Episode 152 : Loyalty Redefined! How to Enrich the Lives of Your Customers – The Unbeatable Strategy

Fred Reichheld is the creator of the Net Promoter system of management, the founder of Bain & Company’s Loyalty practice and the author of five books including The New York Times bestseller, The Ultimate Question 2.0. He is currently a Fellow and Senior Advisory Partner at Bain, where he has worked since 1977. Fred is 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.

His upcoming article to be published in November marks his 15th contribution to the Harvard Business Review. In 2012, he 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 as one of the world’s 25 Most Influential Consultants.

According to The New York Times, he put loyalty economics on the map. The Economist refers to him as the “high priest” of loyalty. Reichheld graduated with honors both from Harvard College (B.A., 1974) and Harvard Business School (M.B.A., 1978). He’s based in Cape Cod and Miami.

Questions

  • Could you share a little bit about your own journey? How is it that you got to where you are today?
  • Could you explain to us what the Net Promoter system is and how companies should really be using it to yield the best results?
  • Could you share with us maybe two or three things that you believe are contributing drivers of loyalty?
  • What are some things that companies should look at in trying to enrich the lives of your customers? Do they need to understand what type of customer they’re serving and does the generation matter?
  • Could you share with us what is Customer Capitalism exactly? And how does that impact the consumer?
  • Could you share with us what’s the one online resource, tool, website or app that you absolutely cannot live without in your business?
  • Could you also share with us maybe one or two books that have had the biggest impact on you?
  • Could you share with us what’s the one thing that’s going on in your life right now that you’re really excited about? It could be something that you’re working on to develop yourself or your people.
  • Where can our listeners find you online?
  • Do you have a quote or a saying that during times of adversity or challenge, you’ll tend to revert to this quote, it kind of helps to keep you on track, or at least get you back on track if for any reason you get derailed. Do you have one of those?

Highlights

Fred’s Journey

Fred shared that early in his career at Bain & Company, he noticed companies similar to us all, some brand new, some quite mature, but they were all outperforming all of the things he learned at the Harvard. Some were crushing it and a good example was enterprise Rent-A-Car, who started out as a tiny little rental leasing agency in St. Louis, and has grown now to become the largest car rental company on Earth without ever having to tap public equity markets, it’s still a private company. And you think, Gosh, what I learned at Harvard was a capital intensive business, low growth industry, low margins, there’s no way that you could grow on internally generated cash.

So, when he went to meet with Andy Taylor, their CEO, he said, “Fred, there’s no secret, there’s only one way to grow a successful business sustainably.” And so, he was listening for this great secret. And he said, “You treat your customers so they come back for more and bring their friends.”

And that basic idea changed his world because that’s what he now understands is the key to success. If your customers are coming back for more and bringing their friends, your economic flywheel will crush the competition.

What is the Net Promoter System and How Companies Can Use it to Yield the Best Results?

Me: Amazing. So I had an opportunity to get an advanced copy of your book Winning on Purpose: The Unbeatable Strategy of Loving Customer. I really, really love it. I haven’t finished reading it as yet, but I’ve gotten quite far in it. And so, I just wanted you to share with us.

Fred, in the book, especially in the preface and the foreword, you kind of mentioned that you have this net promoter system, but people are not actually using it the way how you created it to be used. Could you explain to us what the Net Promoter system is and how companies should really be using it to yield the best results?

Fred shared that he’s long been troubled by the fact that financial accounting is how we run our businesses. And while financial accounting is very good at telling us when we’ve extracted a million dollars from our customers wallets, it does nothing in helping us understand when we’ve enriched a million customers lives or when our teams have done work that’s meaningful and toward an important purpose.

And Net Promoter was his attempt at helping companies measure that important idea of all the lives you touch, how many are enriched? How many diminished? And that evolved into Net Promoter Score is based on one question, how likely you’d recommend us to a friend, 0 through 10.

And it turns out that when someone gives you a 9, and especially a 10, you’ve enriched their life, you’ve lived up to the golden rule of loving your neighbor.

And 0 through 6, you failed, you diminish their life. And so, this notion of Net Promoter Score is just keeping track of all the lives touched, how many enriched, how many diminished, and how many promoters, how many detractors, it’s very practical for running a business because your promoters are your assets, who come back for more and bring their friends. But also, it’s a little bit inspirational because putting your teams to work, and enriching lives and measuring that outcome and helping them learn how to do better, that’s really helping them live the right kind of life.

The Contributing Drivers of Loyalty

Me: So, at the end of the day, we’re all trying to build better relationships with our customers. Now, in your book, you also said that loyalty means investing time and resources in relationships.

Do you know maybe could you share with us maybe based on your experience and your research, you’ve definitely been in the thing way longer than I have; maybe two or three drivers that you think contribute to loyalty.

And this is loyalty in general, which I’m sure impacts business relationships, because I mean, loyalty is something that as human beings, we do link it to a person. For example, if you have an animal, your dog is loyal to you as the owner, in a relationship; you’re loyal to the other person that you’re in the relationship with, whether it’s a personal or professional relationship. So could you share with us maybe two or three things that you believe are contributing drivers of loyalty?

Fred shared that he thinks it’s quite poorly understood in this day and age when people are demanding loyalty and trying to get loyalty through gimmicks and marketing, so called loyalty programs. So, he thinks it does make sense to get back to basics.

He thinks loyalty is an investment from you and another person in a relationship. And you think, “Why would I invest in someone else?” Well, it’s because they stand for what you believe in you.

You believe that they’ll reciprocate and treat you reasonably and not abuse your trust and that you’re in a position to actually do something to make their life better. Otherwise, you’re just wasting your time.

A lot of people think about loyalty as, “Oh, I want them to be loyal to me.” He thinks the way to start is, “How can I invest in this relationship and love them, make their lives better?”

And that’s what great companies’ do, that’s what great leaders do, they inspire their troops to find ways to enrich the lives of customers sustainably, of course, profitably. But the whole goal in a business is making your customers lives better. Because when you do that, you’re investing in the right relationships, they come back for more, they bring their friends, they say great things about you, they become your public relations force, that’s how great business works.

And he thinks we get drawn off center a little bit because the larger our company is, the more it’s run through financial mindset. It’s our accounting numbers that we seem to view as the framework of success, when in fact, no, it’s this golden rule ideas, it’s love thy neighbor as thyself. And when you do it, you’ll see the results because when customers feel the love, they are loyal and that’s at the core of loyalty, it’s earning loyalty by enriching customers lives. And loyalty from employees, by putting them in a position to earn lives of meaning and purpose, by enriching the lives of customers that they touch.

Me: I like the fact that you mentioned that it’s not just about loyalty in terms of you getting the person to be loyal to you, but it has to be earned and it’s not something that can be bought. So I’m glad that you mentioned at the beginning that a lot of these loyalty programs and marketing initiatives that organizations have that they dub as loyalty programs are not actually programs that will make or even influence your customers to be loyal to you. So it’s good that you identified for us that loyalty is something that is earned.

What Companies Should Look for to Enrich the Lives of Customers?

Me: Now, in terms of showing your customers or enriching their lives regardless of the industry that you’re in, whether you’re a financial company, you sell insurance or you have credit cards, or you’re a retail company, what are some things that companies should look at in trying to enrich the lives of your customers? Do they need to understand what type of customer they’re serving and does the generation matter?

Fred shared that of course it does. And yet, he finds that the most successful businesses, whether dealing with teenagers today or octogenarians, it’s understanding how to communicate effectively, how to always act in your customers best interest, to listen very carefully to how you’re doing and what they need. Because at the core, a business is trying to solve the customer’s problem, it’s trying to turn a frown, into a smile, and the human process of understanding that, he doesn’t think that’s changed in thousands and thousands of years. Of course, the technologies we use, the innovative approaches, those open up wonderful new opportunities, but the basics, they haven’t changed.

One of his colleagues at Bain, they joined about the same year, Scott Cook, who’s the founder of Intuit, who has built TurboTax, and other very successful business, huge, huge success.

And he said, “Fred, you want a big business, solve a big problem for your customers.” And that’s the right way to think about it, “I am going to be a reliable resource that is going to make a real difference in your life by turning that frown into a smile, and I’m going to measure my success that way.”

Obviously, profits are necessary but those who think of profits as the true objective, they’re not going to grow a very big business very long because that’s very selfish, “How much money can I extract from your wallet, get away from me, I’m not going to tell you anything about myself for what I need.” If he has someone who actually acts in a loving, caring way, they’re a mutually beneficial relationship affair. But that’s the kind of person he’s willing to actually share his information with and give constructive feedback to because he wants them to succeed, he wants them to succeed in helping him solve problems.

What is Customer Capitalism and How Does It Impact the Consumer?

Me: So, while I was reading part of your book as well, I bucked up on a term, Customer Capitalism. Could you share with us what is that exactly? And how does that impact the consumer?

Fred shared that he thinks people have a framework in their heads about capitalism that’s just dead wrong, that maximize shareholder value as the underlying concept. Through the years, whether it’s Milton Friedman, or Adam Smith, there’s an ancient and an out of date framework that people call capitalism, that without giving it this name, it’s financial capitalism, because it’s based on this idea of profits and shareholder and investor is the king. He thinks that has changed over the last few decades, at least, to where now, there’s so much capital in the world; you can raise millions and millions if you have a good idea.

What there’s not infinite amounts of are good people with good ideas who are willing to work together in a team framework to serve others.

And the real capital in that system, our customers, all the cash flow comes out of customers’ wallets.

So let’s keep track of how many customers you have, how many are coming back for more, how many referrals you’re getting, that was the basic, those are the keystone metrics in customer capitalism.

And more than anything, it’s being clear about the purpose. If the purpose in the old school capitalism was maximizing profits and shareholder value, in customer capitalism, the purpose is to enrich the lives of your customers.

Bain did a survey of a couple 100 Senior Executives around the world, C suite executives and they found that only 10% believe that the primary purpose their business existed was to make customers lives better. They thought it was about profits or great place to work or balance duties to shareholders, stakeholders. He just thinks that is dead wrong. A good business, a sustainable business has to have a primary purpose of making their customers lives better.

Me: Amazing. One of the companies that you mentioned in your book when I was reading was Chick-fil-A and I absolutely love Chick-fil-A, both me and my daughter. But one of the things that I really love about Chick-fil-A was the fact that I remember I traveled a few years ago and my daughter wanted to get something from them on a Sunday and they’re actually closed on Sundays and I thought that was awesome, from what I read that was a principle that their organization had and they’ve lived it up to this day and they’ve still been very successful even though they’re closed on a day when they could be making more profit, as you mentioned.

Fred stated that the purpose of Chick-fil-A is certainly to enrich the lives that it touches. It’s interesting, the founder, Truett Cathy was one of his early teachers in his business career, and they’re totally different people. He’s a Southern, he was a Southern Baptist, very, very conservative point of view. He (Fred) lives up in New England, Unitarian Universalist, you couldn’t be more liberal in your religious thinking. And yet they had enormous overlap at the core, he picked a proverb from the Bible, that essentially, it says, “A good name is worth more than silver or gold.” Or in other words, your reputation is everything, which he thinks is so true.

And this notion of net lives enrich and Net Promoter Score, you think about when you enrich a life, you’re living up to the golden rule, you’re loving a neighbor, when you diminish your life, you’re failing.

And so, the reason Chick-fil-A has been very interested and supportive of Net Promoter is because we’re trying to achieve the same mission, this is back to Truett Cathy’s words, he was inspired to turn frowns into smiles on his customers’ faces and that is the purpose of the business.

So, then you mentioned Sunday, he asked him why he closed on Sundays and he said, “It’s not a religious thing, Fred.” He’s a very religious guy but he’s not preachy, their business does not put biblical quotes at the bottom of their cups, and they’re not proselytizing in the parking lot. They try to be models; they try to help their people live up to this standard of loving your neighbor. And closing on Sundays, he just knew that you could not run a restaurant and have the manager there 7 days a week, you’ll kill yourself. And he said, “Given that, and I definitely want my store operator there running the place not delegating to an assistant.” He said, “We have to close a day and closing Sundays gives this signal that we care about our people, and we care about golden rule.”

As he said, “But you know, Fred, I go to other restaurants on Sunday, it’s not like it’s wrong to go out and eat at a restaurant on Sunday. It’s just wrong for us to try and have our managers running a business 7 days a week.” And he thinks it’s brilliant. And it is a signal. He thinks it reminds people that they’re different. And you’re right, their productivity, they have far higher sales per unit than any of the competitors. And those competitors are open 7 days a week. And it shows you when you get the purpose right; your business can crush the competition.

App, Website or Tool that Fred Absolutely Can’t Live Without in His Business

When asked about online resource that he cannot live without in his business, Fred shared that it’s a new one for him, he discovered a company through one of his Bain partners, it’s called BILT. The reason they were intriguing to him was their goal is to help their customers, their customers tend to be consumer brands, like Weber, who makes grills and place at manufacturers and so on. They try to help them build promoters among their customers, to create more promoters.

And what they’ve done is just taken one of the most painful steps in every customer’s journey episode, which is assembly and first use, using paper instructions, which these paper instructions are horrible, let’s be serious, they’re written by engineers whose English is certainly their second language and they’re just totally unintuitive.

So, BILT takes the 3D CAD drawing from the manufacturer, and then turns it into great little 3D instructions on how to assemble and use your product effectively and it’s free to the consumer. So you go to a Home Depot or Costco and you’ll start to see BILT on the packaging, and you know that you’re going to get that home and you’ll be able to put this thing together quickly and you’ll feel great about yourself or Home Depot will have their faucets or ceiling fans, things that are really tricky to install, or garage door openers, and you go to BILT and you put the product in it and it downloads up to date information about how to put it together in a very intuitive way where you can zoom in and pinch out and rotate upside down and voice activated to help you guide you through your journey, it’s just brilliant.

Me: Nice, very good. They obviously saw a need in the market, as you said, a problem that people were having challenges with and complaining about and created a product that would be applicable to make people’s lives easier.

Fred stated that try ordering a bicycle online, you get it back to your driveway and then you try to put it together using paper instructions and he thinks you’ll see why BILT is so successful.

Me: Yes, I can just imagine and my coordination of doing things like that are extremely poor, so I’m sure I’d benefit from using BILT.

Books That Have Had the Greatest Impact on Fred

Me: Could you also share with us maybe one or two books that have had the biggest impact on you? I’m sure you have many because you’ve been around for quite some time and I’m sure you’ve had to read and engage with a lot of authors over the years that have definitely helped enrich your life and the lives of others. But is there maybe one or two that have definitely had a great impact on you over the years, maybe something you read a long time ago, or even something you read recently?

When asked about books that have had biggest impact, Fred shared that he read a lot of books. Actually, he listens to them now; his eyes are so strained from working at his computer and writing a book, he can’t read in a relaxed way so he listens to Audible. Probably the most impactful book in the last 10 years was written by a guy who passed away, Clayton Christensen was a business school professor, who he got to know, he worked briefly at Bain and then worked at an entrepreneurial thing and ended up at Harvard.

He wrote a book called How Will You Measure Your Life? And he (Fred) thinks he’s just absolutely right. And the reason that helped him is, he thinks you do need to measure a life carefully, that’s what a Net Promoter Score is, of all the lives he touched, how many enriched, how many diminished?

That’s how you measure a life. And he thinks Clayton put this in very human terms, and thinking about that, not just in a business sense, but all of your relationships in life, how do you think about investing in those relationships and being loving and loyal in a way that’s not just correct in your mind, but you know the other party felt the love, you have to get feedback on how you enrich their life. So, How Will You Measure Your Life is a big one.

There’s a recent book by Adam Grant called Think Again: The Power of Knowing What You Don’t Know, that he thinks is quite good. Adam is a guy that they must think along the same lines, because it was an earlier book that he wrote about it’s called Give and Take. And he just makes the case that the world is full of people; there are some people who are givers, there are people who are matchers, they want a relationship to be in balance and then there are takers. And he said, one of the keys to life is avoid those takers, they’re sociopaths, you can try and change them, but good luck.

And he thinks this is important and living a golden rule existence. Not all people want to be part of a community where people are treated with love and care, they’ll abuse that community and he thinks if they can’t be fixed, they have to be excluded. And then Think Again, Grant just says, we have these mindsets that are fixed, and he thinks of financial capitalism as a fixed mindset for 90% of the world and he needs to change the way people think about the purpose of business and how to enrich a life.

What Fred is Really Excited About Now!

Fred shared that he got the paperback galley of Winning on Purpose just a week ago and he can’t take it off on his desk, but very pleased with the way it’s come out. And that’s going to be every day of his life for the next probably 90 days is how to get people to see the relevance of this book to their personal lives, not just their business lives because the subtitle of Winning on Purpose is “The Unbeatable Strategy of Loving Customers.” And loving customers, it doesn’t sound like it’s a business book, he doesn’t know what it sounds, just a little flaky but it’s not because this notion of loving thy neighbor as thyself is the core, it’s the highest standard in human affairs. And what he’s arguing and Winning on Purpose is that, that is how you win.

When you enrich lives, you have to do it sustainably, and you have to do it profitably, but that’s not the magic, accountants can do the profits for you. The magic is figuring out how using your energy and ingenuity to love your customers and have them come to trust you and come back for more and bring their friends but it goes so far beyond business.

So, the great challenge he’s got is getting people to recognize, he wrote this book for his granddaughters, infants who he wants them to see how you live the right life. And it sets out a way of measuring progress that he thinks is consistent with what Truett Cathy had in mind of building a reputation that you’ll be proud of, and investing in relationships where you can earn people’s loyalty.

It’s probably a good rule of thumb anywhere to just don’t spend time with a person unless you can figure out a way to make their life better. And by the way, the good news, chapter two and five of the book, demonstrate that companies that do this, they’re the ones that get rich.

It’s not clear from reading the Wall Street Journal, but every company, every industry, where they look at the Net Promoter Score, versus the competition, measured carefully, correctly, not just some self reported vanity metric, but real apples to apples.

It’s the company with the highest Net Promoter Score who is growing faster and delivering better total shareholder value. And that’s really good news.

But people are the mindset is fixed, they just don’t get it. They say, “Oh, that’s just some industries.” No, every time they’re finding it, how did Andy Taylor grow to be the biggest car rental company on earth? How did Apple become one of the biggest companies on earth? Because they built a set of customers who are Promoters who are out there buying more stuff, and referring their friends and giving good feedback because they trust you, and making your employees feel special and loved, that’s the flywheel that’s going on. So, he’s trying to convince the world that business works in a very different way than they probably learned in business school, or if they read the Wall Street Journal and The Economist.

Me: And you know, one of the things that kind of came in my head just now when you’re speaking in terms of what we were taught in school versus what is reality, the reality is, a business isn’t a static thing, it’s made up of people and without people in the business, there is no business and people are human beings with feelings and emotions. And you get more out of people when they feel loved, when they feel listened to, when they feel heard, as you said, when you enrich their lives. So, if you really do live that principle, I’m sure you’ll win in all aspects of your life.

Fred shared that he’s worked at Bain & Company since 1977. So what is that 43 going on 44 years now. And they’ve been through good and bad times. For the last 10 or 20 years, it’s been good times. If you look on Glassdoor, the place that rates businesses as great places to work, Bain, this year, it’s the best in the world according to Glassdoor, it’s always been one of the top several since Glassdoor started. And Bain hires lots of different kinds of people. But these are really ambitious, talented people. And even with that slice of ambitious people, when you look at what makes a person happy at work at Bain, they want to feel loved; they want to feel like they’re a valued member of a team that wins with its customers. So it’s an act of service and if you ask, remember he said the typical business person in the world, 10% of them think the reason their business exists is to enrich customer lives, at Bain, if you just ask everybody through the company, you find 60% to 70% of the people think the reason Bain exists is to make their clients more successful.

It’s a servant culture where love is at the core, helping people succeed and putting smiles on faces and that’s what makes it a great place to work.

And the irony is, he knows what makes, at least he thinks he knows what makes Bain a great place to work, it’s that they are dedicated to helping their teams make a difference in their clients success, and be recognized and rewarded and part of a team that helps achieve that.

And it’s financially successful but that’s not the purpose, the purpose is making their customers lives better. And he thinks most great places to work lists, completely ignore that. They think it’s refrigerators full of beer in the break room, pool tables and ping pong and cool fringe benefits, that’s the fringe, the core is being on a team where you’re playing a valued role at really making a difference in a customer’s life.

Where Can We Find Fred Online

Website – https://www.netpromotersystem.com/

LinkedIn – Fred Reichheld

Quote or Saying that During Times of Adversity Fred Uses

When asked about a quote or saying that he tends to revert to, Fred shared that he wished he did. When he’s preaching to whether it’s at the dinner table or elsewhere, he goes back to this idea of how important loyalty is. You got to understand what your life stands for, what is your purpose as an individual and then the way you live that purpose is to invest in relationships with other people who share that purpose. And it’s how you can invest and help those people succeed that he thinks helps you achieve your mission. So, “Choose your loyalties wisely, they guide your life and they define your legacy.”

Me: Love it, choose your loyalties wisely, they guide your life and define your legacy. Amazing. Love it, absolutely love it. And I’m sure every person on the face of this earth that wants to do good, wants to leave a good legacy behind. So the only way to do that, I believe, as you had said was to try and live by doing those actions on a daily basis, do it consistently because that’s the only way when you leave this world you’ll be able to leave that legacy.

Fred stated that and measure, so many people would say, “Oh, I can’t measure love.” And he would say, actually you can, you can get feedback from your customers in a systematic Net Promoter framework and understand how many lives you’ve enriched and that is your legacy. And then you should be measuring your way toward the kind of life you want to lead.

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