How would top brands measure up based on customer loyalty rather than traditional financial measurements?
Fred Reichheld (Bain Consulting icon and Net Promoter creator) did just that in his new book, Winning on Purpose.
Can you guess who performed better over time?
Companies that rated highest in customer loyalty outperformed companies identified as exemplars in Jim Collins iconic book Good to Great in total shareholder return (TSR).
While Collins identified companies that leaped out from their peers using traditional financial metrics, Reichheld, identifies “CX exemplars” that rated higher in key CX metrics than their competition.
He then compares the two groups of companies (based on TSR) 10 years following the book’s publication and the results are dramatic:
Reichheld, Fred; Darnell, Darci; Burns, Maureen. Winning on Purpose (p. 65). Harvard Business Review Press.
The Bottom Line
Good to Great companies delivered only 40 percent of the median market performance, while The Ultimate Question 2.0 NPS exemplars delivered 510 percent of the median return.
Reichheld doesn’t discount the management principles distilled from Collins’ research, but he does say “their formula proved fragile and failed the test of resilience.”
To be fair, Collins himself recognized the decline of his “great companies” and followed Good to Great with the book How the Mighty Fall, citing how even great companies can mismanage their way to failure.
What Traditional Financial Metrics Miss
Reichheld is postulating more. He’s saying that by using financial performance measurements, organizations shift behavior to profit driven outcomes. That often conflicts with the ultimate goal as Reichheld emphasizes - “enriching the lives of customers.”
Instead, a more accurate measure of long term success should be customer focused. Reichheld describes “the firms that appeared great through the lens of financial capitalism made their investors very unhappy over the decade following their anointment, while investors in companies that looked great through the lens of customer capitalism delighted their investors in the decade after their NPS superiority was revealed.”
Reichheld says it simply, “Firms that make customers feel loved are winning; they are outpacing and outgrowing the competition.”
So how should leaders enrich the lives of customers?
3 Practical Steps for Leaders
Resisting the temptation to jump right into tactics, let’s pull up 30,000 feet to consider some high level strategies that will help you enrich the lives of your customers en route to becoming a customer-loved brand:
1. Codify CX mission and principles
If you want your team to treat customers in a way that enriches their lives, get clear on your CX mission and principles. Identify non-negotiable principles that guide your team’s behaviors. This may take some work and should be a collaborative effort, but will be well worth the investment. The CX mission and principles should be unique to who you are and what your brand stands for, not just something that sounds good. They are the north star of how to treat customers.
2. Report customer experience metrics beside financial performance
When reporting on progress both internally and externally, include customer loyalty metrics such as net promoter score, customer satisfaction, or customer effort, along with the financials. Doing so signals to all stakeholders that you are listening to your customers and are committed to their success.
3. Share your customer and employee stories
Include stories, not just about heroics, but include what you’re doing systematically to improve client journeys. Stories bring the data to life and connect people emotionally to the effort. They tell the team that you really care about outstanding customer experiences and celebrate those victories. Perhaps more importantly, stories create memories that are sticky and help to reinforce desired behavior.
These three steps are simple and easy to implement. They can help you earn customer-driven growth by focusing on delighting customers rather than maximizing profits.
I’ll be taking a deeper dive into each of these three strategies in future blogs.
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