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Word of mouth is a powerful measure, but you need to make sure you’re measuring it accurately. (VOLODYMYR GRINKO/ISTOCKPHOTO)
Word of mouth is a powerful measure, but you need to make sure you’re measuring it accurately. (VOLODYMYR GRINKO/ISTOCKPHOTO)

MONDAY MORNING MANAGER

The blind spot in customer loyalty surveys Add to ...

When consultant Frederick Reichheld advocated his “net promoter score” in the 2006 book The Ultimate Question – the one number he said you need to know to understand customer retention and profits – marketers and companies seized on the simplicity and power of the concept.

Many firms have based customer satisfaction programs around the measure, which promises to show you with a single question who is a promoter of your brand and who is a detractor. They use it to evaluate brand strength, and also to begin conversations with detractors to convert them to supporters.

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Neat, simple, and effective.

But wrong, according to Larry Freed, CEO of ForeSee, a marketing analytics firm based in Ann Arbor, Mich., which developed its approach to measuring customer loyalty out of the pioneering work for the University of Michigan’s famed American Customer Satisfaction Score and Foresee’s own research on brand promoters, begun before Mr. Reichheld’s seminal book.

At the core of the dispute – and the need to recalibrate our thinking – is determining who is a detractor of your company. Mr. Reichheld suggested asking customers this key question: How likely is it that you would recommend this company to a friend or colleague? On the one-to-10 scale, people who choose nine and 10 are considered valuable supporters, who are likely to be out there promoting your firm.

Mr. Freed agrees, although he notes that people can be loyal customers but not answer that question with a high rating because it is not in their nature to recommend such a firm to others. “When is the last time you heard someone recommend his or her power company?” he writes in his recent book Innovating Analytics. “I can hear it now, ‘This is some of the best electricity I have had in years. My light bulbs have never been brighter.’”

In an interview, he pointed to McDonald’s Corp., which he said is unlikely to be recommended, even by adherents, because they assume everybody else already knows about the fast-food chain. He recalled when he first went to a McDonald’s in the mid-1970s, it was a big deal, and people were excited, eagerly telling friends. “A lot of people today won’t recommend McDonald’s but in the United States will recommend Tim Hortons because it’s new,” he said.

Companies can piece that together. The bigger problem is with detractors. On the net promoter scale, customers who evaluate your company at seven or eight are considered passive, while anyone who gives a score of six or lower is considered a detractor – somebody probably hurting your firm by saying negative things about it.

Mr. Freed disagrees. He said his company’s research shows that many of those people may not be enthusiasts, but they are definitely not detractors, badmouthing and hurting your company. To find detractors, he said you have to specifically ask a second question Mr. Reichheld didn’t pose: How likely are you to discourage others from doing business with this company?

On the net promoter scale, people who respond with a two or one would definitely be considered a detractor, if not a superdetractor. But when asked specifically whether they would discourage others from doing business with a company, fewer than a third in that category indicated they are highly likely to detract. The net promoter score overstated detractors by 260 to 270 per cent in tests with his clients, he said, although for some individual companies the overstatement was by more than 1,000 per cent.

He points to Apple Inc., which uses the score to handle customer feedback. His research suggests it overstates detractors for Apple stores by 57 per cent (and by a higher percentage in other channels through which Apple products are sold). “Actual detractors are a very small percentage of those [the net promoter score] considers detractors.”

Mr. Freed’s solution is to keep the net promoter question to delineate your promoters but add a second question asking about the likelihood to detract, and count those who score a nine or 10. In the net promoter score, the single number you needed to know came by subtracting the detractors from the promoters. He keeps that same approach for his Word of Mouth index, identifying the detractors in what he considers a more accurate way.

Some companies don’t like to ask negative questions of customers, but he notes that most customer satisfaction questions have a negative aspect implicit in their scale. He recommends some spacing between the two questions on his index, because in one question the highest score, 10, is a positive assessment of the company and in the other, it’s negative, requiring an adjustment in thinking.

Word of Mouth, he said, is not the only reason for corporate growth and profit. There are other metrics managers need. But word of mouth is a powerful measure and he believes by adding a second question to the so-called ultimate question, you can get a more accurate picture of your situation.

Harvey Schachter is a Battersea, Ont.-based writer specializing in management issues. He writes Monday Morning Manager and management book reviews for the print edition of Report on Business and an online work-life column Balance. E-mail Harvey Schachter

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