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Interview

Interview: Turning Moments that Matter into a Competitive Advantage, with Fred Reichheld of Bain & Company, creator of the Net Promoter System

The trend of brand manufacturers going direct to consumer has created more opportunities than ever for them to delight their consumers with moments that matter. That delight turns into consumer advocacy and loyalty, which drives margin and revenue. Fred Reichheld, creator of the loyalty practice at Bain & Company, and the legendary creator of the Net Promoter System, spoke with Peter Crosby about what it means to be a promoter-based business and the path to turning consumer delight into business success.

TRANSCRIPT

Peter:

Welcome to unpacking the digital shelf, where we explore brand manufacturing in the digital age. One Peter Crosby here from the digital shelf Institute. The trend of brand manufacturers going direct to consumer has created more opportunities than ever for them to delight their consumers with the moments that matter that delight turns into consumer advocacy and loyalty, which drives margin and revenue. Fred Reichheld creator of the loyalty practice at Bain and company and the legendary creator of the net promoter system spoke with me about what it means to be a promoter based business and the path to turning consumer delight into business success. Fred, thank you so much for joining the podcast or have been, so looking forward to you to speaking with you simply because you are the brains behind the net promoter score, it's a system of thousands of companies around the world use to measure core, loyalty and advocacy for their products and their services. Uh, you know, the, the main question that I always think of is how likely are you to recommend this product? And can you just sort of introduce it just, I mean, obviously so many people are familiar with that system, but uh, how do you talk about it and think about it in the context of, of commerce today? W how does it, how does it apply?

Fred:

Well, it's interesting, even though there are so many changes now with the world becoming digital and certainly coping with the pandemic, but in some ways it's so much it's back to the future, that the first company I learned this, this notion of net promoter or what became net promoter was enterprise Rent-A-Car. And that's a business that grew from a teeny little leasing company in St. Louis to become the largest car rental company on earth as a private firm. And it was sort of generated cash at such an amazing rate. I finally got to meet the, uh, the CEO, Andy Taylor, out in St. Louis. And I asked him, Andy, what's the magic behind this incredible growth. And just, I've been a strategy consultant, Bain and company for 40 years now. So back then, I, I was thinking, how can you possibly fight against the huge Hertz and Avis, and these leviathans from a tiny slot and in a low growth, profitable business, you know, how do you do this?

Fred:

And he says, Fred, there's there's, there's no magic. There's only one way to grow a profitable, sustainable business. And I'm listening because he's a billionaire. And I want to hear the answer to this question. He says, you treat your customers. So they come back for more and bring their friends. And it's that basic. What's cool about it. Today is with these web based tools, digital commerce, you're in a position to actually measure how well you're doing at getting customers to come back for more and bring their friends. Whereas before, when you were insulated from your consumers, by retailers and distributors, you really had a hard time keeping track of this, but, but today I think businesses are in a much better position to build loyalty and, and follow this net promoter philosophy,

Peter:

Your point to be able to measure it and act on that data as well. Right?

Fred:

Absolutely. You know, one of the first companies to adopt net promoter was Apple retail. And, uh, our, our strategy bane decided we were going to make this an open source system so everybody can use it, um, not the black box, like a JD power or these other companies that try to keep satisfaction in, uh, in, uh, in the, in the secret, you know, sort of the, the wizard, uh, will tell you what to do next. Now we S we thought the opposite. Let's just make it public. And then we'll have faster innovation and new ideas. Apple was one of the most innovative, uh, players. And one of the first things they did was any time a customer gave them a detractor score, zero through six on a, on a zero to 10 scale. One of the store leaders would call back that customer apologize pro for the root cause and try to fix it, which is essentially what enterprise rented car had been doing as well. So this notion of closing the loop with a frontline leader in real time, not just trying to smooth over the thing, but it gets to the root cause of what happened and try and fix it for that customer. But even if you can't fix it for that customer, fix the system. So it doesn't happen again, that discipline is one of the most, that's the foundational pillar of, of net promoter.

Peter:

Yeah. One of the other reason that I was really looking forward to this conversation is that, um, we're just about to come out with some, some of the latest consumer research, particularly kind of post pandemic or in the midst of pandemic. What's, what's driving their choices about, about buying on the digital shelf today with the digital shelf being, uh, almost the only shelf in, in some ways. And a couple of things really stood out to me in that survey. And I think it goes right to what you're talking about. 86% of consumers are willing to pay more for something when it comes from a brand they trust,

Fred:

Of course, [inaudible]

Peter:

Right. Yeah. Um, but, but for S for so long, uh, I mean often when you would ask people what's most important to you, it had been price and convenience, but during this time it looks like some of that data has shifted where trust is really started to rise above that when it comes to digital shelf transactions. And I thought that that was super interesting, creates a lot of opportunity, the kind of, of shifts in thinking and moving towards what you call a promoter based business.

Fred:

Yeah. And the interesting thing is the trust used to be what the retailer said about you or what the broker said about you are the expert. And increasingly it's becoming what all of your customers say about you, because that can be accessed online in, in increasingly reliable ways. And so the notion of treating your customers well and earning their loyalty becomes the basic foundation of growing the business.

Peter:

Yeah. So tell me about that. You know, thinking of our, you know, our listeners are executives and leaders at brand manufacturers who are running, um, through retailer based, uh, selling, but also increasingly today, uh, testing and learning and growing through, uh, direct to consumer businesses, whether that's through Shopify sites or marketplaces or, uh, or social commerce, I'd love for you to talk in the mindset of, of those people. Like, what would it mean to think about their business, um, as a promoter based business, what are some examples that you might be able to give

Fred:

In the old days? I think you, you thought about a business of how much stuff you sold and revenues and profits was your measure of success. I, in a promoter world, the, the, the kind that Andy Taylor described where you treat customers. So they come back from war and bring their friends. The measure of success is of all the customers. You touched, how many feel like their life has been so unwritten that they would want to share that with a loved one and recommend you enthusiastically to a friend. And, um, this, you start thinking of the customer as the asset, as opposed to some financial fiction, which our accountants have made up for us. And it makes more common sense, even though we measure our progress on financials and should the real asset is not financial it's customers and what their intentions are about coming back and buy more stuff. And what they're saying about you, because that's so much more impactful and trustworthy than what your advertising says or what your promotional videos say.

Peter:

And so do you have some examples of, of, um, brands that you think of that are doing a good job at this?

Fred:

Well, I mentioned Apple. I think they're awesome. And they've, their philosophy is, is at the core is essentially this, that their, their mission is to enrich the lives of their customers. And so if that's the mission they measure, how many customers they're converting into promoters, that's really measuring not just their future success and growth it's measuring, are they achieving their core mission? Another company that does a great job is Intuit, who probably was the first company outside of Bain into it's the software firm that, uh, has a quick and TurboTax and so forth. The founder, Scott Cook, uh, worked at Bay. And at the same time I had, I've been in pain for over 40 years. Scott left after February five or six, founded it into it, but I've stayed in touch. And when I described the net promoter score and system to him, he said, Oh, this is perfect for us, Fred.

Fred:

Cause we've never, I mean, I've always felt like we don't deserve any profit until our customers happy. That's a core corporal, that's an important philosophy. That's a trustworthy philosophy. And, but he said, we, we have, we don't have measures. We don't have a system or set of processes in place to really make that our, uh, our, our guiding mission. And as we get to be a big company is spread all over the place with lots of product lines. We need a measurement process and a management process. And that's what net promoter has evolved to serve. And I think it's why so many companies have adopted it. It helps you do what Andy Taylor said is the basis of success treat customers, right. And it, and so, you know, if you're in charge of a customer service center, you want to know how you're contributing to creating promoters. If you're a designing the product, if you're the software guy that's doing the digital episodes, every one of those needs to understand how they're influencing that overall customer experience to make that customer into a promoter.

Peter:

And that's, what's, I think is so interesting about some of this shift to direct to consumer, because one of the vocabulary shifts I had to make in my brain when I started working with brand manufacturers is that their customers are actually the retailers and a lot of their sort of traditional mindset and rightfully so, that's where a large proportion of their revenue comes from. And so they are very focused on how to do business and how to be great partners with their retailers. But increasingly it's also important, I think, for them to understand their long-term value that they get from their consumer customers. And I was wondering how that resonates with you. And, and have you been involved with industries where that's true, where there's sort of a bifurcated sense of, of who your customer is?

Fred:

I think it's more common than not, um, you know, take financial services. So much of the product is going through brokers or agents of one sort of another. And the real dilemma that the manufacturer has is am I trying to make my broker rich, or am I trying to make the customer enrich the life of the ultimate consumer? I think, uh, the evidence is pretty clear that companies who think about that end consumer, of course, you have to be a good partner to the retailer and find ways to make it easy to do business and smooth, but the real brilliant success stories have put their energy into, uh, innovating ways to help that consumer have a better experience because that's where the ultimate brand comes from. The instant you start thinking of the retailer or the distribution, your primary customer, you're willing to do things to take advantage of the cusp of the consumer who has less knowledge, less experience doesn't really know who to trust.

Fred:

And, and so it's a much, you know, the moral high ground is acting in the best interest of the consumer and doing what Apple says they're doing enrich the lives of their customers. If they were in the business of making their stores incredibly profitable, they would not have a great business today. And I'll give you another example. Tesla, Tesla has the highest net promoter score from consumers in the automotive industry by a long shot. It is extraordinary. And when you dig in why, well, it is a cool car and it's electric, but they have taken over the dealer function and gotten away from that horrible negotiation experience where you, you know, they lie and cheat and then obfuscate, and then you walk out the door and they say, Oh, and by the way, Mr. Ray Kelda, please make sure you give me a 10 on the survey.

Fred:

That's the only passing grade. And I can't keep my job unless you give me a tenant. You know, it's a joke. Well, they don't have that at Tesla. Tesla has made it design that whole experience to be in the consumer's best interest. And so you go online, I think you have to answer what three or four questions to buy a $60,000 car. And they do net promoter surveys, but it's not to bribe you to give them a 10 it's to learn how they can get better. And these companies who are acting in the customer's best interest, they are just crushing the old school competitors.

Peter:

So w I mean, that's a, that's a really great example of when I bring it to, you know, to, to our listeners who are, you know, whether they're in a CPG or a home goods, or, you know, uh, wherever they're selling to, uh, to an ad consumer, ultimately, do you, do you find that it's easier now in the age of the digital shelf to earn that advocacy, to sort of earn that feedback and that support, or, uh, it D does digital, is digital sort of helping this happen at a higher rate or a better rate, or what's your impact?

Fred:

Well, I think the digital world, uh, makes it easier for customers to seek out the truth. Who's really the best. So that's more challenging. It's easier for them to switch to the best supplier, but I also think it offers a set of tools and information that help you be the best. And if you take advantage of those, if you can get ahead of the competitors who are still sort of struggling how to, how to get this, uh, this whole customer experience, right, how much it should be, digital, how much do you need a human involved at what point, how much choice do you give to consumers, whether they get digital or human assistance. So, you know, we've, we've talked to the past about, uh, this, this new company built. Um, I, I discovered a little built, creates a digital set of instructions. So instead of getting paper instructions packed along with the, the product, um, it's a, a computerated design put on your eye on your phone. So it's very cool to put things together and, and it's, uh, it's a surprise. So, so I had, wow, was customers consistently. So if you're the kind of company that is always seeking out these ways to find digital wows, um, I think there's a great opportunity to, to earn more loyalty and leave the competitors in the dust.

Peter:

I love that idea of digital Laos, uh, and, and also the, the unboxing experience, the post-purchase experience becoming even more important. It seems like in this age, certainly to earn trust and that kind of feedback, the, the, the, just the, the experience has to last beyond the purchase. Right. And so talk to me about sort of those digital wild moments are the moments that matter. What, what are those, how do you think about them? How do they affect how a consumer might feel about a brand?

Fred:

Anytime you have an emotional moment with a customer, that's an opportunity to wow. Them in a memorable way. And in every business, I've seen that initial welcome sort of getting the package out in front of your garage or in your mailbox, and then opening up that box. If you feel like they've been thinking about you, it's easy. I feel like I belong, and I know what the next step is. It doesn't make me feel stupid or incompetent. It's just that level of thoughtfulness in the welcome is so leveraged because it sets your expectations for the rest of the customer experience. So if I had one simple piece of advice to people in the consumer product industry, get that initial welcome. So it is not just okay, and for most people it's lousy today. You know, there are flat packing down to the most efficient way to get the product shipped, which means there's more assembly steps there's and you get a pay, you know, a thick little catalog of instructions that are in a font that's too small to read in 15 different languages. And you think, Oh, they understand me perfectly. They don't even know what language I speak

Peter:

And those horrible drawings [inaudible] into slot B or whatever.

Fred:

These were put together by engineers in probably a different country, different native language. And so you, you know, everybody's used to it and they put up with it, but it's horrible. So if you could convert that into a wow, how cool is that? And then I think I mentioned to you, I joined the board of this have built because they saw the same future that I do. They said, Oh, this is just the start. We're going to make the front end welcoming, but we can now create the ability to have a conversation with that customer at the right times and their experience and get feedback so that the brand can learn and improve and have these closed loops. So in each situation, I would map out the customer journey I'd search for those spots or those episodes where I see an opportunity to wow, a customer or increase my ability to close the loop and understand when I am well, when I'm failing, what do I need to do to change and, and consistently prioritize those, those slots in the episode. Yes, of course you have to have a quality product and it's designed beautifully, but that's not enough anymore.

Peter:

And talk to me about, about those sort of, I mean, I think at the end of the day, it kind of all boils down to giving the consumer, the buyer, the sh the confidence that they feel like they can move through the steps of their journey with your product, uh, without sort of those nagging questions, or is this about to be wrong, or am I about to ruin this thing that I just spent money on? Is that, am I, am I capturing that correctly? And, and what are the factors that influence confidence along the journey that, uh, that our listeners should be kind of, maybe re-examining in the, in the journey that they support right now?

Fred:

Um, I'll tell you a story. And that promoter, uh, early adopter was Logitech, who makes all the computer peripherals, and they have very, very sharp, uh, designers and, uh, put cool keyboards. And, uh, they've improved the mouse and things that you didn't think would be improved. Um, they discovered that when they just did their customer, their, their net promoter feedback through the phone, uh, service, the customer service reps, the engineers wouldn't listen, they just presumed, Oh, those, those guys in the, in the service, in the call center, they just don't get it. Um, they didn't, they didn't go to MIT like I did. And, and so what Logitech figured out is, well, we ought to close the loop directly from the customer to the engineer. So when there's a problem, the loop goes right back to the engineer and they get to talk to the customer and learn why, or I can't, what's a good example.

Fred:

Oh, I, I, uh, my pandemic, a guilty pleasure outside of eating and drinking way too much. I got a new, a piano keyboard. I like, I sorta like playing the piano. I'm not very good, but so I got one from Yamaha. It's this brilliant device, it's electric, but it's weighted like piano keys. It's got all these bells and whistles. You just would not believe, but when it got flat pack shipped, I, didn't no idea where to start putting this thing together. And it's, you know, it's thousands, thousands, thousands of dollars. So I'm thinking, how am I going to get it fine? You know, after four phone calls to the retailer who was a little irritated, cause he didn't know exactly what to do. It turned out that the paper instructions were, were dead wrong. They were for the wrong model. And I had a horrible up frontline experience.

Fred:

And you know, now if you gave me, how likely would you recommend, uh, the Yamaha clever, clever, near, or whatever it's called to a friend I'd, I'd hesitate. I say, once you get it together, it's brilliant, but it's a real hassle. Now, if they had found out how I felt about it, had their engineers talk to me that would have been fixable within a week. And for every other customer that came after me, but they just didn't have a system to get the feedback. They'd the retailer knows I was irritated and he's irritated, but who it's still out there.

Peter:

And that's, I, I think that is the challenge of, of, you know, selling through retailers brands, not being directly connected to their consumers. And, and that's why I think this idea of feedback loop is so interesting because that's one of the ways and reasons why a lot of brand executives are now considering going direct to consumer is for the value of that data coming back at them, that they really struggled to get from their retailer partners either for, because retailers hold back because they consider it, you know, competitive information or they just, there's no way to really share that feedback loop or they're not even capturing it well themselves.

Fred:

Yeah. There's no channel this, you know, I don't want to overdo my enthusiasm around built, but I, it helps me bring my vision of the right way to do business into the consumer products world. So let's say that you use these instructions that are on, on an app and then you have a problem with it down the road, or you need a warranty service. What will happen is you can access the brand through the app and it automatically keeps track of what product do you have, where you bought it, what you paid for it, what the model is, if you've ever had trouble before, instead of having to fill out a whole new form and have a 15 minute conversation with a customer service rep, it's already embedded in that communication, it's dragged along with the consumer outreach. And so not only can you close the loop, you do it so much more efficiently and at a level of granularity that you just could have never imagined in, in the old non-digital world.

Peter:

Yeah. Tell me, uh, you know, uh, cause built, as I understand is a technology that is sort of, uh, putting into motion or putting into action, uh, that feedback loop that you talk about. So it might be useful for our, um, you know, built or not w what is a feedback loop and how should they think about, and what are the steps of it that are important for a brand to be able to track one way or another. And, and it's great to hear that there are technologies that may be able to help in that process.

Fred:

I think the most effective ways to think about the user's experience in using your product, everything from the shopping and purchasing, receiving, uh, getting it set up and ongoing usage, getting it repaired, buying consumables, break that into episodes in a, in a way that the consumer thinks about it, and then find ways to get information back from the consumer, or at least a sample of consumers after they've experienced that episode in the journey, look for people who are wowed and just loved it and make sure that you understand why and how you could do that more often and understand when people are really disappointed and get to the root cause, get the right people in your shop, whatever the right function or, or a part of the hierarchy, get the right people involved in those online or phone calls, but more likely online dialogues to get to the root cause and fix them. And so that notion it's not just getting feedback, that that's sort of research it's how do I link it into my business processes? How do I design a better product? How do I teach my phone reps to do a better job? How do I minimize fraud? But at the same time, not irritate customers and make them feel like I don't trust them.

Peter:

You've, you've advised so many firms on, on these processes and, and sort of the shifts that are required here. What do you find are the cause of course, what you're talking about makes absolute sense, delight your customers, and guess what? They'll buy more

Fred:

If saying Fred, why are you still writing books on this subject?

Peter:

Why are you still employed? So tell me what, what, when you go inside of, of, uh, you know, uh, say a manufacturer, somebody that's creating products for consumers, what do you find are the obstacles to the adoption of, of this, this kind of process?

Fred:

I used to think it was, I didn't have the tools, um, uh, that made it easy to do. I think that's part of the challenge, but we're solving that challenge. And, uh, I've when I've come to the conclusion is it's a bigger, it's a bigger issue. We need a completely new mindset where companies think like Apple does like Tesla does like enterprise Rent-A-Car. Those are the minority. Those people who actually believe the true asset in business as a customer who is a promoter and the I've I've written. I took the time, the last couple of years in writing a book, that's coming this, this October by Harvard business review press, it's called winning on purpose, uh, loving customers, the unbeatable strategy. So loving customers, most companies don't think of that as what they're all about. And I'm going to, I'm going to show some pretty powerful evidence that only the companies who love their customers and, and make their lives better are the ones who are generating returns for their investors over the longterm.

Fred:

Because that idea of growing your business the way Andy Taylor does it, enterprise people coming back for more and bringing their friends, it reduces your sales and marketing costs. It reduces your fraud. It makes it a better place to work. It just has so many cumulative advantages that these companies are crushing it, whether it's Tesla or Apple or enterprise Rent-A-Car or Intuit. And for some reason, people haven't seen this pattern, they don't get that these companies that are just running away and, and winning in their industry, that they have a different core purpose. That's why I call it winning on purpose. You got to get this mindset of what is my purpose here. And I think the right purpose, the winning purpose is to enrich the lives of our customers.

Peter:

Yeah. I mean, I I'm putting myself, uh, in, in the, sort of, in the place of, of the people listening and thinking, uh, that's a, it's a, it's a, it's a really cause a lot of the companies that you have spoken about and, and maybe I'm just picking up, but have really visionary leaders that drive that down through the organization with ruthlessness sometimes. And I read the Steve jobs biography, um, and, and I'm wondering how should an executive who is, you know, who is leading e-commerce and therefore often driving a lot of change inside of their organizations. Now, what, what are the secrets to, to shifting that mindset? Um, maybe not necessarily from the top of sort of amongst your, your leadership peers.

Fred:

Well, I think what the book will deliver and that's the few months away, but the book is going to show that it is in the shareholder's best interests. Um, and that's pretty powerful evidence for any leader that this is going to make money and create sustainable growth. But even without that, what I've discovered is if you present this, don't talk about a net promoter score. Talk about net lives, enriched, whether you're an engineer or, or, or sweeping the floors, or you're the chief financial officer, most good people want to enrich the lives they touch and what net promoter score keeps track of is of all the lives. I've touched. How many are enriched, how many are diminished? That's, you know, that's, that's promoters minus detractors. So net promoter score is essentially your balance sheet of what impact you've had on the people you've touched. And it works at a big organizational level, like the corporation, and it works at an individual level.

Fred:

I'm a customer service rep, or my son works at an Apple store. How many people gave me tins that I, that I touched this week and it's inherently inspiring. It's not how much money they take out of your wallet. It's how good a job did I do at brightening your day and making the world better. And that, I think if you create that inspiring upside, not like the car dealers, the car dealer gets in trouble. If they get anything less than a 10, that's ridiculous, right? But if you let them earn tens and a 10 is a standing ovation and you get recognized and rewarded appropriately, when you earn it, good things happen. And at every level in every department of an organization,

Peter:

And I think this time in particular that we live in, uh, you know, I go back to that stat that I quote at the beginning now, 86% of consumers willing to pay more for something new. And it comes from a brand they trust. And to your point throughout this entire conversation, that trust is built through those digital wow moments through those moments that matter. And I think any company that devotes itself to understanding those and improving those on a, on a regular basis really has an option to win margin and win loyalty in this, in this environment

Fred:

And compare yourself to your direct competitors. I hear lots of these arguments of, Oh, people in Germany score and net promoter differently than people in Japan, from people in the U S that's, that's basically true by the way, but so what you want to know, how you're stacking up in Japan versus the other Japanese competitors and how you're stacking up in the U S and so on by my customer segment, and being able to get that data for real relative apples to apples comparisons is one of the, uh, I think powerful advantages. We have a company within vain called NPS prism that is finally getting more and more of that real kind of comparable NPS data out there, uh, industry by industry that one of the tricks in doing net promoter scores and people fixate on the score, it's really cool to have a measure.

Fred:

Now, I make it into your target bonus and it destroys the score because you begging for scores as opposed to learning how to get better. Right. Um, when you have apples to apples, you can sort of get rid of that. You don't, and I've read some of your, the, the, the brands that I know are members of yours. People will take net promoter, they'll do a research study, say, Hey, I'll just pick a brand. I'm here, I'm from cannon. Uh, how likely is I just bought a camera and how likely to recommend to a friend and, um, the response rate, if I am a promoter of cannon, I'll bother to fill out the survey. And so they'll get a lot more tens than they actually get from the general population of their customers. And so the scores you get when they're self administered surveys are wildly inflated, you know, everybody thinks they have world-class net promoter scores. Well, you don't probably, but, you know, let's put the right way with double-blind and panel research. And so let's get true numbers on the table and you'll have a better sense of how far you really have to go to, to be the top brand in your industry.

Peter:

Well, Fred, um, I'm, I'm so delighted. You're still employed and therefore thinking these great thoughts. Uh, I'd love to put you on the spot when your book comes out. W I would love to have another conversation with you about, about the book and, and some of these takeaways, because I think the opportunity that you're describing here for, for brands to, uh, to really outpace their competition and, and, uh, delight their customers, I think is, is an important one, uh, and, and worth, and it takes, uh, an investment over time. So,

Fred:

Yeah, when winning on, when winning on purposes is out, I'd love to chat again. And I do think it's going to be quite, quite relevant for, uh, for your listeners.

Peter:

Great. Fred, thank you so much again for coming on and, and, uh, discussing this with us today. I really appreciate it.

Fred:

My pleasure, Peter, take care.

Peter:

Thanks to Fred for joining us. If you enjoyed this episode, please share it with a colleague or leave us a review wherever you get your podcasts. Thanks for being part of our community.