer satisfaction, but you can buy loyalty by cutting prices. Improving an NPS score can lead to `buying loyalty' behaviour, and damage shareholder value.

He argues that the Net Promoter Score is a better approach than measuring customer satisfaction, and takes the whole of chapter 5 to make this point. However, he just uses the weaknesses of poor quality customer satisfaction programmes to highlight the advantages of the NPS. Most would agree there are many companies wasting small fortunes on inadequate customer satisfaction programmes, and these would be better spending less money on a Net Promoter Score approach, but this doesn't mean the NPS is better than a properly run customer satisfaction programme, i.e. from an agency who can do the mathematically complex cause and effect modelling to identify the priorities for improvements.

There are unfortunately too many examples of simplistic thinking in this book to recommend it. For instance, on page 84 he claims that his research shows that "the links between satisfaction-survey scores and customer behaviours that drive profitability or growth are tenuous at best", and argues instead in chapter 3 that the NPS can drive growth. However, a moment's thought on what drives people to `recommend this company' shows the weakness here. People will recommend because they are significantly more satisfied with the product or service than with other competitor products, and because the price is right. He defeats his own argument for the NPS as a driver for growth by trying to claim satisfaction does not drive growth, and further illustration of this is in the appendix where he lists high NPS companies as the ones which show high growth - a little research on the American Customer Satisfaction Index website shows these high NPS companies are also leaders of customer satisfaction.

In summary, if you just want to measure how well your business is doing and don't want to spend much money, then the Net Promoter Score approach may be for you, but watch out you don't target your workforce on the results or your margins might suffer. On the other hand, if you want to improve from where you are now, there's no shortcut to investing in a decent customer satisfaction programme which will tell you what needs fixing.

Perfect Sense
This book is essential reading, well written, engaging and rips through the over complicated world of customer surveys. The proof Fred Reichheld offers about the link between client satisfaction and growth is attractive and powerful. I will be implementing many of the ideas immediately in my business and believe that many organisations will be forced to look again at their approch to customer surveys. There will be a lot of overpriced marketing survey companies quaking in their boots when this information reaches a wider audience. I suggest you and they read it now.

....to obtain the absolutely essential answer
Those who have already read Reichheld’s two previous books, The Loyalty Effect and Loyalty Rules!, are already well-aware of his exceptional reasoning and writing skills. Throughout most of his career, he has demonstrated those skills when rigorously examining one of the most important and yet least understood business subjects: loyalty. Now more than ever before, the success or failure of individual careers and even entire organizations has depended on the presence or absence of loyalty in one form or another. Obviously, loyalty depends upon trust which must be earned over time but quickly lost, sometimes permanently.

In this volume, The Ultimate Question, Reichheld again examines various dimensions of loyalty while extending his attention beyond it to what I consider to be an even more important issue: knowing what is most important to customers by accurately measuring the nature and extent of customers’ satisfaction. As Reichheld explains,“What this book offers...is a wholly new kind of measurement, a measurement that can focus an entire organization on improving every customer’s experience day in and day out. The process is both simple and radical. Companies need to ask just one question -- the Ultimate Question -- in a regular, systematic, and timely fashion.”

After struggling with one issue, I have decided not to reveal the question itself but can assert that it is the one question which must be asked because the responses to it are needed to guide and inform efforts to achieve “good profits and true growth.” Unlike bad profits which are earned at the expense of customer relationships, good profits are earned with customers’ enthusiastic cooperation. “A company earns good profits when it so delights its customers that they are willing to come back for more -- and not only that, they tell their friends and colleagues to do business with the company.” True growth is based on good profits. It is real, verifiable, and sustainable.

Of course, most companies try to grow but only a few succeed. In Chapter 1, Reichheld cites this statistic: almost 80% of the world’s firms failed to meet a true-growth threshold of 5% a year in real terms from 1994 to 2004. Why? “The reason is that growth and short-term profits are often antithetical. Most companies can boost their short-term profits simply by following the practices just mentioned [in Chapter Ten]. But no company can do that and achieve sustained growth, because its customers will resent the company and will leave at the earliest opportunity.”

Hence the importance of formulating and then applying “a measurement that can focus an entire organization on improving every customer’s experience day in and day out.” Reichheld recommends what he calls the Net Promoter Score (NPS) which he explains in Chapter Three. Once again, I have decided not to provide any details. Both the Ultimate Question and NPS are best revealed within the context of Reichheld’s lively narrative. But I can assert that for decision-makers in most (if not all organizations), what Reichheld has to say about both the Ultimate Question and NPS could well be the difference between success or failure.

Here’s what I consider to be Reichheld’s most valuable insight: there is a direct and practical link between NPS and profitable growth. Therefore, have customers determine your current NPS. Their responses to the Ultimate Question will suggest what must be done to increase your NPS. Moreover, by continuing to use what is indeed “a wholly new kind of measurement,” your organization (regardless of its size or nature) can then sustain profitable growth which will increase in direct proportion to an ever-improving NPS.

Reichheld’s latest book is a brilliant achievement. Bravo!