Did Fred Reichheld Make a Big Mistake With Net… | CustomerGauge Did Fred Reichheld Make a Big Mistake With Net Promoter Score?

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Did Fred Reichheld Make a Big Mistake With Net Promoter Score?

In our latest episode of the Account Experience Podcast, we welcome the inventor of the Net Promoter System, Fred Reichheld. The CEO and Co-Founder of CustomerGauge talks with Fred about the origins of Net Promoter®, Fred’s new book “Winning on Purpose,” and the future for B2B Account Experience. And yes, even Fred’s biggest regrets when it comes to Net Promoter Score.

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The Origins of Net Promoter

It is official, Net Promoter is 18 years old. Not quite grown up, but close. 

Here’s a quick recap of how it came to being straight from Fred. In his time at Bain & Co, Fred saw companies consistently outperforming their competition and he couldn’t explain their success through classic strategy principles. Finally, it occurred to him that the secret was actually earned loyalty through customers and employees. That flywheel of bringing their friends with them back to the brand was at the core of this different paradigm that made businesses tick. 

And he saw tiny changes in customer retention rates equaled explosive growth. So he started exploring how companies harnessed explosive growth through earned customer loyalty.

He quickly determined that measuring customer loyalty is actually a bit of a science and we needed a way to measure it in a scientific way to better understand customer loyalty. 

Retention is not good enough—we needed an indicator to measure if we touched a customer in such a way they would share it with a loved one. We needed an indicator of the success or failure of business relationships and the loyalty those created.

How The Name “Net Promoter” Came About

“Believe it or not, we had a different name for Net Promoter. These loyalty leaders, Net Promoter leaders have a moral compass and set of ethics that are formulated around the golden rule.” 

When Fred was thinking about the name, he tried to boil down exactly what the essence of this new indicator was and he came to this conclusion: 

“When a company or team touches a customer, have they enriched the life or diminished the life of a customer?” 

And here’s the bombshell:

“I was originally going to call it new lives enriched, and I wish I had! There are a lot of businesses where enriching lives really resonate with their employees, much better than promoters or detractors. I thought ‘net lives enriched’ was too soft and lovey dovey.”

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“Promoters, that’s what you want in a business, they’re coming back for more, bringing their friends and promoting your success, and maybe that’s why it spread so fast and so far, but i sort of wish I called it net lives enriched and stuck with that.”

“I remember sitting in a cab and pondering these different names  like ‘net advocacy score’, ‘net fan score’ and ‘Net Promoter’ was sort of winning in my head but then I had this image of that fight promoter that used to work for Muhamed Ali and his hair was crazy, and I thought ‘promoter’ is just not a good name, but I settled.”

That’s right folks, you heard it here first, Fred wished he kept his original name of Net Lives Enriched, but by the time Net Promoter was released in the wild, it spread too far and wide to change it. A mistake? Probably not as Net Promoter has been widely adopted, but definitely an interesting regret from the creator of Net Promoter! 

Fred on Net Promoter Score in the Digital Age

On digitalization, Adam asked Fred how he thinks Net Promoter fares in the current world, and Fred, god love him, pulls no punches: 

“Digitalization is awesome. There are people that say Net Promoter is less relevant in the digital age and I think to myself ‘my god these are the stupidest people I’ve ever met’ digitalization is this awesome opportunity to measure effectively and delight customers...in the re-conceiving of the customer journey there are so many opportunities to shock and amaze customers with some many wonderful, thoughtful  kind and caring innovations—this is the age of net promoter and the evidence is clear.”

And Fred’s not wrong, over ⅔ of Fortune 100 use Net Promoter. 

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Why Making Net Promoter Open Source Was Key

“I thought naming it was the most important thing, it was not. The most important choice was going with an open source mentality where practitioners could use it, experiment with it, change it, modify it and the innovation and insights just exploded.” 

But making it open source has downsides and Fred mentions ‘you lose control of it.’ But his core philosophy is to treat people the way you want to be treated. 

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For example, when you link Net Promoter score to someone’s bonus anywhere near the front line, they start caring more about the score and not about what that feedback could teach them and how to innovate in ways to serve my customer better. 

Fred believes “most people are using and abusing the system. They’re making this cancerous decision to link it to compensation and the front line. But within a year or two it essentially destroys itself and you get begging and pleading for high scores.” 

And this echoes our experience in B2B as well, if you link to compensation people start begging and using ‘car salesperson’ tactics to inflate scores and the program inevitably will collapse. 

Winning on Purpose

Fred’s new book is called “Winning on Purpose” and Adam wanted to know a bit about how Fred came up with the name. Here’s the story:

Fred had time to think and reflect on the current state of business and he kept asking himself ‘why do people not see the golden rule as the key to success?’ 

Looking back to the Net Promoter days it was bluntly obvious to Fred and his team that If you looked back at the highest Net Promoter Score companies, their scores were directly correlated with a leadership team that truly believed the reason their business existed was to make their customers' lives better. But Fred mentioned that he came to realize this was a minority point of view. 

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In his time at Bain, Fred said they surveyed over 200 executives around the world and asked them what’s the primary reason your company exists? Most of them said it’s either to maximize shareholder value, create a great place to work, or balanced stakeholder-ism. 

The realization Fred had after this exercise was that only 10% of businesses today believe their purpose is to serve their customers. And he presents powerful evidence that serving your customers better is the only way to win today.

The Rise of Customer Capitalism

In Fred’s book, he talks about how accounting was developed for capital-intensive industries like railroads, steel manufacturers and has evolved very little since then. 

Fred even talks about Bain’s balance sheet as being a complete waste of time. “Of course you have to do it,” says Fred “but in a complete service business, it makes no sense at all.”

So he asks the question—” why are we making these businesses go through all of these antiquated accounting practices and not measuring what really matters. Who are your assets, maybe your employees that delight customers, maybe your customers themselves.” 

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Fred is advocating for customer-based accounting. One way companies can track customer growth is by tracking referrals and focusing on earned growth—essentially how much is earned through referrals and how much is bought through advertising and expensive marketing campaigns. 

But does it pay to invest in such customer practices?

Short answer—absolutely. 

Fred claims with Bain’s detailed analysis of industry vs. industry Net Promoter Scores, he has a very clear picture of which companies value and feed customer loyalty. Whenever there is no client conflict, he invests in those high-performing NPS companies and has been for ten years.

 So how did he fare?

Fred claims his returns are more than triple the stock market over the decade. 

He also states that there are very few PE firms that can match that record and no public ETFs or mutual funds that can claim the same returns.

So Fred went a step further and created an index called FREDSI

It stands for Foster Recommendation and Eliminate Detraction Stock Index. This stock index and the customer-first companies included is the secret to more than tripling the stock market over the last ten years. 

The Golden Rule & NPS (& B2B of Course!)

But what is this all really about? What does the act of referring a friend or colleague to a product or service really mean? 

Fred believes it’s about love—they want to enrich the lives of their friends and family. 

Fred believes Net Promoter is really a Net Love Score. It’s the notion of what makes people loyal. He believes you don’t trick them with fine print, you treat them well and set them up for the best outcome possible. 

In short, great businesses love their customers..it’s really that simple. 

But, what about B2B? Does loving your customers still work?

Most people think Net Promoter is a consumer invention, but that couldn’t be further from the truth according to Fred. “It started in a business to business context. The idea came from large complex B2B enterprises.”

Adam mentioned that CustomerGauge is happily helping B2B companies across the globe continue Fred’s B2B NPS legacy with Account Experience, a B2B experience methodology that embodies consumer capitalism and customer love in a software package.

To close out, Fred gave one final example of this business ethos in action. There was an article in the Wall Street Journal recently where a restaurant put a sign in the window that said “Be kind or please leave.” Fred wishes the leaders of today embodied that mentality more. 

The golden rule is quite possibly the most powerful concept in human history, isn’t it about time companies follow the lead of people?

And that is how you win your customer's hearts and lifelong loyalty (on purpose). 

Next Up: How One B2B Organization is Getting 100% Response Rate

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