You are on page 1of 11

www.hbr.

org

If growth is what you’re after,


you won’t learn much from
complex measurements of
The One Number You
customer satisfaction or
retention. You simply need to
Need to Grow
know what your customers
tell their friends about you. by Frederick F. Reichheld

Reprint R0312C
If growth is what you’re after, you won’t learn much from complex
measurements of customer satisfaction or retention. You simply need
to know what your customers tell their friends about you.

The One Number You


Need to Grow
by Frederick F. Reichheld

The CEOs in the room knew all about the they were doing and the opportunity to learn
power of loyalty. They had already trans- from successful peers.
formed their companies into industry leaders, The survey was different in another impor-
COPYRIGHT © 2003 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED.

largely by building intensely loyal relation- tant way. In ranking the branches, the com-
ships with customers and employees. Now the pany counted only the customers who gave
chief executives—from Vanguard, Chick-fil-A, the experience the highest possible rating.
State Farm, and a half-dozen other leading That narrow focus on enthusiastic customers
companies—had gathered at a daylong forum surprised the CEOs in the room. Hands shot
to swap insights that would help them further up. What about the rest of Enterprise’s cus-
enhance their loyalty efforts. And what they tomers, the marginally satisfied who contin-
were hearing from Andy Taylor, the CEO of ued to rent from Enterprise and were neces-
Enterprise Rent-A-Car, was riveting. sary to its business? Wouldn’t it be better to
Taylor and his senior team had figured out track, in a more sophisticated way, mean or
a way to measure and manage customer loy- median statistics? No, Taylor said. By concen-
alty without the complexity of traditional cus- trating solely on those most enthusiastic about
tomer surveys. Every month, Enterprise polled their rental experience, the company could
its customers using just two simple questions, focus on a key driver of profitable growth: cus-
one about the quality of their rental experi- tomers who not only return to rent again but
ence and the other about the likelihood that also recommend Enterprise to their friends.
they would rent from the company again. Be- Enterprise’s approach surprised me, too.
cause the process was so simple, it was fast. Most customer satisfaction surveys aren’t very
That allowed the company to publish ranked useful. They tend to be long and complicated,
results for its 5,000 U.S. branches within days, yielding low response rates and ambiguous im-
giving the offices real-time feedback on how plications that are difficult for operating man-

harvard business review • december 2003 page 1


The One Number You Need to Grow

agers to act on. Furthermore, they are rarely for the complex black box of the typical cus-
challenged or audited because most senior ex- tomer satisfaction survey, companies can actu-
ecutives, board members, and investors don’t ally put consumer survey results to use and
take them very seriously. That’s because their focus employees on the task of stimulating
results don’t correlate tightly with profits or growth.
growth.
But Enterprise’s method—and its ability to Loyalty and Growth
generate profitable growth through what ap- Before I describe my research and the results
peared to be quite a simple tool—got me from a number of industries, let’s briefly look at
thinking that the company might be on to the concept of loyalty and some of the mistakes
something. Could you get similar results in companies make when trying to measure it.
other industries—including those seemingly First, a definition. Loyalty is the willingness of
more complex than car rentals—by focusing someone—a customer, an employee, a friend—
only on customers who provided the most en- to make an investment or personal sacrifice in
thusiastic responses to a short list of questions order to strengthen a relationship. For a cus-
designed to assess their loyalty to a company? tomer, that can mean sticking with a supplier
Could the list be reduced to a single question? who treats him well and gives him good value in
If so, what would that question be? the long term even if the supplier does not offer
It took me two years of research to figure the best price in a particular transaction.
that out, research that linked survey responses Consequently, customer loyalty is about
with actual customer behavior—purchasing much more than repeat purchases. Indeed,
patterns and referrals—and ultimately with even someone who buys again and again from
company growth. The results were clear yet the same company may not necessarily be
counterintuitive. It turned out that a single loyal to that company but instead may be
survey question can, in fact, serve as a useful trapped by inertia, indifference, or exit barri-
predictor of growth. But that question isn’t ers erected by the company or circumstance.
about customer satisfaction or even loyalty— (Someone may regularly take the same airline
at least in so many words. Rather, it’s about to a city only because it offers the most flights
customers’ willingness to recommend a prod- there.) Conversely, a loyal customer may not
uct or service to someone else. In fact, in most make frequent repeat purchases because of a
of the industries that I studied, the percentage reduced need for a product or service. (Some-
of customers who were enthusiastic enough to one may buy a new car less often as he gets
refer a friend or colleague—perhaps the stron- older and drives less.)
gest sign of customer loyalty—correlated di- True loyalty clearly affects profitability.
rectly with differences in growth rates among While regular customers aren’t always profit-
competitors. able, their choice to stick with a product or ser-
Certainly, other factors besides customer vice typically reduces a company’s customer
loyalty play a role in driving a company’s acquisition costs. Loyalty also drives top-line
growth—economic or industry expansion, in- growth. Obviously, no company can grow if its
novation, and so on. And I don’t want to over- customer bucket is leaky, and loyalty helps
state the findings: Although the “would recom- eliminate this outflow. Indeed, loyal customers
mend” question generally proved to be the can raise the water level in the bucket: Cus-
most effective in determining loyalty and pre- tomers who are truly loyal tend to buy more
dicting growth, that wasn’t the case in every over time, as their incomes grow or they de-
single industry. But evangelistic customer loy- vote a larger share of their wallets to a com-
alty is clearly one of the most important driv- pany they feel good about.
ers of growth. While it doesn’t guarantee And loyal customers talk up a company to
Frederick F. Reichheld is a director growth, in general profitable growth can’t be their friends, family, and colleagues. In fact,
emeritus of the consulting firm Bain achieved without it. such a recommendation is one of the best indi-
& Company and a Bain Fellow. He is Furthermore, these findings point to an en- cators of loyalty because of the customer’s sac-
the author of Loyalty Rules! (Harvard tirely new approach to customer surveys, one rifice, if you will, in making the recommenda-
Business School Press, 2001) and based on simplicity that directly links to a com- tion. When customers act as references, they
“Lead for Loyalty” (HBR July–August pany’s results. By substituting a single ques- do more than indicate that they’ve received
2001). tion—blunt tool though it may appear to be— good economic value from a company; they

harvard business review • december 2003 page 2


The One Number You Need to Grow

put their own reputations on the line. And shrift that investors give to such reports as the
they will risk their reputations only if they feel American Consumer Satisfaction Index. The
intense loyalty. (Note that here, too, loyalty ACSI, published quarterly in the Wall Street
may have little to do with repeat purchases. As Journal, reflects the customer satisfaction rat-
someone’s income increases, she may move up ings of some 200 U.S. companies. In general, it
the automotive ladder from the Hondas she is difficult to discern a strong correlation be-
has bought for years. But if she is loyal to the tween high customer satisfaction scores and
company, she will enthusiastically recommend outstanding sales growth. Indeed, in some
a Honda to, say, a nephew who is buying his cases, there is an inverse relationship; at
first car.) Kmart, for example, a significant increase in
The tendency of loyal customers to bring in the company’s ACSI rating was accompanied
new customers—at no charge to the com- by a sharp decrease in sales as it slid into bank-
pany—is particularly beneficial as a company ruptcy.
grows, especially if it operates in a mature in- Even the most sophisticated satisfaction
dustry. In such a case, the tremendous market- measurement systems have serious flaws. I saw
ing costs of acquiring each new customer this firsthand at one of the Big Three car man-
through advertising and other promotions ufacturers. The marketing executive at the
make it hard to grow profitably. In fact, the company wanted to understand why, after the
only path to profitable growth may lie in a firm had spent millions of dollars on customer
company’s ability to get its loyal customers to satisfaction surveys, satisfaction ratings for in-
become, in effect, its marketing department. dividual dealers did not relate very closely to
dealer profits or growth. When I interviewed
The Wrong Yardsticks dealers, they agreed that customer satisfaction
By substituting a single Because loyalty is so important to profitable seemed like a reasonable goal. But they also
growth, measuring and managing it make good pointed out that other factors were far more
question for the complex sense. Unfortunately, existing approaches ha- important to their profits and growth, such as
ven’t proved very effective. Not only does their keeping pressure on salespeople to close a high
black box of the typical complexity make them practically useless to percentage of leads, filling showrooms with
customer satisfaction line managers, but they also often yield flawed prospects through aggressive advertising, and
results. charging customers the highest possible price
survey, companies can The best companies have tended to focus for a car.
actually put consumer on customer retention rates, but that measure- In most cases, dealers told me, the satisfac-
ment is merely the best of a mediocre lot. Re- tion survey is a charade that they play along
survey results to use and tention rates provide, in many industries, a with to remain in the good graces of the manu-
valuable link to profitability, but their relation- facturer and to ensure generous allocations of
focus employees on the
ship to growth is tenuous. That’s because they the hottest-selling models. The pressure they
task of stimulating basically track customer defections—the de- put on salespeople to boost scores often results
gree to which a bucket is emptying rather fill- in postsale pleading with customers to provide
growth. ing up. Furthermore, as I have noted, reten- top ratings—even if they must offer something
tion rates are a poor indication of customer like free floor mats or oil changes in return.
loyalty in situations where customers are held Dealers are usually complicit with salespeople
hostage by high switching costs or other barri- in this process, a circumstance that further de-
ers, or where customers naturally outgrow a grades the integrity of these scores. Indeed,
product because of their aging, increased in- some savvy customers negotiate a low price—
come, or other factors. You’d want a stronger and then offer to sell the dealer a set of top sat-
connection between retention and growth be- isfaction survey ratings for another $500 off
fore you went ahead and invested significant the price.
money based only on data about retention. Figuring out a way to accurately measure
An even less reliable means of gauging loy- customer loyalty and satisfaction is extremely
alty is through conventional customer-satisfac- important. Companies won’t realize the fruits
tion measures. Our research indicates that sat- of loyalty until usable measurement systems
isfaction lacks a consistently demonstrable enable firms to measure their performance
connection to actual customer behavior and against clear loyalty goals—just as they now do
growth. This finding is borne out by the short in the case of profitability and quality goals.

harvard business review • december 2003 page 3


The One Number You Need to Grow

For a while, it seemed as though information We started with the roughly 20 questions
technology would provide a means to ac- on the Loyalty Acid Test, a survey that I de-
curately measure loyalty. Sophisticated signed four years ago with Bain colleagues,
customer-relationship-management systems which does a pretty good job of establishing
promised to help firms track customer behav- the state of relations between a company and
ior in real time. But the successes thus far have its customers. (The complete test can be found
been limited to select industries, such as credit at http://www.loyaltyrules.com/loyaltyrules/
cards or grocery stores, where purchases are so acid_test_customer.html.) We administered
frequent that changes in customer loyalty can the test to thousands of customers recruited
be quickly spotted and acted on. from public lists in six industries: financial ser-
vices, cable and telephony, personal comput-
Getting the Facts ers, e-commerce, auto insurance, and Internet
So what would be a useful metric for gauging service providers.
customer loyalty? To find out, I needed to do We then obtained a purchase history for
something rarely undertaken with customer each person surveyed and asked those people
surveys: Match survey responses from individ- to name specific instances in which they had
ual customers to their actual behavior—re- referred someone else to the company in ques-
peat purchases and referral patterns—over tion. When this information wasn’t immedi-
time. I sought the assistance of Satmetrix, a ately available, we waited six to 12 months and
company that develops software to gather and gathered information on subsequent pur-
analyze real-time customer feedback—and on chases and referrals from those individuals.
whose board of directors I serve. Teams from With information from more than 4,000 cus-
Bain also helped with the project. tomers, we were able to build 14 case studies—
that is, cases in which we had sufficient sample
sizes to measure the link between survey re-
sponses of individual customers of a company
Ask the Right Question and those individuals’ actual referral and pur-
chase behavior.
As part of our research into customer loyalty and growth, my colleagues and I looked
The data allowed us to determine which
for a correlation between survey responses and actual behavior—repeat purchases,
survey questions had the strongest statistical
or recommendations to friends and peers—that would ultimately lead to profitable
correlation with repeat purchases or referrals.
growth. Based on information from 4,000 consumers, we ranked a variety of survey
We hoped that we would find at least one
questions according to their ability to predict this desirable behavior. (Interestingly,
question for each industry that effectively pre-
creating a weighted index—based on the responses to multiple questions and taking
dicted such behaviors, which can drive growth.
into account the relative effectiveness of those questions—provided insignificant
We found something more: One question was
predictive advantage.)
best for most industries. “How likely is it that
The top-ranking question was far and Other questions, while useful in a par-
you would recommend [company X] to a
away the most effective across indus- ticular industry, had little general ap-
friend or colleague?” ranked first or second in
tries: plicability:
11 of the 14 cases studies. And in two of the
• How likely is it that you would recom- • How strongly do you agree that [com-
three other cases, “would recommend” ranked
mend [company X] to a friend or col- pany X] sets the standard for excel-
so close behind the top two predictors that the
league? lence in its industry?
surveys would be nearly as accurate by relying
Two questions were effective predic- • How strongly do you agree that [com-
on results of this single question. (For a rank-
tors in certain industries: pany X] makes it easy for you to do
ing of the best-scoring questions, see the side-
• How strongly do you agree that [com- business with it?
bar “Ask the Right Question.”)
pany X] deserves your loyalty? • If you were selecting a similar pro-
These findings surprised me. My personal
• How likely is it that you will continue vider for the first time, how likely is it
bet for the top question (probably reflecting
to purchase products/services from that you would you choose [company
the focus of my research on employee loyalty
[company X]? X]?
in recent years) would have been “How
• How strongly do you agree that [com-
strongly do you agree that [company X] de-
pany X] creates innovative solutions
serves your loyalty?” Clearly, though, the ab-
that make your life easier?
stract concept of loyalty was less compelling to
• How satisfied are you with [company
customers than what may be the ultimate act
X’s] overall performance?
of loyalty, a recommendation to a friend. I also

harvard business review • december 2003 page 4


The One Number You Need to Grow

expected that “How strongly do you agree that sense to frontline managers, who could relate
[company X] sets the standard for excellence to the goal of increasing the number of pro-
in its industry?”—with its implications of offer- moters and reducing the number of detractors
ing customers both economic benefit and fair more readily than increasing the mean of their
treatment—would prove more predictive than satisfaction index by one standard deviation.
it did. One result did not startle me at all. The
question “How satisfied are you with [com- The Growth Connection
pany X’s] overall performance?” while rele- All of our analysis to this point had focused on
vant in certain industries, would prove to be a customer survey responses and how well those
relatively weak predictor of growth. linked to customers’ referral and repurchase
So my colleagues and I had the right ques- behavior at 14 companies in six industries. But
tion—“How likely is it that you would recom- the real test would be how well this approach
mend [company X] to a friend or col- explained relative growth rates for all compet-
league?”—and now we needed to develop a itors in an industry—and across a broader
scale to score the responses. This may seem range of industry sectors.
somewhat trivial, but, as statisticians know, it’s In the first quarter of 2001, Satmetrix began
not. Making customer loyalty a strategic goal tracking the “would recommend” scores of a
that managers can work toward requires a new universe of customers, many thousands of
scale as simple and unambiguous as the ques- them from more than 400 companies in more
tion itself. The right one will effectively divide than a dozen industries. In each subsequent
customers into practical groups deserving dif- quarter, they then gathered 10,000 to 15,000
ferent attention and organizational responses. responses to a very brief e-mail survey that
It must be intuitive to customers when they as- asked respondents (drawn again from public
The only path to sign grades and to employees and partners re- sources, not Satmetrix’s internal client cus-
sponsible for interpreting the results and tak- tomer lists) to rate one or two companies with
profitable growth may ing action. Ideally, the scale would be so easy which they were familiar. Where we could ob-
to understand that even outsiders, such as in- tain comparable and reliable revenue-growth
lie in a company’s ability vestors, regulators, and journalists, would data for a range of competitors, and where
to get its loyal customers grasp the basic messages without needing a there were sufficient consumer responses, we
handbook and a statistical abstract. plotted each firm’s net promoters—the per-
to become, in effect, its For these reasons, we settled on a scale centage of promoters minus the percentage of
marketing department. where ten means “extremely likely” to recom- detractors—against the company’s revenue
mend, five means neutral, and zero means growth rate.
“not at all likely.” When we examined cus- The results were striking. In airlines, for ex-
tomer referral and repurchase behaviors along ample, a strong correlation existed between
this scale, we found three logical clusters. “Pro- net-promoter figures and a company’s average
moters,” the customers with the highest rates growth rate over the three-year period from
of repurchase and referral, gave ratings of nine 1999 to 2002. Remarkably, this one simple sta-
or ten to the question. The “passively satisfied” tistic seemed to explain the relative growth
logged a seven or an eight, and “detractors” rates across the entire industry; that is, no air-
scored from zero to six. line has found a way to increase growth with-
By limiting the promoter designation to out improving its ratio of promoters to detrac-
only the most enthusiastic customers, we tors. That result was reflected, to a greater or
avoided the “grade inflation” that often infects lesser degree, in most of the industries we ex-
traditional customer-satisfaction assessments, amined—including rental cars, where Enter-
in which someone a molecule north of neutral prise enjoys both the highest rate of growth
is considered “satisfied.” (This was the danger and the highest net-promoter percentage
that Enterprise Rent-A-Car avoided when it de- among its competitors. (See the exhibit
cided to focus on its most enthusiastic custom- “Growth by Word of Mouth.”)
ers.) And not only did clustering customers The “would recommend” question wasn’t
into three categories—promoters, the pas- the best predictor of growth in every case. In a
sively satisfied, and detractors—turn out to few situations, it was simply irrelevant. In data-
provide the simplest, most intuitive, and best base software or computer systems, for in-
predictor of customer behavior; it also made stance, senior executives select vendors, and

harvard business review • december 2003 page 5


The One Number You Need to Grow

top managers typically didn’t appear on the


Growth by Word of Mouth public e-mail lists we used to sample custom-
Research shows that, in most industries, there is a strong ers. Asking users of the system whether they
correlation between a company’s growth rate and the percentage would recommend the system to a friend or
of its customers who are “promoters”— that is, those who say they colleague seemed a little abstract, as they had
are extremely likely to recommend the company to a friend or no choice in the matter. In these cases, we
colleague. (The net-promoter figure is calculated by subtracting found that the “sets the standard of excel-
the percentage of customers who say they are unlikely to make a lence” or “deserves your loyalty” questions
recommendation from the percentage who say they are extremely were more predictive.
likely to do so.) It’s worth noting that the size of companies has Not surprisingly, “would recommend” also
no relationship to their net-promoter status. didn’t predict relative growth in industries
dominated by monopolies and near monopo-
Airlines lies, where consumers have little choice. For
example, in the local telephone and cable TV
10%
Southwest businesses, population growth and economic
expansion in the region determine growth
3-year growth (1999–2002)

5 rates, not how well customers are treated by


American
Delta
Alaska
their suppliers. And in certain cases, we found
Northwest Airlines small niche companies that were growing
0
Continental
faster than their net-promoter percentages
America
would imply. But for most companies in most
-5 West
TWA
revenue: industries, getting customers enthusiastic
$10B
(2002) enough to recommend a company appears to
US Air United
-10 be crucial to growth. (To calculate your own
-10 0 10 20 30 40 50 60%
net-promoter number, see the sidebar “A Net-
net promoters
Promoter Primer.”)

Internet Service Providers The Dangers of Detractors


40% The battle for growth among Internet service
MSN
providers AOL, MSN, and EarthLink brings to
3-year growth (1999–2002)

30 life our findings. For years, market leader AOL


Copyright © 2003 Harvard Business School Publishing Corporation. All rights reserved.

aggressively focused on new customer acquisi-


EarthLink tion. Through those efforts, AOL more than
20
offset a substantial number of defections. But
the company paid much less attention to con-
AOL
10 verting these new customers into intensely
revenue:
$5B loyal promoters. Customer service lapsed, to
(2002)
the point where customers couldn’t even find
0
-20 -10 0 10 20% a phone number to contact company repre-
net promoters sentatives to answer questions or resolve prob-
lems.
Car Rentals Today, AOL is struggling to grow. Even
20% though AOL’s customer count surged to an
Enterprise eventual peak of 35 million, its deteriorating
3-year growth (1999–2002)

mix of promoters and detractors eventually


10 choked off expansion. The fire hose of new
customer flow—filled with people attracted to
Avis free trial promotions—couldn’t keep up with
Budget
the leaks in AOL’s customer bucket. Defection
0
rates exceeded 200,000 customers per month
revenue:
National $3B in 2003. Marketing costs were ratcheted up to
(2002) stem the tide, and those expenditures, along
Hertz
-10 with the collapse of online advertising, contrib-
20 25 30 35 40%
uted to declines in cash flow of almost 40% be-
net promoters

harvard business review • december 2003 page 6


The One Number You Need to Grow

tween 2001 and 2003. massive price cuts or other incentives rather
By 2002, our research found, 42% of the than through building true loyalty. It also illus-
company’s customers were detractors, while trates the detrimental effect that detractors’
only 32% were promoters, giving the company word-of-mouth communications can have on a
a net-promoter percentage of -10%. The cur- business—the flip side of customers’ recom-
rent management team is working on the mendations to their friends. Countering a
problem, but it’s a challenging one because damaged reputation requires a company to
disappointed customers are undoubtedly create tremendously appealing incentives that
spreading their opinions about AOL to family, will persuade skeptical customers to give a
friends, colleagues, and acquaintances. product or service a try, and the incentives
AOL’s dial-up competitors have done a bet- drive up already significant customer acquisi-
ter job in building promoters, and it shows in tion costs.
their relative rates of growth. MSN invested Furthermore, detractors—and even custom-
$500 million in R&D to upgrade its service ers who are only passively satisfied but not en-
with functional improvements such as im- thusiastically loyal—typically take a toll on
proved parental controls and spam filters. By employees and increase service costs. Finally,
2003, MSN’s promoter population reached every detractor represents a missed opportu-
41% of its customer base, compared with a de- nity to add a promoter to the customer popula-
tractor population of 32%, giving the company tion, one more unpaid salesperson to market
a net-promoter percentage of 9%. EarthLink your product or service and generate growth.
managed to nearly match MSN’s net-promoter
score over this period by continuing to invest Keep It Simple
in the reliability of its dial-up connections One of the main takeaways from our research
(minimizing the irritation of busy signals and is that companies can keep customer surveys
dropped connections) and by making phone simple. The most basic surveys—employing
support readily available. the right questions—can allow companies to
AOL’s experience vividly illustrates the folly report timely data that are easy to act on. Too
of seeking growth through shortcuts such as many of today’s satisfaction survey processes

A Net-Promoter Primer
Tracking net promoters—the percentage of detractor—of a customer. (Follow-up ques- feedback) was just 16%.
customers who are promoters of a brand or tions can help unearth the reasons for cus- Compare net-promoter scores from spe-
company minus the percentage who are de- tomers’ feelings and point to profitable reme- cific regions, branches, service or sales reps,
tractors—offers organizations a powerful dies. But such questions should be tailored to and customer segments. This often reveals
way to measure and manage customer loy- the three categories of customers. Learning root causes of differences as well as best prac-
alty. Firms with the highest net-promoter how to turn a passively satisfied customer tices that can be shared. What really counts,
scores consistently garner the lion’s share of into a promoter requires a very different line of course, is how your company compares
industry growth. So how can companies get of questioning from learning how to resolve with direct competitors. Have your market
started? the problems of a detractor.) researchers survey your competitors’ custom-
Survey a statistically valid sample of your Calculate the percentage of customers ers using the same method. You can then de-
customers with the following question: “How who respond with nine or ten (promoters) termine how your company stacks up within
likely is it that you would recommend [brand and the percentage who respond with zero your industry and whether your current net-
or company X] to a friend or colleague?” It’s through six (detractors). Subtract the per- promoter number is a competitive asset or a
critical to provide a consistent scale for re- centage of detractors from the percentage of liability.
sponses that range from zero to ten, where promoters to arrive at your net-promoter Improve your score. The companies with
zero means not at all likely, five means neu- score. Don’t be surprised if your score is the most enthusiastic customer referrals, in-
tral, and ten means extremely likely. lower than you expect. The median net-pro- cluding eBay, Amazon, and USAA, receive
Resist the urge to let survey questions moter score of more than 400 companies in net-promoter scores of 75% to more than
multiply; more questions diminish response 28 industries (based on some 130,000 cus- 80%. For companies aiming to garner world-
rates along with the reliability of your sam- tomer survey responses gathered over the class loyalty—and the growth that comes
ple. You need only one question to determine past two-plus years by Satmetrix, a maker of with it—this should be the target.
the status—promoter, passively satisfied, or software for managing real-time customer

harvard business review • december 2003 page 7


The One Number You Need to Grow

yield complex information that’s months out significant progress in building customer loy-
of date by the time it reaches frontline manag- alty that the company’s management consid-
ers. Good luck to the branch manager who ers it one of the company’s best investments.
tries to help an employee interpret a score re- And the new system had definitely started to
sulting from a complex weighting algorithm get employees’ attention. In fact, a few branch
based on feedback from anonymous custom- managers (perhaps taking a cue from car deal-
ers, many of whom were surveyed before the ers) attempted to manipulate the system to
employee had his current job. their benefit. Enterprise responded with a pro-
Contrast that scenario with one in which a cess for spotting—for example, by ensuring
manager presents employees with numbers that the phone numbers of dissatisfied respon-
from the previous week (or day) showing the dents hadn’t been changed, making it difficult
percentages (and names) of a branch office’s to follow up—and punishing “gamers.”
customers who are promoters, passively satis- Despite the system’s success, CEO Andy
fied, and detractors—and then issues the man- Taylor felt something was missing. Branch
agerial charge, “We need more promoters and scores were not improving quickly enough,
fewer detractors in order to grow.” The goal is and a big gap continued to separate the worst-
clear-cut, actionable, and motivating. and best-performing regions. Taylor’s assess-
In short, a customer feedback program ment: “We needed a greater a sense of ur-
should be viewed not as “market research” but gency.” So the management team decided that
as an operating management tool. Again, con- field managers would not be eligible for pro-
sider Enterprise Rent-A-Car. The first step in motion unless their branch or group of
the development of Enterprise’s current sys- branches matched or exceeded the company’s
tem was to devise a way to track loyalty by average scores. That’s a pretty radical idea
measuring service quality from the customer’s when you think about it: giving customers, in
perspective. The initial effort yielded a long, effect, veto power over managerial pay raises
unwieldy research questionnaire, one that in- and promotions.
cluded the pet questions of everyone involved The rigorous implementation of this simple
in drafting the survey. It only captured average customer feedback system had a clear impact
service quality on a regional basis—interest- on business. As the survey scores rose, so did
ing, but useless, since managers needed to see Enterprise’s growth relative to its competition.
scores for each individual branch to establish Taylor cites the linking of customer feedback
clear accountability. Over time, the sample to employee rewards as one of the most impor-
was expanded to provide this information. tant reasons that Enterprise has continued to
And the number of questions on the survey grow, even as the business became bigger and,
was sharply reduced; this simplified the collat- arguably, more mature. (For more on Enter-
ing of answers and allowed the company to prise’s customer survey program, see “Driving
post monthly branch-level results almost as Customer Satisfaction,” HBR July 2002.)
soon as they were collected.
The company then began examining the re- Converting Customers into
lationships between customer responses and Promoters
actual purchases and referrals. This is when If collecting and applying customer feedback
Enterprise learned the value of enthusiasts. is this simple, why don’t companies already do
Customers who gave the highest rating to their it this way? I don’t want to be too cynical, but
rental experience were three times more likely perhaps the research firms that administer
to rent again than those who gave Enterprise current customer surveys know there is very
the second-highest grade. When a customer re- little profit margin for them in something as
ported a neutral or negative experience, mark- bare-bones as this. Complex loyalty indexes,
ing him a potential detractor, the interviewer based on a dozen or more proprietary ques-
requested permission to immediately forward tions and weighted with a black-box scaling
this information to the branch manager, who function, simply generate more business for
was trained how to apologize, identify the root survey firms.
cause of the problem, and resolve it. The market research firms have an even
The measurement system cost more than $4 deeper fear. With the advent of e-mail and an-
million per year, but the company made such alytical software, leading-edge companies can

harvard business review • december 2003 page 8


The One Number You Need to Grow

now bypass the research firms entirely, cutting and the results need to be owned and accepted
costs and improving the quality and timeliness by all of the business functions. And all the
of feedback. These new tools enable compa- people in the organization must know which
nies to gather customer feedback and report customers they are responsible for. Overseeing
results in real time, funneling it directly to such a process is a more appropriate task for
frontline employees and managers. This can the CFO, or for the general manager of the
also threaten in-house market research depart- business unit, than for the marketing depart-
ments, which typically have built their power ment. Indeed, it is too important (and politi-
base through controlling and interpreting cus- cally charged) to delegate to any one function.
tomer survey data. Marketing departments un- The path to sustainable, profitable growth
derstandably focus surveys on the areas they begins with creating more promoters and
can control, such as brand image, pricing, and fewer detractors and making your net-pro-
product features. But a customer’s willingness moter number transparent throughout your
to recommend to a friend results from how organization. This number is the one number
well the customer is treated by frontline em- you need to grow. It’s that simple and that pro-
ployees, which in turn is determined by all the found.
functional areas that contribute to a cus-
tomer’s experience. Reprint R0312C; Harvard Business Review
For a measure to be practical, operational, OnPoint 5534
To order, see the next page
and reliable—that is, for it to determine the
or call 800-988-0886 or 617-783-7500
percentage of net promoters among customers
or go to www.hbr.org
and allow managers to act on it—the process

harvard business review • december 2003 page 9


Further Reading
This article is also available in an enhanced
Harvard Business Review OnPoint edition,
(Product no. 5534), which includes a summary
Harvard Business Review OnPoint of its key points and company examples to help
articles enhance the full-text article you put the ideas to work. The OnPoint edition
with a summary of its key points and also includes the following suggestion for
a selection of its company examples further reading:
to help you quickly absorb and apply
the concepts. Harvard Business Put a New Lens on Loyalty—to Magnify
Review OnPoint collections include Profitability
three OnPoint articles and an Frederick F. Reichheld and Phil Schefter
overview comparing the various Harvard Business Review OnPoint collection
perspectives on a specific topic. July 2001
Product no. 7230

To Order

For reprints, Harvard Business Review


OnPoint orders, and subscriptions
to Harvard Business Review:
Call 800-988-0886 or 617-783-7500.
Go to www.hbr.org

For customized and quantity orders


of reprints and Harvard Business
Review OnPoint products:
Call Frank Tamoshunas at
617-783-7626,
or e-mail him at
ftamoshunas@hbsp.harvard.edu

page 10