The Way Forward Webcasts with Leon Goren
The Way Forward Webcasts with Leon Goren
'Winning On Purpose' with Fred Reichheld, Founder of NPS
We are very excited to have Fred Reichheld, the creator of the Net Promoter system of management and the founder of Bain & Company’s Loyalty practice, as our special guest on The Way Forward podcast series. Fred is known for “putting loyalty economics on the map” and is a trusted expert in customer loyalty.
Two thirds of the Fortune 1000 now use Net Promoter Score (NPS), the world’s leading customer success and loyalty framework. Companies that achieve the highest NPS in their industry consistently beat the stock market over the past decade, with annual returns of 26%+, and outperform the vast majority of private equity funds. The very best return across the universe of funds and ETFs tracked by Morningstar barely reached 19% over the decade.
The issue at hand is that a July 2021 Bain & Co. survey of business executives revealed that only 10% of business leaders believe the primary purpose of their company is to enrich the lives of their customers. 90% of today’s executives dismiss the unbeatable advantages of a customer-centered purpose, which is sine qua non of loyalty leadership.
In his latest book, Winning on Purpose, Fred Reichheld shows why all businesses should make enriching the lives of customers their primary purpose. It’s the best way to ensure sustainable growth, happily fulfilled employees, and robust investor returns. He unveils Net Promoter 3.0 – updated for our current business and social environment and introduces Bain’s latest invention, Earned Growth, which provides an accounting-based twin for Net Promoter Score.
Hi, I'm Leon Goren, president of PEO leadership, a peer to peer leadership advisory firm. We're an amazing community of CEOs, presidents and senior executives. Ask yourself, are you learning as fast as the world is changing? It's time for Ontario business leaders to band together for counsel and support. It's time for you to tap into the business wisdom of our peer groups and unlock new ways to grow. I want you to come out of this COVID crisis a better leader and your organization ready for what's next, take the first step at PEO-leadership.com. Special thanks to Vaughan Metropolitan Center for helping us bring you today's PEO leadership's way forward podcast. Well, first of all, hi. For those that don't know me, I'm Leon Goren. I'm the CEO of PEO leadership. And welcome to our wayforward live webcast today. I'm looking at the name- so a big welcome to those that are joining us for the first time. And then I see a whole bunch of names and people that I recognize. So welcome back. And I know we get to see it throughout the year to a lot of these members. So thank you for joining us today. So I'd like to kick off our agenda with with our agenda this morning. And so three things we're going to do. One is going to spend a couple of minutes, I'll give some background, especially those who are joining us for the first time or what is PEO leadership? What do we do? Why do we do it? I'll introduce our esteemed guest, Fred Reichheld. And then third, we'll jump into our fireside chat. And maybe Fred and I'll spend about 30 minutes, I have a number of questions for Fred and then definitely open it up to everyone in the room here for q&a. And I'd ask that you post your questions in that probably in the questions at q&a is probably the best place to post it, although sometimes people put it in the chat. And we'll just keep our eyes open for the for the questions and call you out and read your question. So for for those joining us for the first time. And you know, I thought it started maybe explain to you what is it that we do and really the essence and purpose of our organization. And so if you sit back, it's really what we're doing is trying to enable leaders and that's business leaders, whether you're for profit, not for profit, realize their personal professional, and organization growth objectives. And so the personal professional elements are pretty important pieces. It's very much a holistic approach. The members who join us today, are business leaders, and they join us for their business. But in reality, what I really worry about is the whole life of that leader. So it's just its business, its wealth, its health, its family, its career. And as you can imagine if any one of those things go south, it ultimately affects your business and affects your, your leadership capabilities. So our idea is how do we get people? How do we help people realize those different elements in their lives? The way we delivered, it's, it's kind of I describe it as a three legged stool. The first leg is sitting with our leaders in our members and trying to understand what success looks like. So if it's December 31 2023, have you define what you want to accomplish, actually what you have accomplished because we're sending in the future, in those segments in business and health and well, in career and family. And you do it with an advisor who's seasoned our advisors, we get a chance to take a look some of on p&g, I've been involved in p&g, one ran Honeywell, in Canada, others and run entrepreneurial organization and build them up from the ground up. They're phenomenal individuals and little ones that are sort of building that roadmap with you, the second leg of the stool, well, that's a shared Advisory Board, that's where you get a chance to join a group of peers meet on a regular monthly basis, close the door, be vulnerable and have opportunities to challenge each other as you sort of work out those issues and opportunities before you. And it's an important piece in terms of leveraging the wisdom of that group to help you get from point A to point B. And then the third piece is the community as a whole. So if you can create a community that is giving and willing to help each other and make a difference, it's not about just getting from A to B, it's actually can I accelerate can we accelerate accelerated from A to B. So and that's when I'm very probably the most proud of that PEO leadership, we have an unbelievable given community. So you know, if you've run into obstacles or challenges in your business, that your advisor can't solve that yet, you know, that your advisory board gives you some advice. There's always someone in the community that can help you out. And that's really where we are today. And this is bringing Fred here and talk leadership. And that's kind of the community element. And, and I would tell you in today's world, an organization like ourselves was always important. But today, it's probably even more important when you have volatility uncertainty, you don't know what's coming out yet. COVID sort of proved that to us to be able to step outside of your organization. It's just it's absolutely huge and imperative for a leader today. So anyway, that gives you a little bit background check us out on At PEO-leadership.com, there's an eight week trial program. There's an event in June that you're more than willing to join us. And let's get going. So I'd like to introduce Fred here. So Fred Reichheld is the creator of the Net Promoter system of management, the founder of Bain and company's loyalty practice, and the author of five books, including The New York Times bestseller, The Ultimate Question 2.0. And, of course, his latest book published in 2021. Winning on purpose, the unbeatable strategy of loving customers. He is currently a fellow and Senior Advisor partner at Bain, where he has worked since 1977. For it's a frequent speaker at major business forums, and his work on customer loyalty has been widely covered in the Wall Street Journal, New York Times Financial Times fortune Businessweek. And the Economist. He's made 15 contributions, the Harvard Business Review and in 2012 became one of the original LinkedIn influencers, an invitation only group of corporate leaders and public figures, who are thought leaders in their respective fields. In 2003, consulting Magazine named Fred is one of the world's 25 Most Influential consultants. And according to The New York Times, threat put loyalty economics on the map. The Economist, first whom is a high priest of loyalty and John Donahoe, who I picked up pulled out here about the he's the CEO of Nike refers to as the godfather of loyalty and his latest book. So right Kellogg, graduate from Harvard College, 1970, excuse me, 1974 and Harvard Business School, his MBA in 1978. Preferred it's great to have you with us here today. Thank you. So I thought I kick it off and ask you why this book. Now. You've gotten five bow, this your fifth book under your belt, you've been writing about customer loyalty for so many years, what spurred you on to drive to write this one?
Fred Reichheld:Well, when we created the Net Promoter system, we made it an open source movement, so that more people could adopt and adapt it and improve it, tune it to their needs innovate. And there's just been a wonderful uptake. Fortune magazine had an article last year that said, two thirds or more of the large companies in the world now use net promoter. The problem has been that some of the so called innovations and practices, I think, are actually counter to the core purpose that underlies net promoter. And so the reason for the book was to try and get people to understand the core principles more clearly. And what I consider the truly the best practices and to get the movement back on the right track, people are doing things like Link survey scores to frontline bonuses and reporting scores that they've created and collected with some unspecified process, you know, reporting those to their investors or the public. These are just silly practices that are destroying that promoter and, and I want to get it fixed.
Leon Goren:That's great. Now you, you, I mean, godfather of customer loyalty, you've been doing this for so many years. Have you seen it change, like the mindset of leaders today versus 30 years ago has come a long way. And how organizations look at this?
Fred Reichheld:Not as far as I thought it would with net promoter, it pinging out into the universe, it's almost as if it's a new electromagnetic wave wavelength that that makes this forces driving business more more clear. And, and as we've done millions of these pings, what you find out is the only way to grow a sustain a sustainable, profitable business is to treat customers so they come back from one bring their friends. And and that sounds simple. But accounting doesn't measure that GAAP accounting just ignores which customers are giving or which revenues and which ones are coming back and which ones are defecting and, and which ones are referrals, which ones are bought through sales, pitches and discounts and so forth. So this customer centered worldview, that net promoter is encouraging, and indent and illustrating, you know, illuminating, is, I think this you know, 90% of the business world still doesn't get it.
Leon Goren:That's interesting, after so many years, and I know you refer you compare it to a little bit of a gap side, I always think I'm an account my background, I was seeing a gap. It's the historical financial statements, right? It's, it's not we have management systems and accounting systems that look at right now what's happening and then when I looked at read your book around the earned growth piece and looked at the customers and the Net Promoter Score It's it's historical, but it's forward thinking in terms of
Fred Reichheld:if it's true, it is it is predictive. You know, I, as I explained in the book and chapter five, I invest in every company I find who has the highest net promoter score in its industry, you know, not self reported scores, not belonging scores, wishful thinking scores that but really scientifically rigorous double blind, bein caliber insights and, and those companies that total shareholder return for me has more than tripled the stock market over the last decade. And you hear, you know, the people in the financial business are always claiming crazy returns, just to give you a sense, tripling the market is something that no mutual fund or ETF accomplished in the last decade. So I have gone up into the stratosphere, with this simple idea of the market is undervaluing the power of firms that are generating customers who come back from war and bring their friends. And as that plays through time, and the Cash Generation and growth is demonstrated through accounting, which is backward, you know, it's current and backward looking. It you know, it's been a crushing success for me personally. But it's also it's evidence, the world doesn't get it yet. The world really doesn't. They think that there are shortcuts to prosperity that don't put customers first.
Leon Goren:I urge everyone to get it read the book, and we'll come back to that earned growth model. Maybe you can explain it a little bit. I thought it was fascinating. And I the charts that you showed were unbelievable. On the on some of the investments in some of those companies. But let's bring it back to you talk about purpose, right and so, purpose in our lives, there's lots of different purposes and objectives within lives. But in the organization, you say there is only one primary purpose. And I think it's got to be said, You got to tell everyone in the room. That's the starting point, I think of what needs to be understood.
Fred Reichheld:It's true that you know, everybody does need a purpose in life. But an organization, a business organization, if it is going to prosper and be sustainable, I've discovered there is literally one purpose that actually that works mean, and that is to put customers first and make sure that enriching the lives of your customers is the most important it is the primary purpose of the organization's existence and companies that that stray from that. They just, they end up in the dustbin. It may take a long time, because big companies can play this game and pretend that, you know we're earning profits. But are those profits actually, above your cost of capital? No, is that you're actually just shrinking, you're on a slow death curve. The companies that grow and prosper, they put customers at the center, and they never will the good philosophy, Scott Cook, the guy that founded into it, who had joined Bain and Company about the same time I did about five years into the firm, he went off and found it into it TurboTax QuickBooks, so on, he says, Fred, in Intuit, we feel like we don't deserve us $1 of profit until the customer is happy. And the sort of an old fashioned approach right you know, money back guaranteed. We but it's it's the right philosophy, we don't deserve any benefit until we've solved your problem. And and business forgets that they think that no, no, no, it's Caveat emptor. That's what the laws are. Good, maximize shareholder value, give the customer enough satisfy the customer, but for heaven's sakes, never enrich their life and make them a complete promoter who, who loves your business and goes out and brings all their friends. Invert refers them.
Leon Goren:So I know you refer to this as love your customer.
Fred Reichheld:Yeah, that's a simple way of putting it right. Jesus says, Love thy neighbor as thyself, or supposedly, man, according to book of Matthew, He raised the stakes from the old fashioned golden rule, which was don't do bad things to others. That's from the Talmud. Actually, it's from Confucius 10,000 years ago. This is not a new idea. But now though, you raise the stakes to love thy neighbor, you know, or in my two words, treat your treat customers the way you'd want a loved one treated and suddenly you this is a much higher standard, not just satisfy them, but make their life better sustainably. Of course not, you know, not slavishly unsustainably doing things for them, there has to be a mutually beneficial relationship by If you don't deserve $1 of profit until you've made their, you know, put a smile on their face.
Leon Goren:So what companies today are really doing this, right. And doing
Fred Reichheld:these companies who have the highest net promoter score, you know, because Net Promoter Score is a name I came up with 20 years ago, but when I was toying with names for this, because it really is, it's a philosophy of every life you touch, whether you're an individual, a team or an organ company, you're going to enrich it or diminish it. And I wanted to have a simple metric that net lives, enriched it, because that's what makes the world a better place you, you can talk about all these high minded purposes in the world, and blah, blah, blah. But if we touch a life, and it hasn't been enriched, you didn't make the world a better place. That metric, which I almost call that lives in rich became, you know, a net promoter score is what I ended up with, that gives you a sense of, have I lived up to this golden rule standard, did that customer feel the love? And and it gives you a deep insight of whether you have succeeded or failed when in a relationship.
Leon Goren:So for the Net Promoter Score, just for those who maybe refreshing I mean, you have the promoters, and you have the detractors, and it's really the net of the two,
Fred Reichheld:right. And it's one we looked at, I wanted a simple metric. I don't particularly like surveys, but I think we needed a survey to get this going. We checked which question, best predicted future behaviors of customers? You know, we asked hundreds of customers in a dozen different industry, all these different, you know, how satisfied were you satisfied, right, your experience worthy of your loyalty, its intention to return blah, blah, blah. But one question that was the best predictor of these loyalty behaviors was, how likely is you'd recommend this to a friend. And I didn't fully appreciate why at the time, but it just was the best predictor of true behaviors. So net promoter was based on asking that one question zero through 10. We watched behaviors, and we saw that people that scored nines and 10s had way better behaviors and acted like promoters and sevens and eights, you know, they they got what they paid for, but they're no, they're not assets. They're not loyal, and the zeros through sixes. I mean, obviously, the zeros are pissed off, and the sixes are just sort of an, but they're all detractors, and they make your brand worse, they feel like they have not gotten what they paid. So take the percentage of your customers or promoters minus the percent or detractors. That's what net promoter is.
Leon Goren:That's great. So can I give you a scenario? Like, I know, we have a bunch of probably b2b CPG companies on here, right? So they're going through a distribution channel of the retailers, right? So they have two customers really, I don't want to certain days, but the retailer, the big box retailer, and then the end consumer. I just think about the last few years, I actually can think about the last eight months or a year with inflationary pressures, right? Where you gotta love your customer. You're saying, but your customer, which is a big retailer, sitting there and saying, what inflation? What do you mean, you want to put a price in here? Yeah, we'll get back to you next month. And then they don't get back to you for four months, right. And meanwhile, you're just being squeezed and put out of business? How do you love your customers in that type of situation, and that is, you know, COVID sort of disinflation thing sort of brought it to light. But it's been there for many, many years, they talked about partnerships and all this type of stuff. That's the one element I looked at this, like, I want to love my customer, but I can't necessarily respect my customer on the other side.
Fred Reichheld:Over time, over time, you really don't want to be doing business with customers who don't feel that mutual partnership, you know, if someone is going to abuse you and take advantage of at every turn, you may have to do business with them strategically for a period of time, but you'll eventually find a way to let your competitors have them because they have potentially destroy a business that the vast majority of companies and customers I think, respect this, you know, I don't want Golden Rule behavior does not mean you're doing everything I want and going bankrupt, because I'm being unrealistic and asking for stuff that is impossible. Good people don't want that to happen. So do business with good people. And most people want to be good sometimes it takes a little education so they understand your side of the equation and your and are convinced of your dedication to just you know, if you live the Scott Cook ethic, we're not going to make any profit until we solve your problem. That customer you know, chances are they're going to like doing business with you and treat you as a partner, if, if they're convinced that that is your philosophy and you deliver over time.
Leon Goren:Yeah, I sometimes wonder whether there's a misalignment right, in terms of they may love their customers, but they also love their stakeholders and shareholders, which becomes a problem, right reporting on quarterly. But
Fred Reichheld:whoa, I, you know, we asked business firms around the world, what their primary purpose was. Only 10% said it was to make their customers lives better. The vast majority of businesses today think it's to make our shareholders rich, it's this balance duty to all stakeholder, you know, Baloney, but that basically defaults back to profits, because you can say all the stuff you want about stakeholder balance, but if you run your business based on profits, and you pay your bonuses based on profits, and your your report profits to your investors, you know, essentially, profits are the purpose. And, and so yeah, I think a lot of companies I have really confused. Objectives and priorities. The reason I think my book winning on purpose may be able to help as I put the facts there, you know, finally, one business that hasn't behaved in this loving manner, who has sustained you know, it has, you can't find a company who has the highest NPS that's not delivering the best shareholder return. And, you know, you can say, oh, that's that industry or that industry. And after dozens of industries, you say, You know what, this is a general principle. And it makes sense. I mean, why would good people want to work for a company that they're not proud of how they treat customers, and investors and employees? And and so I saw one of the questions in the in the chat was, what about ESG? How do we think about the environment and one of the CEOs who taught me a lot about NPS, he says, Fred, I know you picked would recommend to a friend, because of it predicted behaviors, but I like net promoter, because I know my customers won't recommend this to a friend and publicly connect their personal brand to us. If if we're abusing our employees, or ruining the environment, or cheating on our taxes, this recommend is a very high standard. And it captures things that are dei and ESG. And all these other well intentioned things. But the more metrics you have, the more poorly you measure them. And the more flaky they are, let's get one, based on treating someone so well, that they're proud to be associated with you and want you to succeed. That's what recommendation measures, let's just get that measure, right? Instead of measuring it like 20 Other flaky, semi important metrics. I agree.
Leon Goren:I, you know, the other question I want to ask you with on the customer loyalty side, and it's related to sustainability, right? The different generations, the boomers, the millennials, or Gen Z, is the pressure to be sustainable, like, the newer generations more fickle a little bit too, and does that put more stress on the organization of a constant reinventing, it's like Apple, I gotta keep coming up with the new product and stuff. We're all jumped to Google or today, Tesla, right. But what happens when five years today, some other organization comes along, that does something better?
Fred Reichheld:Now, I don't think that's changed. I think the human reality is, if you love your customer, you have to give them remarkable experiences, and innovate, and be on top of that. And you know, if you build a great trusting relationship, you are in a position to find what's best for them. And if you can't do it, then build a partnership with the supplier who does it. And because you have better information and can can protect their interests and probably understand their problems in a way they never will. So it's just this duty. I remember, there was controversy about index funds, over the years about whether they were actually better than actively managed to, when I was in college, I looked at the facts, and it was very clear to me, index funds, beats actively managed funds, have, you know, over the years, over a decade, it's just, and you understand the math behind it, you go, you know, I couldn't really live with myself as a financial advisor, pitching actively managed funds, knowing what I know. And, and that puts you in a real bind. Over time, I think most guys have come around and said, You know, it's true. You got to have your core investments in a good index fund. You know, maybe we can mess around on the edges with other stuff. But if you do stuff that you know in your heart is wrong. You're not sustainable. You're not making the world better. You're not making your best yours better off really long term, your the exam oral and even though it sounds a little too high minded, so I, I think I'll tell you a quick story that the guy who ran Vanguard and had all the evidence that that smart people who knew the facts would put their money in a Vanguard Index Fund or similar thing, back then really weren't good alternatives, as there are today. And he said, we went to a, an active management, all these smart investment, institutional managers making millions of dollars. And somebody asked him, How many of you have have your personal savings and money in a in a Vanguard Index Fund, and like 90% of the room raise their hand, so they knew what was in their best interest, but they were pitching their clients this other schlock that was selling and making profits. But you've seen what happened to the industry. And you know, the more you do stuff that's not really in your customer's best interest. You're on a slow death march.
Leon Goren:It's true. So what do you you want to kick this off? You said 10% of companies are doing this, everything starts with people. Right? You've, you've been in and out of so many different organizations? How do you teach your leaders and then your employees to believe in this philosophy and to live it?
Fred Reichheld:I? That's a great question. Until this book existed, I didn't have a good answer. Now, what I've seen with some really sharp companies, is leaders are giving the book to teams, not just their executives, the frontline, and creating discussion groups where let's talk about this chapter. At the end of the month, we're just going to talk about what's in this chapter and what makes sense to you. What are we doing that's inconsistent with these principles? You think these principles are right for us? But getting a no, it's just a moral and economic discussion. And one of the companies I described in the in the book is called bills, it's a, it really is a remarkable digital app that does a way that with the need for paper instructions, it just puts it into the modern world with with CAD on your iPhone, your phone or your pan. And that company wants to build a culture of customer centricity. So they, they just cycle through the chapters of the book with discussion groups that mix levels of the organization, and, and they talk, ethical, sustainable. Love thy neighbor. What does this mean for us? What are we? So I do think it's a set of huddles, or meetings or discussion groups that puts this stuff front and center. And you know, maybe you'll find another book that does a great job for you but But consider winning on purpose as the Kickstarter for the right set of conversations.
Leon Goren:In your book, who- you talk about a couple of companies that do this very well. Which one stands out in your mind that that is really-
Fred Reichheld:-well, I, you know, the famous ones apple, but Intuit is pretty famous. One that's not as famous. It's the I lead chapter one with a company that I didn't know that much about called caliber collision. They're the biggest chain of collision repair, you know, auto body repair shops in North America, and talk about a gritty business that is not famous for loving customers. This guy, Steve Grimshaw, had did a private equity, roll up of the industry video, acquiring little chains and building. He just built a great business based on purpose. Making our customers lives better is the central theme, where he's turned this pretty lousy industry and do something I think, is pretty darn impressive. And at the same time, you didn't just make his employees happy, the customers happy. The private equity guys that invested with him have earned 50% A year five zero, you know, he has created a 50 times in return on investment over the decade by by corralling an industry that ran on short term profit maximization and turning it into one that people were proud to work for and really gave their best.
Leon Goren:That's great. I know I could open up to questions really, truly, but I want to come to this earth grow thing because this is really the it's a new piece within your book as well in terms of how you're looking at, well, it's predicting the future of a lot of the companies right by by seeing what customers are doing and what's coming in through word of mouth. Can you maybe walk the audience through on how you calculate that? It seems simple, but it's it's not as simple like you have it two ways one, if If you're small enough, I think you can do it by the number of customers. But the other way is you also have to do it to revenue too, if you're large.
Fred Reichheld:Yeah, you know, in the first book, I wrote the loyalty effect, I laid out loyalty economics. And I made an assumption that companies could just do this, and do customer cash. Cash flows from every customer through time. So you can think about net present value of customers and a net present value of investments to change the the flows from, but most companies can't do that they pool customers together and take revenues as a pool number, not customer by customer, newer businesses, like Amazon, the customer based accounting is that's how their systems are set up, they know what exactly they can run tests and test and learn their way to heaven. So given that most companies don't have that ability, I think eventually you have to move that way and and build the internal capability to have customer accounting. What's the short cut? Well, the first shortcut was Net Promoter Score. But it's a survey. And sir, you can screw around with surveys, and you can have sampling errors. And, you know, people reporting numbers like 80, to 90%, NPS, to their investors, and you go, what is going on? Well, they it was internally generated, and we have this tech platform that just pings somebody every time there's a transaction or a sale or a purchase. And and that's how we get our NPS number. Well, do you think all of your customers shop equally, equally frequently? No will who's shopping most frequently, and therefore getting the most survey requests are promoters. So you're over sampling your promoters in that mechanism, oh, and by the way, which customers actually are willing to take the time to bother filling out a survey promoters. And, and then, and you think that people are learning from the Ubers. And the car dealers of the world that only a 10 is a passing grade, and they don't want to get an individual in trouble. So not only is there over sampling of promoters, but there's biasing that, you know, I only give a score below a 10 or a five, unless there's a you know, it's a criminal offense, and these things cumulate into silly scores, and I said, stop linking this to people's bonuses. It's wrong. It's stupid, it's, but people wouldn't stop. So I recognize that we do need something for accountability. What should it be? And so I went back to what Andy Taylor told me originally with Enterprise rental car, you know, great companies, customers, come back for one bring their friends, let's get the accounting metrics for that. So earn growth is just simply how much of your growth, how much of your revenues, how much your growth is coming from customers who were with you last year, expanding their purchases, and there's a lot of front leading industries already measured, it's called Net Revenue retention rate. I'll get that. quantify it carefully. And then the second component is, and how much of my new customers are coming primarily, as a result of referrals or recommendations from my existing group of customers, those are earned. And then that's the earned growth, the bulk growth or sales, incentives, discounts, marketing gimmicks, you know, all this stuff that is, that's how most companies grow. But it doesn't make much money it actually when you split it apart and look at customer based accounting often that bought growth has negative net present value. And so I've just laid out earned growth and how you can calculate it how you can record it as a as an appropriate way to link to people's bonuses and report publicly if you're a public company company.
Leon Goren:Yeah, and so you had to if you're positive 30, you're growing you had one that was minus 30-
Fred Reichheld:Yeah, means it's a bit of a disaster. You can find your growth for a while but it's real expensive and you tend to get worse customers. You know, if you get your new customers with price discounts you're adverse selecting the most price sensitive group in the market who is going to run to the next guy that is desperate with capacity and gives a discount so you never make your money back you know, you think you're gonna keep them for four years and earn earn back your loss and period one. Not likely.
Leon Goren:It's true.
Nelson Fresco:I was made president just before COVID-19 lockdown began.
unknown:Nelson fresco President Miele Canada.
Nelson Fresco:We pivoted by compressing our five year online strategy into the last five weeks
unknown:Surprised? Don't be. Nelson is a member of PEO leadership, Canada's premier peer to peer advisory firm.
Nelson Fresco:PEO leadership helped me develop my ability to lead with speed. We've seen a substantial increase in online sales and Miele offices worldwide are following our Canadian example.
unknown:The time to step up and lead is now. Go to PEO-leadership.com.
Leon Goren:All right, let me pick up a couple of questions here. So I know I urge everybody, either in the chat or the q&a, I'll flip between them both. But Martin Day had one. Can you use NPS in a world of Google reviews?
Fred Reichheld:Yeah. And I think Google review is very sloppy. But it's not worth zero. I think that my kids all go to Google reviews. And they start there. Because it's, you know, it's not something that people aren't buying reviews. I don't think yet, but they certainly do buy reviews on Amazon. The, but how do you really get a reputation? Usually, you ask a friend, or someone who is an expert, and certainly in business to business, yes, people who you know, in the community in the business community. So real customers attitudes, when they share them, publicly, have big impact. And that's how most people make decisions these days, they might start with a Google review, as the superficial initial start, but if it's a big purchase and important one, they're almost always going to go someplace that is a little more trustworthy. And data so and I think the implication is, you got to get your customers, your legitimate customers putting the reality of their experience out into the world, whether it's social media or rating sites, or on your site, get your customers to speak the truth.
Leon Goren:not always an easy thing to do, as we all know, right? They don't speak the truth, but getting them to do it is sometimes more difficult, depending on which business you're
Fred Reichheld:if you've got a real promoter who felt the love, they want you to succeed. If you had sort of an eight, and said, Yeah, it's everything's fine banks, yeah, those, those are hard people to recruit. But if some, if you've done something really special for somebody, that's remarkable. They want to share that with people they care about, not just for you, they want their friends and family to have that experience. It's you know, a referral is an act of love. It's not for me, it's for them, I want to enrich their lives to
Leon Goren:some real incentive, as you think about your business and your customers just to keep,
Fred Reichheld:if you're not getting referrals from your customers, you're not remarkable enough. You really think about Zappos was a really successful business selling online shoes. The guy that founded that, who died tragically last year, but he said, you know, marketing and sales, those are taxes that we can't afford to pay their taxes, you have to pay for not being special for your customer. We'd rather put our investment in being special for our customers. So we have to wow them. And they and they wowed me yesterday, you know, I'm going on a trip. I need a pair of shoes. They're there. In less than 24 hours in I'm down on Cape Cod. So it's not like I'm close to the an urban warehouse. Just incredible. Warby Parker with him in eyeglasses, same thing. They find things that just wow, you they don't just do stuff. Okay. And I think that's the higher standard that you have to hold yourself to. And then people do talk about you, and they're willing to refer.
Leon Goren:That's great sharing there. Our next question, I've got an I see it's, I think it's from a Richard, how do you determine a public companies to NPS? And I think you were sort of touching on this a little bit, because, and you definitely touch about it in the book because people are reporting on their financial statements. All different types of NPS and, and actually, it's also the thing I was thinking about, it's difficult, like if you do your own NPS score, you say, Okay, well, you want to benchmark it, right? Get a sense of how others are doing. I don't even know where you look, I know you talk about different areas, but it doesn't look easy to actually compare yourself.
Fred Reichheld:It's not and this is one where I would send you to the book and read because it it's something that Bane was frustrated enough that we developed a data business called NPS prism that is building panel based NPS results for every major industry and marching around the world. But the way it's financing itself is selling that data in a syndicated fashion to the companies in that industry who can learn from it and test innovations and improvements. So one source is you buy that from an NPS prism or what their I presume their competitors out there now, or you can do it yourself. And it's a little expensive because you got to get panels, especially in b2b It's hard to get panels of the real decision makers who are making purchase decisions. But I think in some cases, you can't get NPS versus your competitors in a perfect way. One nice little workaround I've seen is when you ask your customer how likely you'd recommend us to a friend. And then you ask them. And if you're doing business with another supplier, what's the best of those? And how likely is recommend them to a friend and understand the difference? So you can find interesting ways to get comparisons for your own improvement if you're an Internal Manager. But if you're just looking for investment insights, like I do it, I don't think there's a better way than NPS prism.
Leon Goren:That's great. How, how did you guys do to Bane? Did you ever compare yourself or benchmark yourself see if the McKinsey's and-
Fred Reichheld:Yeah, it was real expensive, that's when you know that we were the first company to use NPS anywhere in the world, because it got invented in vain. When we did it internally, we asked our clients, usually once or twice a year, but it's not just the headquarters singing of sending out surveys, the the lead partner on the account talks to the account, various levels, decision makers, influencers that people we work with every day, what's the right frequency? How does this link into our account review process? And in do you want it down anonymous, so you can speak the truth? Or should we have it named by name so we can do closed loop follow up? Or do you want to have both and let people ask for anonymity so they can speak, you know, there's all these subtle, let's tune it up for the account. And then the guy that pushes the button, or the woman that pushes the button for a Sunday survey request, is the partner on in charge of the account. And they already have a schedule of when we get the data, when we're going to follow up with the client, what the next thing we're going to do so it's integrated into the account management process, not just a sort of one more activity that somehow we'll double check on people.
Leon Goren:And when you did it, I mean, one of the things is the sample size, right? If you get 75% of the people responding-
Fred Reichheld:In b2b, if you do a system, right, a client who doesn't respond is screaming out. I'm a potential detractor, because I'm not you haven't convinced me that you've built a process that actually cares about me? Well, you know, it's wasting our time. And so watch out and be to see and you know, the market has been so oversaturated. With survey requests, I think, to separate yourself from the pack, you really have to build, you have to say, this is different. Maybe you create a club level, like Costco does, or Amazon Prime and to be in that club. Part of the deal is we want feedback twice a year, it's three questions twice a year, it's very reasonable, and we act on it when you have something to say. But if you just sit in the current pool of Let's send out Jillian survey requests on email and hope that somebody is bored or lonely enough to respond, you know, what kind of information you're really getting?
Leon Goren:It's true. All right, I'm gonna go to the next topic. Do you differentiate MPs based on customer journey? pre purchase post purchase post cost?
Fred Reichheld:Oh, yeah, the way that NPS prism is set up. And this is where you go to the book. That prism gets brand level NPS. But then they have 1000s of people on their panels who have bought from various brands. And they, they'll ask them about one or two journeys that they've or episodes in the journey that they've been through recently, like if they've just opened an account, based on that experience, how likely I'd recommend that maybe they had a fraud challenge on their credit card, and you get a big enough pool who've had that within the last 30 days, and you ask them, so you get episode, specific NPS for every competitor, which I think is God's gift to management. If you know who's the best at every episode and the rank ordering and digital versus human. This this is like shining a light on this very confusing situation and you can see for your target customers what you've got to do to be great. That's great.
Leon Goren:And another one in the chat here MP Mike someone we currently use pecan at our company to manage MPs. What are your thoughts on choosing the right company? IDS ideas, there are one system better than is one system better than another?
Fred Reichheld:You know, there's a lot of players in the space. The two biggest guys are Medallia and Qualtrics. They tend to be solutions for bigger companies. I think they both have subsidiaries that deal with SMB pretty nicely. I think the future Risk viewer surveys of the old fashioned variety and, and more watching customer behaviors that are indicators of their promoters or their detractors. And then when you need a survey, make sure it's sort of pre negotiated about what's the appropriate frequency and lens, so you have a high response rate and get not, you know, it's really you want two or three questions, Max, that with open text verbatims. And the best companies now, don't force the person to type in or, you know, whatever you do these days key in your, your answers, you just tuck it into your head to your mobile phone, and it digitizes it, and sends it to the people in your organization who should be listening to it. And so you get the tone of voice and the emotion, just way more efficient. And then it can digitize it as well and put it into text form. But then I'm doing a webinar in a couple of weeks with with CVS, the big drug chain, and they use a tool from Medallia that instead of just talking it into your mobile phone, it does a FaceTime, you know, it's a, it's a video, that is the feedback file that goes into the system. And you think, jeez, in retailing, or in a lot of businesses, where you don't know the customers name, but you sure know their face, if it's within 24 hours, they're getting the feedback. So you learn who it was, and you get all the emotion of that. And it's, it's more frictionless for the customer to do that than to have to do a survey and sit down at their computer. So I think I would move towards those solutions as soon as feasible. Okay.
Leon Goren:Oregon, if you sell through a channel, do you get the net promoter for both the reseller and the end customer?
Fred Reichheld:Yeah, I would, I think this notion when you do have, you know, insurance companies Good doing business through agents, or brokers, consumer products CPG, going through retailers, you, you want to get your brand, but it's never going to be divorced completely from the channel. So one way to solve that is, maybe you're just doing it for your brand, we always keep track of which channel they went through or which retailer and you can essentially develop a, a, an NPS factor that it improves or goes down based on which store is selling you or which agent is selling you. And I do think you should be very careful, there is a lot of a lot to be learned. And most people also have a direct channel and can go online directly. And at least some parts of the world and, and learning from those, how much better it is, is it for building relationships to go direct? And I think you can make some important strategy choices about channel channel strategy.
Leon Goren:I think that's the big way the world has changed is being able to hit that end consumer. And
Fred Reichheld:almost everybody can today.
Leon Goren:Yeah, well, I think you need a sample of it. Yeah. Because the mass market still is driving for some 50 for 60% of their business. Right. And limiting.
Fred Reichheld:But But there's an interesting, you know, look carefully at the Tesla story. In chapter five, I think it is. Tesla has the highest NPS and the auto business. And a lot of it is their product. But a non trivial amount is they don't have a bunch of third party dealer franchises who are who do not have a customer based philosophy. You know, they they want to pull maximum dollars out of the customers wallet, not Scott Cook, we don't deserve $1 a profit until the customers happy. So Tesla has a philosophy of making our customers happy. And they can do it because they don't have a channel who has different objectives. And and it's gonna be hard for the state for the current brands to compete with that without really changing their distribution
Leon Goren:strategy. No, I agree. All right. I'm gonna go we had some questions also in the q&a. Oh, somebody asked about how do I invest in a base NPS, where we're finding which I think you've been talking a little bit about to look up a company to invest in base NPS
Fred Reichheld:read chapter five. Yeah. Okay. It is it is still relevant data. I'm stunned how few people invest on these insights.
Leon Goren:Yeah. It by the way in those charts was interesting because the companies that you had there. They were newer companies that felt like a little bit like you have the Amazons you had. Have your book here and that time When I was looking at it and going, and so that whole sustainability piece came up in the back of my head, right?
Fred Reichheld:Well, Chick fil A is not a new company and Chick fil A is crushing it. Right? Enterprise rent the car is not a new company, and they're crushing it. They're private. So yeah, I think you have to be innovative and exciting for your client. And that's, that's the reality of life. Because if you're sent if you're if you're pitching old fashioned Sherlock, to your customer, and if you love them, you'd actually send them to something better. You know, it's not a winning strategy.
Leon Goren:Well, that comes back to the era of innovation constantly innovating with the customer. Yeah, it's
Fred Reichheld:the human doesn't seem fair, right. But even if you're just outstanding, and they trust you, and you just do great stuff. But if you're not exciting, you get bored with people, it's the human, you know, you just discount something. So you always have to be searching for the remarkable. And, you know, sometimes it's just acts of kindness. It's the way you treat people, it's, but you got to surprise them. The guy that ran the founded Costco, Jim Senegal, told me, you know, Fred, if we just had low cost stores, and you always had predictable experiences, we would have a lousy business. Because if if we're just being low costs, online competitors can do that better than we can. And that's the lower cost for most stuff. said, The reason Costco works is people are willing to go to those inconvenient stores, and the lousy parking lots, because there was a treasure hunt inside. And there is there was a wow. Not Not every time but every few times you're going to Costco there is this wow, that you want to, you know, tell your friends about. It's a high standard. But I think given the way the human brain works, and once you get a pattern that's predictable. You don't even pay attention. It doesn't exist anymore. Your brain just sort of puts it in the background. And you got to stay out of that or you're going to be an also ran.
Leon Goren:Yeah, I really appreciate your Costco story. Because I've known Costco for many years, I never realized it was 14% above costs. And that's it. There are
Fred Reichheld:15 If it's Kirkland, so 14, if it's other if it's branded stuff.
Leon Goren:Yeah, and there are no exceptions. If they are negotiate a better deal, it's still 14. And I thought that was just unbelievable. I mean, you're right, you're making a difference to every one of those customers, with
Fred Reichheld:their customers. They, they make it clear to their investors, customers come first, we call them members, employees come second, investors come third. That's how we run Costco. And, and it's a great place to work. Because when you treat customers with love, they tend to like, you know, treat you well in return. And it's a pretty sweet business. And yeah, there's a good example. Costco is not a new company, but they're just crushing it. Yeah,
Leon Goren:absolutely. So we have one other quick, what is statistically relevant response rate to validate NPS scoring.
Fred Reichheld:You cannot sort of ask me to teach a first year college statistics course in a one question, answer.
Leon Goren:Come on, Fred, we were Mr. Customer Loyalty.
Fred Reichheld:You know, if you really, you know, it's simple, simple rules of thumb, you know, get a sample size of over 100. For every unit, you know, that you're measuring that then response rate doesn't make that much difference. If there's no bias, if it's double blind, no biases inside, you can have medium response rates, but it's when you have all these biases, that, you know, promoters, buy more frequently, they're in those transactions, they tend to respond at a higher rate. And I would say, Stop fixating on the score and statistical reliability, and start saying, you know, it's a survey. It's got all sorts of flaws in it. But when I get a detractor, I know I gotta call him up and figure out what went wrong and fix it. And when I get to a promoter who gives me this great verbatim, that makes me proud. I want to share that with all the people that had anything to do with it and create the energy. It's a learning process. It's not about a score. If you have an NPS, prism, data business, then you can start saying okay, it's a score, but that let's use during growth as the score, and then PS as a prop. says for learning how to make your business better.
Leon Goren:That's great. I actually, some some people that sent the questions in the head Rick Martel sent him one. And I think in a world of employee retention, how do we bounce our teams with customer satisfaction while not losing focus on employee satisfaction out of the two mesh? And I think you just touched on that, when you get a promoter out there. And you think about all the people that touched him, that individual and reinforced it in the reorganization? It must be a thrill to that those employees.
Fred Reichheld:Oh, yeah, the lady at Apple who had the highest score, I talked about her in the in the book. I asked her what's it feel like when you get a tan? And she said, Well, I feel like I'm living the right life. I went to Quaker school and golden rule and making the world a better place. So you know, when I've enriched the life and I get a standing ovation in the form of a 10, Anna, verbatim explanation of that, that's, that's a better bonus. I mean, obviously have to pay competitive wages. But if you pay competitive wages, and you put people in a situation where they can earn and hear standing ovations regularly, they're not going to want to work someplace else.
Leon Goren:Yeah, that's great. Someone asks, Theresa Hardy asked a more personal question, tell us about a mentor or someone that has influenced your life, professionally, personally. And what's the best advice?
Fred Reichheld:The temptation is go back to your parents? Ah, who would I put as? You know, it probably it's, it's the leaders I write about them in the preface to the book. It's guys, you know, go beyond family. too professional. It was Andy Taylor, and enterprise rent the car. Bob, Harry's was the head of USAA. He was the Vice Chairman of the Joint Chiefs. And I'm not a military guy. My family's not military. But boy, military done right. And USAA is awesome. And even. This is a you know, I'm more distant. The guy that founded Chick fil A, to add Kathy, just totally different. And, you know, they've got this anti gay thing, and two of my four kids are gay and proudly married. So you know, you got to think, wow, how can you even sit in a room with that, but this was a he was a good man. Just, you know, he, he, his he loved putting smiles on people's faces. That was his life. So it's those and it was Jim Sinegal at Costco. These things probably Tim Cook at Apple. I just don't know him personally, like I do these others, but you guys who can be leaders, and inspire their teams to love customers. That's pretty special.
Leon Goren:Yeah. Well, as we come to the end, Fred, if you wanted, maybe one or two things you hope people who listen to us today and listen to you primarily? What do you hope they take away here?
Fred Reichheld:Well, you got finite days on earth. Think carefully about what you want to accomplish with it. With those days, and if it's making the world better and enriching more lives, then you diminish, start keeping track of that, and share that with your friends and family and your colleagues. And I'd say the other is, let that influence who you do business with, you know, your life is essentially, who you spend your time with. And you want to buy from companies and work for companies and invest in companies who live this, this philosophy and they earn your loyalty. So that would be that's my takeaway. And you know, look at the little dedication in the book that the book was written for my grandchildren. It's sort of my life's lessons that I hope can get passed on to them. And it's not just about how to make money in business or investing. It's about how to live your life. And net promoter, I think, has a very important role to play there.
Leon Goren:And I want to thank you so much for joining us today, sharing your wise words. And for everyone out there. So here's the book, winning on purpose. Absolutely Fabulous. Honestly, it takes you you could do it in one day, but two or three days if I open the book, I'm embarrassed by it because I got every tab every page has a fold on the page that I have to come back to pencil marks everywhere. They're absolutely fantastic. But thank you for sharing your insights again with us today. And well that is really bring us to the end of of today. Listen, if you're interested in any way forward live webcasts, please visit us at our website, PEO-leadership.com. Next month we're actually doing it in person but it's also recorded it will be recorded down all right to speak about the labor challenges and the opportunities before us. It's not all bad. There are opportunities ahead of us. We'll be hosting Darryl at our- really our second in person event of 2022 taking place at Arden Bareless on June 22. registration details are coming. And I just simply like to thank you all for joining us again and wish you a fantastic day, week and month and I hope to see many of you in person on the 22nd of June. Take care. Let me introduce you to the Vaughan metropolitan center and emerging downtown poised to be the financial innovation and cultural center of Vaughan. major corporations and 1000s of new residents are choosing downtown Vaughn because it's the perfect balance between downtown Toronto and the Greater Toronto Region. No other location offers this blend of subway and rapid bus transit with equal access to downtown in the suburbs, Class A office space and an urban lifestyle. As a result, this hub and highways 400 and 407 is growing faster than expected. To learn more, visit my vmc.ca