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Ruth Mortimer discusses the benefits of loyalty metrics with Fred Reichheld and asks why the net promoter score is so significant
RM: You're known for your work on loyalty. What made you start looking at advocacy?
FR: In my earlier work, I focused on retention as the best metric or litmus test of loyalty. If someone stayed, they were loyal. It connects to the economics so clearly. There are several very important behaviours that signify a loyal customer: they come back for more or 'retention'; they buy more or increase 'share of wallet'; and they bring their friends or 'referrals'.
I tended to dismiss referrals as the centrepiece of loyalty early on, as this seemed flimsy and hard to measure. I wanted something practical. Share of wallet is a great metric - it's an action, not just an opinion - but it's also hard to measure in a complicated business with multiple product lines. So we saw retention as the right place to focus a practical management process.
We made a lot of progress, but realised that it had limitations. There are times when people stay but they're not loyal. They might not have full knowledge of the alternatives, they're there out of habit, laziness or they're trapped by a long-term contract. There were too many false positives where people were staying but they weren't loyal. They weren't enthusiastically investing in the relationship.
We knew that behaviours are the things that drive economics but you can't necessarily measure those. So we wondered if there was a question that we could ask people that tracked those behaviours and almost anticipated them; this could serve as the practical management metric to link loyalty to day-to-day priorities and decision making.
That's where we discovered this concept of advocacy - the willingness to promote or recommend. When people are out there recommending through free will, that's an almost unmistakeable sign of their loyalty.
RM: Should net promoter be applied on its own within a brand or does it work better alongside other metrics too? Is it the only measurement you need to take or one of many?
FR: There's an enormous danger in businesses just to add more metrics. You can measure a thousand things without a hierarchy...