SAN FRANCISCO — When Satmetrix began planning its annual Net Promoter Conference last year, the economy wasn't on the agenda. Current events, however, have certainly forced a few adjustments. In the spirit of the Screen Actors Guild awards ceremony held this past weekend, Richard Owen opened his morning keynote by singling out a winner for recognition, the strategy most likely to prosper in an economic recession: Create promoters for your business and have those promoters tell their friends and colleagues about you and your company.
The audience could hardly have been surprised by that message, given Owen's usual role as chief executive officer and president of Satmetrix, but the power of this metric, he told the audience, is still undervalued in business organizations. Owen's presentation, "Answering the Ultimate Question: How to Ride Out the Recession With Your Customers," was followed by one from Charles Schwab CEO Walter Bettinger, who made a convincing case for why improving your Net Promoter Score has an impact beyond simply whether or not your consumers will recommend you.
In 2000, at the tail end of the dot-com bubble, Charles Schwab was a $140 billion company. By 2003, Bettinger told the audience, the company value had dropped to $40 billion. In 2004, the company decided to bring in the Net Promoter Score, asking customers a simple, yet deeply revealing, question: "How likely is it that you would recommend Charles Schwab to a friend or colleague?" The results forced the financial firm to face a stark reality: Its retail division had a Net Promoter Score of -34 percent, indicating that the company had far too many detractors.
(The figure reflects a simple arithmetic: the percentage of detractors subtracted from the percentage of promoters.)
It was then that founder Charles Schwab returned to the company. Schwab, Bettinger said, is a leader who had the courage to focus on the long term, even if it didn't seem to make sense on paper. Going against spreadsheets and PowerPoints, Bettinger said, the Net Promoter Score is about values.
Transferred out of the 401(k) department to save the retail division, Bettinger began by asking for a list of the last 100 customers who left Charles Schwab, and the last 100 employees who quit the company. From those 200 calls, Bettinger said, the company was able to "answer every problem we faced at Charles Schwab, every action [we] needed to take to turn around." Assuming many would be indifferent to the company after leaving, Bettinger was astounded by how passionate these ex-customers and former employees were.
Owen supported the power of word-of-mouth (WOM) promotion, citing industry trends: According to Nielsen Research, consumers trust WOM information 78 percent of the time; the television 50 percent; and the Internet 38 percent. These numbers, Owen said, reveal the inherent inferiority of vendor-sponsored advertising. More important, these figures suggest that companies that hope to advertise their way out of the recession, instead of focusing on the customer experience, will be disappointed.
From that customer and employee research, Schwab established an internal set of what Bettinger called "12 guardrails" -- guiding principles for how the company should be run -- in order to restore trust in the organization. These principles ranged from "belief in the importance of the client interaction" to "establishing a competitive pricing structure." Ultimately, however, change needed to come from the inside out. In order to do so, the company focused on the following tactics:
- offering a pricing strucutre that is transparent, simple, and devoid of the "gotchas" commonly associated with financial institutions;
- delivering a differentiating client service;
- developing personalized relationships with the clients; and
- providing non-commission-based aid and guidance to people who need it, regardless of their customer status.
In the end, the goal was to deliver a single message, Bettinger told the conference attendees: "We care." Four years ago, Bettinger said, approximately six out of 10 Schwab employees spoke to customers on a daily basis. Today, he said, nine out of 10 do. In fact, even the company's downtime is now invested in training employees to engage with consumers, and customers are regularly surveyed using the Net Promoter Score methodology.
Moreover, the company then follows up with all detractors within 24 hours of the survey. Bettinger recalled, anecdotally, an incident where a customer had rated the company a 5 or 6. When the company called the customer to better understand how it could improve, the customer remarked that just bothering to call him was enough to boost that score up to a 10.
"That," Bettinger said, "shows you the power of the follow-up."
In 2004, Charles Schwab's net transfer assets -- money that customers have moved from another firm -- was $10 billion. By 2008, the amount reached $40 billion. Moreover, annual attrition decreased from 12 percent to 6 percent. Perhaps most impressive is its Net Promoter Score, which improved from -34 percent in the summer of 2004 to +26 percent in January 2008.
Consumers are being bombarded by more and more messages and companies are actually paying a higher price for reduced mindshare. A 30-second television commercial for the Super Bowl on NBC is going for $3 million this year, up from $2.6 million last year on CBS. Perhaps even more unsettling: In the last 10 years, the number of new viewers of advertising is zero.
Companies who claim not to see the results of the Net Promoter program, Owen said, are not facing challenges dramatic enough to shake them from their current organizational models. As with Charles Schwab, "it's going to take quite a jolt to get people to change," Owen said.
The conundrum, then, is that, even though companies understand the power of WOM and peer-to-peer influence, many still fail to execute based on these intentions. Owen described the reasons underlying the paradox:
- Management processes so lacking in sophistication that companies finding themselves in this mess may not be able to bail themselves out.
- "Path dependence" is a tendency for organizations to follow the route most traveled, refusing to deviate until circumstances force them to change.
- Organizations don't regard the Net Promoter Score as a holistic view of the company.
Net Promoter Score isn't just a number reserved for the marketing department or the contact center, Owen told the crowd. Structuring an organization around the NPS concept has to be applied holistically, and must permeate the enterprise.
"Net Promoter programs are an exercise in change management," Owen said. "If you're going to build a successful Net Promoter program, build it on change."
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