Brand loyalty is a key to business growth, and one of the most important metrics for evaluating customer satisfaction is the Net Promoter Score (NPS) developed by Fred Reichheld. Unfortunately, many brands use NPS incorrectly without relying on NPS best practices. Today’s guest is Mr. Fred Reichheld, who explains how to use the Net Promoter System to drive loyalty and increase the amount of money customers spend through the entire customer journey.

The conversation includes these topics:

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. According to The New York Times, “[He] put loyalty economics on the map.” The Economist refers to him as the “high priest” of loyalty. His latest book is called Winning on Purpose.

Transcript

Fred Reichheld: Only 10% of leaders today believe the customer should come first. "Customers come first" is a minority, a tiny minority position. It's crazy.

What is the Net Promoter System (NPS)?

Michael Krigsman: That's Fred Reichheld, creator of the Net Promoter System, explaining customer loyalty and why it's so difficult to get and keep loyal customers. Fred's latest book is called Winning on Purpose and, in this episode of CXOTalk, he describes how to use NPS, how not to use the NPS score, and how to do it right.

Fred Reichheld: There's only one way to win, and that is when you embrace an inspiring purpose that is based on service to others. Companies that win make sure their purpose is focused primarily on making their customers' lives better.

I think small businesses get it because you'll die very quickly if you don't treat your customers so they come back for more and bring their friends. Small businesses can't afford the luxury of big marketing investments, customer acquisition, PR firms, and marketing agencies.

It's when firms get big and they become governed by a financial mindset because the frequency of the wavelengths that they can view and hear are financial wavelengths. You run your business. You govern it. You pay bonuses.

Once you get into this financial mindset (using accounting numbers to drive your reality), you get separated. Of course, organizational silos exacerbate this, but you get really separated from that basic truth that there's only one way to grow a profitable business: Treat your customers so they come back for more and bring their friends. That 10% number is just evidence that, for big companies, it's astonishing how many people have run away from the basic truth of, "We better love our customers."

Michael Krigsman: So, the essential point then is that companies get caught up in their own metrics, things like financials, and their own local idiosyncratic priorities. Is that a correct way of interpreting what you're saying?

Fred Reichheld: One analogy would be you think about how all of the various things that people did hundreds of years ago before we could see microbes and understand microbes cause most of the major diseases on Earth, so you come up with crazy solutions that everyone accepts as gospel. Well, that's going on in large business today. There are all sorts of just crazy fads and silly ideas and accepted truths that are dead wrong because people have not been able to see the forces that actually govern business success.

Accountants cannot measure how well-loved a customer feels, how loyal they intend to be. Accountants measure how much profit we're extracting from our customers' wallets, but that's a selfish thing for the business. They never measure how much love and care and commitment the customer is feeling from the business or the brand. I think love and loyalty are the driving forces of great businesses, not a greedy extraction of profits.

What is the foundation of customer loyalty?

Michael Krigsman: What are the components or the drivers of loyalty since loyalty is so foundationally important here?

Fred Reichheld: I think, when customers feel loved, when they feel cared for, when they can trust their supplier to act in their best interest, that creates the kind of community that customers want to be part of and will work hard to stay a part of. Very few companies do that very well today. Those that do are growing and prospering.

Probably the most important chapter in my new book is the one that shows the evidence that when customers feel loved and net promoter score done right is a great way to measure love felt by the customer because they feel it so strongly that they want that experience for a friend. That's why you would recommend. It's an act of love.

It's not so much, "I want the business to succeed." That's partially true. Most of it is, "I care about my friend or my family. I want them to have that experience from this trustworthy, loving community," and that is the core to financial success.

When I say, "Put customers first," it doesn't mean forget about investors or employees. Of course, you have to serve those stakeholders. Until you have customers loving doing business with you, those other stakeholders will never prosper over the long haul.

What is NPS?

Michael Krigsman: Net promoter score then is this measure of customer love. Maybe break down for us what is NPS and how does it work.

Fred Reichheld: Big NPS is a philosophy of business that puts customers first. It has the golden rule as its operational guiding star, and it maintains that the only way to succeed and grow a business profitably (in a way that would make employees and investors happy) is to first make sure your customers are so happy they are referring friends and returning. That's big NPS. It's a philosophy.

That's why I created little NPS, which is a scoring mechanism. Little NPS, usually it's a survey-based, "How likely is it you'd recommend us to a friend (0 – 10)?"

The nines and tens tend to be promoters who do feel the love. They're coming back for more, bringing their friends. They're the assets. Detractors are the customers who feel like you've diminished their life.

I think I may have mentioned this before, but I almost called this Net Lives Enriched. That was a better name. I went with Net Promoter because it seemed more practical. Business people would understand that "Gee, customers who are promoters are real assets. They come back for me. They build our reputation."

But I think the thing that energizes the business and is closer to the true North Star is that we all—whether we're a company, a team, or an individual—good people want to enrich the lives they touch. They want to make the world a better place.

Every time you touch a life, did you enrich it? Did you diminish it? That's what net promoter measures – quite well when you read the book and follow the rules. [Laughter] Most people have skimmed the cliff notes and do a half-ass job, sadly.

How to use NPS properly?

Michael Krigsman: We receive net promoter emails and requests, you know, "Would you recommend us?" all the time. I get these almost every day. Is that the right way to be using net promoter score? What is the right way?

Fred Reichheld: No, there are about a thousand too many survey requests out there today. It's absurd.

Companies who understand net promoter see that the real goal is the big NPS: How can I make sure that we're creating more promoters and fewer detractors? I need to understand (when I can) the behaviors of customers that would categorize them that appropriately.

If that customer is coming back, giving us all their business, referring friends, that's a promoter. I don't need a survey to tell me that.

I think many businesses still need surveys to augment the real behavior data. But that's once or twice a year, and it's an advanced agreement with the customer:

  • What's a convenient time?
  • We're going to ask you two or three questions.
  • It's respectable of your time, and we're going to close the loop with what we learn.
  • Would you like it by an SMS text, would you prefer email, or would you like somebody to call you?

How many companies actually go to that trouble? They just blast out a million email surveys and they think they're doing NPS.

Michael Krigsman: When those companies are doing these blasts, is there any benefit to that? Is it just a waste of time? Again, this is happening all around us all the time.

Fred Reichheld: Fortune magazine, last year, reported that around two-thirds of the large companies in the world are using net promoter. I'm afraid that they're using small NPS and the vast majority are using it very poorly. They don't even believe [laughter] in the basis of big NPS. Obviously, they're not using it for the right reasons.

Are they getting any benefit? Yeah, probably some. Getting feedback from customers and verbatim comments about why they feel the way they do and how you can improve, that's good data and good employees are going to learn from that.

You don't really have to link it to someone's bonus. To be a good person and make the world better, you just have to get out of the way and help them achieve that objective. That's what most employees want for themselves, just to live the right kind of life.

Too many people have just, "We're going to make this a KPI. We're going to link it to front-line bonuses," and never think about, "Gosh, with a survey, you can't do that. That's absurd."

We turn a good measurement instrument into a target for someone's bonuses and, suddenly, you'll get car dealer behavior where they lie, cheat, and steal. Then at the end of it, "How much do I have to bribe you to get a ten from you?" That's not big NPS.

Michael Krigsman: Give us the prescription for the right way to apply NPS. Then let's talk about what we do with the results. Tell us first what's the right way to do it.

Fred Reichheld: The right way to do it is to start with the large NPS and make sure that the senior executives believe in that philosophy. One of the things this book provides is evidence that backs up the intuition that good leaders have that is probably true. But they can't see it in the accounting numbers. It's just not a wavelength that shows you the truth.

I think the more industries we show that when we line up competitors based on NPS (measured correctly), the only ones who are delivering great returns to investors are the ones with leading net promoter results in their sector, their industry. Once people see that, they can say, "Okay, what is it we need to change to enrich more customers' lives and diminish fewer?"

I would start by asking my front-line employees and to get feedback from them on what needs to change and how to prioritize that. Then I'd also sit with those employees and say, "What kind of feedback mechanisms, frequency, and technology do we need as an organization to help you prioritize and also prove to us (as you move it up the chain of command) what the true priorities need to be and what processes and policies need to change where you need executive support?"

I think a net promoter done right is helping leaders inspire their teams to embrace a mission, a purpose of enriching the lives of customers. It's the tools, little NPSs, just the tools that those employees and customers need to give feedback and prioritize.

Michael Krigsman: The key point is the underlying message: We are trying to do the right thing for our customers and NPS gives us feedback as to how well we're doing.

Fred Reichheld: Well, it's a growing toolkit. NPS is an open system and, like most open-source things, they get better and grow as experiments take place around the world.

One of the things we've done at Bain with the NPS Loyalty Forum is to try to gather those best practices and spread them. In the book, I lay out Net Promoter 3.0, which is my current observation of the very best practices I see in the world.

It's going to grow and change, and I think one of the fastest places it'll change is observing digital signals that capture behaviors and capture social media to help people understand whether someone feels like a promoter or a detractor. But surveys are always going to play a role when they're used thoughtful.

What is the Earned Growth metric?

Michael Krigsman: We have a couple of interesting comments on LinkedIn. Why don't I weave those in right now? First, Stacey DePolo says that, from her perspective, it's not about the score. It's about generating promoters systematically with the least friction. Do you agree with that perspective? What do you think?

Fred Reichheld: Yeah, completely. I think that's very wise.

The big NPS, this philosophy of "Our primary purpose is to enrich the lives of our customers," we need to have feedback mechanisms that help us know when we're doing it well, when we're not, and what needs to change. When we're going to test innovations that cost money, we need to have a way of measuring the success or failure of those experiments to see if they truly are remarkable.

Yeah, I'm in complete agreement, and I think the notion of 0 – 10 and it's a survey, those are practical today. That won't be the basis of this methodology in ten years. But it's still very practical.

On the other hand, I think giving employees the ability to not just listen to what their customers are saying but to capture that voice, to get together in huddles (daily and weekly) to talk about that, to then push that up the chain of command so you almost have a representative democracy where the front-line employees are listening to their constituents, the customers, and communicating upwards to senior executives what needs to change that the team can't change itself. Yes, that's the big NPS and I think she's spot-on.

Michael Krigsman: You can see I prioritize the questions and the comments from social media, from our listeners, over my own. Keshav Varma, on LinkedIn, says he understands that NPS is not about metrics; it's about deep beliefs and being a good person at the heart of it. He says, "The issue, however, is the quarter-on-quarter mindset when leaders have short runway to show results. In that situation, how do we use NPS to reflect the underlying DNA that you were talking about with big NPS?"

Fred Reichheld: The most important advance in the system is the new metric I introduce in the book and also talked about in my last HBR article in the November Harvard Business Review. The survey methodology has been abused so badly by linking it to bonuses and holding people accountable inappropriately that I think we really need a new mechanism to prove whether we're making progress every week, every month, every quarter.

Today, we only have accounting numbers that are truly audited, trustworthy. Executives don't trust net promoter scores if people in the front-line are bribing, pleading, and begging, and manipulating and paying their survey vendor or their tech vendor to switch the scale from zero to ten instead of ten to zero because that'll change the score by ten points. All the gimmickry, the accountants have squeezed that out (for the most part) of accounting earnings and profit accounting.

What I've developed is a new metric that's based on accounting numbers, auditable accounting numbers (for the most part), that let you know whether you're succeeding in creating more promoters. I called it Earned Growth.

You want to separate your revenue growth from earned from bought. Earned is your existing customers who feel so good that they repeat purchases and they're growing their purchases. They're referring their friends. All of that is your earned growth.

Bought growth are the new customers that are coming in as a result of deals, promotions, sales, spiffs, stuff that actually most marketing people would say that's how you grow a business: You hire more salesmen. You buy more advertising.

No. You get more good business by earning it, by upgrading the experience of your existing customers and making it easy for them to tell their friends and to grow their share of wallet with you.

That earned growth, my goal is to make that something that is on people's budget, accountability, responsibility, that the executives talk about every quarter and that eventually will be reported publicly to investors because we need something where people are held accountable to a real hard metric. It can't be a soft survey-based metric.

The survey-based score, net promoter, is there to learn and to help people learn quickly and in real-time. But earned growth will turn that into the hard metric that I think we need as its accounting twin.

Michael Krigsman: Earned growth then is the bridge that enables us to focus on these key metrics, look at the little NPS score, as well as the financial realities and, again, linking it back to the big NPS (what are we actually doing as a business to earn that customer loyalty).

Fred Reichheld: I haven't figured out how to do that for years and years. I was going down the path: We have to have auditable net promoter. We're going to set the rules for gathering net promoter scores, for how to report it, what the footnotes will look like.

I finally recognized that was not a winning path. It just won't work.

What will work is taking accounting numbers and forcing them into a customer-based accounting framework where you keep track of which customers are buying what, and also keeping track of new customers. When they come in the door, make sure you understand: Was the primary reason a referral, recommendation, or something else?

It's not complicated. It's going to take some work. But if you really understand how vital it is, this notion of customers coming back for more, bringing their friends, and being the kernel of every successful business, that that's the flywheel that drives prosperous growth, I think (once they read my book) more investors are going to get this.

I've invested my money on this insight since the publication of my last book, The Ultimate Question 2.0. I've more than tripled the stock market returns with my investment in NPS leaders, and it's not NPS.

NPS is a way for me to see which companies are earning the love of their customers, and I know that they've got the flywheel humming better than the competition. By investing in it, I show in the book, you triple the market. Most investors want that.

But I think there's even something more radical. None of the companies who are not NPS leaders in their industry are equaling or beating the Vanguard Index Fund right now. So, why would I, as an investor, want to put my money in your stock if you're not even giving total shareholder return of what I can earn with lower risk in an index fund?

Eventually, boards of directors are going to see, "Gosh, our duty is to make sure our organization is loving its customers or we're on a path to destroying value for our investors." Destroying value doesn't just mean losing money. It means a return that's inferior to an index fund because that's destruction of value.

Can NPS be used with internal stakeholders and internal customers?

Michael Krigsman: Okay. Let's take another couple of questions from Twitter this time. The questions are coming in now.

Arsalan Khan asks a really good point, and he asks, "Does NPS only apply to external customers? Can I use NPS to improve, for example, IT's internal customer interactions? I'll mention that I know a CIO of a well-known consumer brand who does use NPS internally to ensure that IT is doing well." Fred, what do you think about that?

Fred Reichheld: I've seen a number of companies use that, and I think having internal departments accountable to their customers (the internal employees as customers) is vital.

It doesn't always work to use the "would recommend" question to get to the net promoter truth. There are a lot of ways to get the question modified so it's appropriate, but the key is big NPS philosophy: Did I feel love and care, treated according to the golden rule standards, made it easier for me to treat my customers the way I want to treat them and proud to treat them?

One question is enough, and I like 0 – 10 scoring, just like I like the metric system. Everybody should be trying to be as consistent if they want some kind of universal comparability.

But IT, I have seen companies using just what I would recommend (that they put it in context) and it works fine. But there should be reliable feedback to every department regularly, and you need to think carefully about, do I want the individual person who dealt with me to be the focus of this feedback, or is it more the whole system and set of processes?

Often, internal customers don't want to hurt the career or the bonus of the person they happen to deal with at the IT helpdesk because it wasn't their fault something went wrong. It was the senior people.

People presume this feedback is just like Uber drivers. "Gee, if I give them anything less, a four or less, they'll fire them. They'll get kicked off the platform." I don't know if everybody knows that but, on a 5-star system, any Uber drive with less than 4.6 is at risk of getting kicked off the platform.

People begin to learn this, and they think, "Oh, that's not the guy's fault. It was the app. I had four canceled rides. It wasn't this guy. He's the one that actually came for me. I'm angry, so the only way I have to express my anger is one star. But that'll get poor Jose fired."

That doesn't get you any honest truth.

Airbnb has a very cool selection. We can give feedback anonymously to an individual (if we want to help them), and we can give it so that everyone, including big brother, sees it.

I think these internal feedback mechanisms have to be much more thoughtful about how much anonymity, how much is specific to the individual person I dealt with, and there is a lot of room to improve.

Michael Krigsman: Are you relying (with NPS) on the goodwill of your customers, which is to say you're making the assumption that customers want to help you?

Fred Reichheld: "The customer is always right," is a stupid, idiotic idea. Most customers are always right.

I don't know if it's 2% of the population or 10%, but there are bad people out there who are selfish. They are going to take, take, take. They are not going to be part of a community and play a responsible role.

Those kinds of customers, you don't want to listen to them. You want to fire them and get them in your competitor's book of business.

In almost all of my books, I've talked about the importance of customer selection, getting the right people on board. In Winning on Purpose, I talk about how to fire customers that are not playing with community spirit.

Customers who will abuse other customers in order to get what they want, or abuse your employees, they have to go. Most companies have not dealt with that.

My son has worked in an Apple Store for almost ten years. They have occasional people show up at the Genius Bar who are rude, abusive. One guy head-butted the genius, he was so mad. Those guys have to go.

Apple, as great as a company as it is, still doesn't have a way to put people on the no-fly list the way good airlines do, the way good cruise ships do, Uber has, and Costco. If you abuse an employee at Costco, you will get a refund of your membership, and you're not allowed back. I think every company needs that.

Is transactional NPS a useful metric?

Michael Krigsman: We have another question (from Twitter this time). This is from Alexander Bockelmann, who is the chief technology officer of a major European insurer. He's also on their board of directors. He says, "NPS scores are often subject to interpretation and difficult to compare between companies. Would a better approach be to focus on the improvement of your own customer satisfaction scores at your customer touchpoints, often called transactional NPS measurement?"

Fred Reichheld: Very, very careful of just looking at transactional satisfaction or NPS. It doesn't tell the whole story. Yes, it is hard to compare, especially when every company is doing it differently and reporting it differently.

What I have found is when you carefully compare, and usually within each country because there are cultural differences in how people give tens or fours or sixes. Germans score much lower than Latin American's do. So what? You shouldn't be comparing. [Laughter]

In Latin America, you don't compete in Germany. You want to look at your local competitors and have a real apples-to-apples comparison of relationship NPS in each key business.

We've done that at Bain & Company. We've built a business called NPS Prism that helps clients do that right.

For everybody in the insurance business, and every sector of the insurance business, they can go to Prism and get data that shows how you stack up versus each competitor at the brand and the relationship level, but it also then breaks down into each of the episodes of the customer journey, so new application, onboarding, claims experience. Each one of those episodes will have, think of it as, a partial derivative NPS score.

How much impact did it have on the overall relationship? That is powerful data, and it's what any large insurer will need.

You either need an NPS Prism in your markets or you need to create it yourself. Many of our clients at Bain have just made the investment to do that kind of analysis themselves.

Michael Krigsman: How important is it to be able to compare your NPS score to your peers or your competitors?

Fred Reichheld: It's vital. How do you know if you're doing well or not? It's always relative to the competition.

You'll see in chapter two of the book, we look at competitors in the same market in the same industry, what their net promoter score is at a relationship basis versus their total shareholder return. Industry after industry, you see them line up almost perfectly. The guys at the top who are delivering shareholder return are the ones that are better than their competition.

Now, some industries are running at 70% NPS and some are running at 20%. The key is that you're at the top of the chain in your industry and are figuring out ways to get better.

Until you know where you stack up versus the competition, you're flying blind. You're just making up your own reality. Therefore, investors ignore it. They say, "Get back to those accounting numbers. At least we know what those mean."

How to apply NPS results to improve customer loyalty?

Michael Krigsman: We've discussed NPS and we've discussed various permutations and how it should be used. Okay. We have sent out this simple question, whether it's 1 to 10 or whatever the mechanism is, and now we have a result. What do we do with that information?

Fred Reichheld: If the survey was generated after a transaction, you make sure you get the feedback back in the hands of the people in the departments who touched that customer so they can learn in real-time. They didn't even know who that customer was, and they can look and learn.

Some of the learning is up at corporate, for sure, but most of it is going to be the people who are touching customers whenever it's a transaction-based survey. For a relationship-based NPS, I think you want to make that available, but it's really for strategy and leadership.

But I would go back. I wouldn't start there. I'd say my goal is (for every customer in my book of business) I want to have my best understanding of whether they're a promoter, passive, or detractor.

Sometimes, it's going to be based on a survey response. Given that most people don't respond to surveys anymore, I'm going to have to use signals instead. I have to watch. Are they buying more stuff? Are they using the kind of language with our service reps that show that they are respectful and happy? Are they saying things on social media?

Until you know whether a customer is a promoter, passive, or detractor, you don't know what to do next. Yes, the survey, the 0 – 10 is a part of the solution, but there are so many other signals in the business, so customer-based accounting, this idea of how can I create earned growth as my real metric means that you're going to have to get (for every customer) some bet, some guess, at least, about have I enriched their life, they're happy, and coming back for more, or have I diminished?

That's a long way to go for most companies. They've sort of put their toe in the water sending out NPS surveys and think they're doing NPS.

Read the book and see what Net Promoter 3.0 looks like. If you're not feeling very humble halfway through that list, then you're not reading very carefully.

Michael Krigsman: Let me play devil's advocate for a moment. I send out the survey and it comes back with whatever score. It does not help me diagnose where the problem lies. The problem could lie in the service delivery at the point of sale. The problem could lie upstream that, simply, my product sucks. What about that? Is net promoter score too simplistic a measure to help you conduct that type of diagnosis?

Fred Reichheld: Only complete nincompoops would just ask how likely you'd recommend us to a friend.

Since I invented the system, there were always one or two questions: Why do you feel that way? And what could we do to improve?

Those are open text verbatims that customers will tell you in their own words what's the most important feedback they have. That needs to be read by human eyes and thought of through human brains about what the appropriate response is.

Instead, I see people sending out millions and millions of surveys and saying, "Oh, I couldn't possibly read all these verbatim comments." Well, send out fewer surveys. You get better, and you will find that the brilliance, the gold in the NPS system is in the verbatim comments.

One of the guys that adopted NPS early on was Scott Cook, the founder of Intuit, a very successful software company mostly in North America. I think their market cap is now $150 billion, $200 billion. It's been an amazing success story.

His marketing team always says, "Oh, we don't want to deal with this unstructured data in verbatim comments. That's really hard. We have to read all that. Somebody is going to read those comments. We need structured data because then we can apply all the tools we learned about in a statistics class."

He says, "Well, yes. Obviously, it's easy for us to have structured data. But to have structured data, we're basically leading the witness. We're telling them what are the important dimensions to think about in evaluating that experience," and that destroys the whole idea behind net promoter.

We want to know what is driving what they feel and why. The customer is the only one that can tell us that – in their own words.

How important are the verbatim comments when using NPS scores?

Michael Krigsman: Would it be correct to say then that the score, the net promoter score itself, is the entryway to the verbatim comments, to help us?

Fred Reichheld: Yeah, absolutely. Net lives enriched. Have I enriched a life? Have I diminished a life? Success or failure?

Then I'm in diagnostic mode. But first, I have to decide whether I've got a success or a failure.

A lot of people have mushed those together and thought, "Oh, gosh. That's simplistic. Let's have 20 questions," and they've basically destroyed the brilliance, the simplicity of, "I need to know if I've enriched a life or not," or if it's just a transaction, "Have I strengthened that relationship or weakened it?"

From then on, I don't want to waste more time with surveys. I need to diagnose. Sometimes, it's the verbatim comment, but it's usually a follow-up email conversation or SMS text.

If people are going to learn and build a relationship, there needs to be a two-way communication. Given the technologies that exist today, there is no excuse for not doing that if you really love your customers.

Michael Krigsman: Again, would it be accurate to say that the NPS score itself is a broad or general measure, diagnostic of health, but it's the comments that's really the precision medicine that will allow the business leader to drill and address the general perception embodied in the score itself?

Fred Reichheld: 0 – 10 is the score that lets you know success or failure. The verbatim comments help you begin the diagnostic of why and what to do about that. But the appropriate full set of diagnostics will involve looking at other signals from that customer and similar customers, talking to your employees and getting their feedback about why they think it is the way it is and what needs to change, and running experiments to test out their suggestions and watching whether that's paying off in the net promoter score (the little NPS).

It's an entire system. NPS used to stand for net promoter score. Then I figured it out. That's close to useless. You need a system of taking that and learning and doing something. Net promoter system is at least what I mean when I talk about NPS.

What is the future of the Net Promoter System?

Michael Krigsman: Can you give us some insight into where this is going? Where is the net promoter system going and why?

Fred Reichheld: The most important transition is to make the shift or create the capability to track earned growth. Earned growth rate as a real outcome that investors will clearly care about a lot more than they do NPS. They like NPS because it predicts earned growth, but it's earned growth.

Coming back for more, bringing their friends, that's the profitable kind of growth. That needs to happen in every business.

I think the other big transition (I hope) is that leaders understand that net promoter (both big NPS and little NPS) exist to make the lives of employees better, to give them work that has meaning and purpose because great service to others, enriching the lives you touch is what makes work worthwhile.

A good human being is going to be inspired when they're put into a job—even when it's really tough—to do something so important for their customer that their customer feels that their life has been enriched; they want to share that with their loved ones, that act of love and that chain reaction. That is, in my mind, what makes people love their work.

In today's great resignation, good luck at building and maintaining a good workforce if you aren't inspiring them with a purpose. Not just any purpose that's sort of cool and what's politically correct this month, but for the one purpose that has proven to work over the centuries. When you commit to enriching the lives of customers, you start that flywheel spinning of back for more and bringing their friends. All stakeholders can be better off.

Yes, compensation is great, and employees will get paid more in businesses that have a lot of those flywheels spinning. But I think great leaders, great employees, they want to lead great lives. They want to have a meaning and purpose.

Yes, wealth is good. What's even better is knowing that you have left the world a better place, that you have enriched the lives you touched.

Michael Krigsman: Fred, you've spoken with so many companies and business leaders of every kind. What are some of the obstacles, the common obstacles that you've seen that interfere with the creation of this customer love that you've been describing?

Fred Reichheld: Number one, most of the leaders in business today don't believe in it. I was shocked and dismayed when we surveyed senior leaders around the world and found that only 10% believe that customers should come first. If you have a leadership team that doesn't believe that customers are the most important stakeholder, it's very hard as an employee to live a great life and to feel fulfilled and proud.

I think part of the job is going to be convincing more and more leaders to see that, yes, all stakeholders need to be treated appropriately with golden rule standards. But customers do need to come first, and we need a set of metrics that let us know when we're making progress toward that purpose. That's a big change.

I thought, boy, 20 years ago when I wrote the first book on net promoter, Mike, I was ready to retire. I like to garden and I had a big garden down on Cape Cod. I was ready to dig in.

But I was just astonished at how far off-track people took this net promoter revolution. Why have I come back from the garden, come out of retirement, and I've written another book? Well, it's because I want people to get the idea of big NPS and how important this is, not just for a successful business but to living the right life.

Michael Krigsman: We have another question from Twitter, a really, really good question from Lisbeth Shaw. She says, "Many retired CEOs and chairmen focus on purpose. For example, Hubert Joly," who was a guest on this show, "Former CEO of Best Buy, calls it 'Noble Purpose.' How should companies find their noble purpose and tie that to NPS?"

Fred Reichheld: Well, at the very end Winning on Purpose, I have the distillation of my philosophy that explains all the great companies that I've seen and the great leaders that I've seen. It's called The Net Promoter Manifesto, but it's also the customer capitalist manifesto. It's this idea that customers are at the center of the world.

Great leaders, they help their teams lead great lives of meaning and purpose by enriching the lives of customers. We measure that. We set up our accountability systems. We govern. We pay bonuses. All of those things have to orient themselves toward this purpose at the core of all great organizations.

Yes, I agree. Some of the most admired companies got this right, and it was intuitive leadership that fought against the accounting numbers (when appropriate) to create something truly special and to make the world better. I hope that the net promoter system (both little NPS and big NPS) make it easier for normal leaders to implement that same wisdom by focusing their organizations on the one winning purpose.

There are not bunches of winning purposes. There's one: Making your customers' lives better.

Michael Krigsman: Okay. Well, that was a pretty simple breakdown to a very complex and deep issue. Unfortunately, we are out of time. I would like to thank Fred Reichheld. He is the creator of NPS and the author of this book, Winning on Purpose. Fred, thank you very, very much for taking the time to be here today. I really appreciate it.

Fred Reichheld: My pleasure, Michael.

Michael Krigsman: Thank you to everybody who watched and especially to those folks who ask such excellent questions. Now, before you go, please subscribe to our YouTube channel. Hit the subscribe button at the top of our website so we can send you our newsletter. It's a really good newsletter, and we'll notify you about upcoming shows. Check out CXOTalk.com. We have amazing shows coming up. Thanks so much, everybody, and I hope you have a great day.

Fred Reichheld: Only 10% of leaders today believe the customer should come first. "Customers come first" is a minority, a tiny minority position. It's crazy.

What is the Net Promoter System (NPS)?

Michael Krigsman: That's Fred Reichheld, creator of the Net Promoter System, explaining customer loyalty and why it's so difficult to get and keep loyal customers. Fred's latest book is called Winning on Purpose and, in this episode of CXOTalk, he describes how to use NPS, how not to use the NPS score, and how to do it right.

Fred Reichheld: There's only one way to win, and that is when you embrace an inspiring purpose that is based on service to others. Companies that win make sure their purpose is focused primarily on making their customers' lives better.

I think small businesses get it because you'll die very quickly if you don't treat your customers so they come back for more and bring their friends. Small businesses can't afford the luxury of big marketing investments, customer acquisition, PR firms, and marketing agencies.

It's when firms get big and they become governed by a financial mindset because the frequency of the wavelengths that they can view and hear are financial wavelengths. You run your business. You govern it. You pay bonuses.

Once you get into this financial mindset (using accounting numbers to drive your reality), you get separated. Of course, organizational silos exacerbate this, but you get really separated from that basic truth that there's only one way to grow a profitable business: Treat your customers so they come back for more and bring their friends. That 10% number is just evidence that, for big companies, it's astonishing how many people have run away from the basic truth of, "We better love our customers."

Michael Krigsman: So, the essential point then is that companies get caught up in their own metrics, things like financials, and their own local idiosyncratic priorities. Is that a correct way of interpreting what you're saying?

Fred Reichheld: One analogy would be you think about how all of the various things that people did hundreds of years ago before we could see microbes and understand microbes cause most of the major diseases on Earth, so you come up with crazy solutions that everyone accepts as gospel. Well, that's going on in large business today. There are all sorts of just crazy fads and silly ideas and accepted truths that are dead wrong because people have not been able to see the forces that actually govern business success.

Accountants cannot measure how well-loved a customer feels, how loyal they intend to be. Accountants measure how much profit we're extracting from our customers' wallets, but that's a selfish thing for the business. They never measure how much love and care and commitment the customer is feeling from the business or the brand. I think love and loyalty are the driving forces of great businesses, not a greedy extraction of profits.

What is the foundation of customer loyalty?

Michael Krigsman: What are the components or the drivers of loyalty since loyalty is so foundationally important here?

Fred Reichheld: I think, when customers feel loved, when they feel cared for, when they can trust their supplier to act in their best interest, that creates the kind of community that customers want to be part of and will work hard to stay a part of. Very few companies do that very well today. Those that do are growing and prospering.

Probably the most important chapter in my new book is the one that shows the evidence that when customers feel loved and net promoter score done right is a great way to measure love felt by the customer because they feel it so strongly that they want that experience for a friend. That's why you would recommend. It's an act of love.

It's not so much, "I want the business to succeed." That's partially true. Most of it is, "I care about my friend or my family. I want them to have that experience from this trustworthy, loving community," and that is the core to financial success.

When I say, "Put customers first," it doesn't mean forget about investors or employees. Of course, you have to serve those stakeholders. Until you have customers loving doing business with you, those other stakeholders will never prosper over the long haul.

What is NPS?

Michael Krigsman: Net promoter score then is this measure of customer love. Maybe break down for us what is NPS and how does it work.

Fred Reichheld: Big NPS is a philosophy of business that puts customers first. It has the golden rule as its operational guiding star, and it maintains that the only way to succeed and grow a business profitably (in a way that would make employees and investors happy) is to first make sure your customers are so happy they are referring friends and returning. That's big NPS. It's a philosophy.

That's why I created little NPS, which is a scoring mechanism. Little NPS, usually it's a survey-based, "How likely is it you'd recommend us to a friend (0 – 10)?"

The nines and tens tend to be promoters who do feel the love. They're coming back for more, bringing their friends. They're the assets. Detractors are the customers who feel like you've diminished their life.

I think I may have mentioned this before, but I almost called this Net Lives Enriched. That was a better name. I went with Net Promoter because it seemed more practical. Business people would understand that "Gee, customers who are promoters are real assets. They come back for me. They build our reputation."

But I think the thing that energizes the business and is closer to the true North Star is that we all—whether we're a company, a team, or an individual—good people want to enrich the lives they touch. They want to make the world a better place.

Every time you touch a life, did you enrich it? Did you diminish it? That's what net promoter measures – quite well when you read the book and follow the rules. [Laughter] Most people have skimmed the cliff notes and do a half-ass job, sadly.

How to use NPS properly?

Michael Krigsman: We receive net promoter emails and requests, you know, "Would you recommend us?" all the time. I get these almost every day. Is that the right way to be using net promoter score? What is the right way?

Fred Reichheld: No, there are about a thousand too many survey requests out there today. It's absurd.

Companies who understand net promoter see that the real goal is the big NPS: How can I make sure that we're creating more promoters and fewer detractors? I need to understand (when I can) the behaviors of customers that would categorize them that appropriately.

If that customer is coming back, giving us all their business, referring friends, that's a promoter. I don't need a survey to tell me that.

I think many businesses still need surveys to augment the real behavior data. But that's once or twice a year, and it's an advanced agreement with the customer:

  • What's a convenient time?
  • We're going to ask you two or three questions.
  • It's respectable of your time, and we're going to close the loop with what we learn.
  • Would you like it by an SMS text, would you prefer email, or would you like somebody to call you?

How many companies actually go to that trouble? They just blast out a million email surveys and they think they're doing NPS.

Michael Krigsman: When those companies are doing these blasts, is there any benefit to that? Is it just a waste of time? Again, this is happening all around us all the time.

Fred Reichheld: Fortune magazine, last year, reported that around two-thirds of the large companies in the world are using net promoter. I'm afraid that they're using small NPS and the vast majority are using it very poorly. They don't even believe [laughter] in the basis of big NPS. Obviously, they're not using it for the right reasons.

Are they getting any benefit? Yeah, probably some. Getting feedback from customers and verbatim comments about why they feel the way they do and how you can improve, that's good data and good employees are going to learn from that.

You don't really have to link it to someone's bonus. To be a good person and make the world better, you just have to get out of the way and help them achieve that objective. That's what most employees want for themselves, just to live the right kind of life.

Too many people have just, "We're going to make this a KPI. We're going to link it to front-line bonuses," and never think about, "Gosh, with a survey, you can't do that. That's absurd."

We turn a good measurement instrument into a target for someone's bonuses and, suddenly, you'll get car dealer behavior where they lie, cheat, and steal. Then at the end of it, "How much do I have to bribe you to get a ten from you?" That's not big NPS.

Michael Krigsman: Give us the prescription for the right way to apply NPS. Then let's talk about what we do with the results. Tell us first what's the right way to do it.

Fred Reichheld: The right way to do it is to start with the large NPS and make sure that the senior executives believe in that philosophy. One of the things this book provides is evidence that backs up the intuition that good leaders have that is probably true. But they can't see it in the accounting numbers. It's just not a wavelength that shows you the truth.

I think the more industries we show that when we line up competitors based on NPS (measured correctly), the only ones who are delivering great returns to investors are the ones with leading net promoter results in their sector, their industry. Once people see that, they can say, "Okay, what is it we need to change to enrich more customers' lives and diminish fewer?"

I would start by asking my front-line employees and to get feedback from them on what needs to change and how to prioritize that. Then I'd also sit with those employees and say, "What kind of feedback mechanisms, frequency, and technology do we need as an organization to help you prioritize and also prove to us (as you move it up the chain of command) what the true priorities need to be and what processes and policies need to change where you need executive support?"

I think a net promoter done right is helping leaders inspire their teams to embrace a mission, a purpose of enriching the lives of customers. It's the tools, little NPSs, just the tools that those employees and customers need to give feedback and prioritize.

Michael Krigsman: The key point is the underlying message: We are trying to do the right thing for our customers and NPS gives us feedback as to how well we're doing.

Fred Reichheld: Well, it's a growing toolkit. NPS is an open system and, like most open-source things, they get better and grow as experiments take place around the world.

One of the things we've done at Bain with the NPS Loyalty Forum is to try to gather those best practices and spread them. In the book, I lay out Net Promoter 3.0, which is my current observation of the very best practices I see in the world.

It's going to grow and change, and I think one of the fastest places it'll change is observing digital signals that capture behaviors and capture social media to help people understand whether someone feels like a promoter or a detractor. But surveys are always going to play a role when they're used thoughtful.

What is the Earned Growth metric?

Michael Krigsman: We have a couple of interesting comments on LinkedIn. Why don't I weave those in right now? First, Stacey DePolo says that, from her perspective, it's not about the score. It's about generating promoters systematically with the least friction. Do you agree with that perspective? What do you think?

Fred Reichheld: Yeah, completely. I think that's very wise.

The big NPS, this philosophy of "Our primary purpose is to enrich the lives of our customers," we need to have feedback mechanisms that help us know when we're doing it well, when we're not, and what needs to change. When we're going to test innovations that cost money, we need to have a way of measuring the success or failure of those experiments to see if they truly are remarkable.

Yeah, I'm in complete agreement, and I think the notion of 0 – 10 and it's a survey, those are practical today. That won't be the basis of this methodology in ten years. But it's still very practical.

On the other hand, I think giving employees the ability to not just listen to what their customers are saying but to capture that voice, to get together in huddles (daily and weekly) to talk about that, to then push that up the chain of command so you almost have a representative democracy where the front-line employees are listening to their constituents, the customers, and communicating upwards to senior executives what needs to change that the team can't change itself. Yes, that's the big NPS and I think she's spot-on.

Michael Krigsman: You can see I prioritize the questions and the comments from social media, from our listeners, over my own. Keshav Varma, on LinkedIn, says he understands that NPS is not about metrics; it's about deep beliefs and being a good person at the heart of it. He says, "The issue, however, is the quarter-on-quarter mindset when leaders have short runway to show results. In that situation, how do we use NPS to reflect the underlying DNA that you were talking about with big NPS?"

Fred Reichheld: The most important advance in the system is the new metric I introduce in the book and also talked about in my last HBR article in the November Harvard Business Review. The survey methodology has been abused so badly by linking it to bonuses and holding people accountable inappropriately that I think we really need a new mechanism to prove whether we're making progress every week, every month, every quarter.

Today, we only have accounting numbers that are truly audited, trustworthy. Executives don't trust net promoter scores if people in the front-line are bribing, pleading, and begging, and manipulating and paying their survey vendor or their tech vendor to switch the scale from zero to ten instead of ten to zero because that'll change the score by ten points. All the gimmickry, the accountants have squeezed that out (for the most part) of accounting earnings and profit accounting.

What I've developed is a new metric that's based on accounting numbers, auditable accounting numbers (for the most part), that let you know whether you're succeeding in creating more promoters. I called it Earned Growth.

You want to separate your revenue growth from earned from bought. Earned is your existing customers who feel so good that they repeat purchases and they're growing their purchases. They're referring their friends. All of that is your earned growth.

Bought growth are the new customers that are coming in as a result of deals, promotions, sales, spiffs, stuff that actually most marketing people would say that's how you grow a business: You hire more salesmen. You buy more advertising.

No. You get more good business by earning it, by upgrading the experience of your existing customers and making it easy for them to tell their friends and to grow their share of wallet with you.

That earned growth, my goal is to make that something that is on people's budget, accountability, responsibility, that the executives talk about every quarter and that eventually will be reported publicly to investors because we need something where people are held accountable to a real hard metric. It can't be a soft survey-based metric.

The survey-based score, net promoter, is there to learn and to help people learn quickly and in real-time. But earned growth will turn that into the hard metric that I think we need as its accounting twin.

Michael Krigsman: Earned growth then is the bridge that enables us to focus on these key metrics, look at the little NPS score, as well as the financial realities and, again, linking it back to the big NPS (what are we actually doing as a business to earn that customer loyalty).

Fred Reichheld: I haven't figured out how to do that for years and years. I was going down the path: We have to have auditable net promoter. We're going to set the rules for gathering net promoter scores, for how to report it, what the footnotes will look like.

I finally recognized that was not a winning path. It just won't work.

What will work is taking accounting numbers and forcing them into a customer-based accounting framework where you keep track of which customers are buying what, and also keeping track of new customers. When they come in the door, make sure you understand: Was the primary reason a referral, recommendation, or something else?

It's not complicated. It's going to take some work. But if you really understand how vital it is, this notion of customers coming back for more, bringing their friends, and being the kernel of every successful business, that that's the flywheel that drives prosperous growth, I think (once they read my book) more investors are going to get this.

I've invested my money on this insight since the publication of my last book, The Ultimate Question 2.0. I've more than tripled the stock market returns with my investment in NPS leaders, and it's not NPS.

NPS is a way for me to see which companies are earning the love of their customers, and I know that they've got the flywheel humming better than the competition. By investing in it, I show in the book, you triple the market. Most investors want that.

But I think there's even something more radical. None of the companies who are not NPS leaders in their industry are equaling or beating the Vanguard Index Fund right now. So, why would I, as an investor, want to put my money in your stock if you're not even giving total shareholder return of what I can earn with lower risk in an index fund?

Eventually, boards of directors are going to see, "Gosh, our duty is to make sure our organization is loving its customers or we're on a path to destroying value for our investors." Destroying value doesn't just mean losing money. It means a return that's inferior to an index fund because that's destruction of value.

Can NPS be used with internal stakeholders and internal customers?

Michael Krigsman: Okay. Let's take another couple of questions from Twitter this time. The questions are coming in now.

Arsalan Khan asks a really good point, and he asks, "Does NPS only apply to external customers? Can I use NPS to improve, for example, IT's internal customer interactions? I'll mention that I know a CIO of a well-known consumer brand who does use NPS internally to ensure that IT is doing well." Fred, what do you think about that?

Fred Reichheld: I've seen a number of companies use that, and I think having internal departments accountable to their customers (the internal employees as customers) is vital.

It doesn't always work to use the "would recommend" question to get to the net promoter truth. There are a lot of ways to get the question modified so it's appropriate, but the key is big NPS philosophy: Did I feel love and care, treated according to the golden rule standards, made it easier for me to treat my customers the way I want to treat them and proud to treat them?

One question is enough, and I like 0 – 10 scoring, just like I like the metric system. Everybody should be trying to be as consistent if they want some kind of universal comparability.

But IT, I have seen companies using just what I would recommend (that they put it in context) and it works fine. But there should be reliable feedback to every department regularly, and you need to think carefully about, do I want the individual person who dealt with me to be the focus of this feedback, or is it more the whole system and set of processes?

Often, internal customers don't want to hurt the career or the bonus of the person they happen to deal with at the IT helpdesk because it wasn't their fault something went wrong. It was the senior people.

People presume this feedback is just like Uber drivers. "Gee, if I give them anything less, a four or less, they'll fire them. They'll get kicked off the platform." I don't know if everybody knows that but, on a 5-star system, any Uber drive with less than 4.6 is at risk of getting kicked off the platform.

People begin to learn this, and they think, "Oh, that's not the guy's fault. It was the app. I had four canceled rides. It wasn't this guy. He's the one that actually came for me. I'm angry, so the only way I have to express my anger is one star. But that'll get poor Jose fired."

That doesn't get you any honest truth.

Airbnb has a very cool selection. We can give feedback anonymously to an individual (if we want to help them), and we can give it so that everyone, including big brother, sees it.

I think these internal feedback mechanisms have to be much more thoughtful about how much anonymity, how much is specific to the individual person I dealt with, and there is a lot of room to improve.

Michael Krigsman: Are you relying (with NPS) on the goodwill of your customers, which is to say you're making the assumption that customers want to help you?

Fred Reichheld: "The customer is always right," is a stupid, idiotic idea. Most customers are always right.

I don't know if it's 2% of the population or 10%, but there are bad people out there who are selfish. They are going to take, take, take. They are not going to be part of a community and play a responsible role.

Those kinds of customers, you don't want to listen to them. You want to fire them and get them in your competitor's book of business.

In almost all of my books, I've talked about the importance of customer selection, getting the right people on board. In Winning on Purpose, I talk about how to fire customers that are not playing with community spirit.

Customers who will abuse other customers in order to get what they want, or abuse your employees, they have to go. Most companies have not dealt with that.

My son has worked in an Apple Store for almost ten years. They have occasional people show up at the Genius Bar who are rude, abusive. One guy head-butted the genius, he was so mad. Those guys have to go.

Apple, as great as a company as it is, still doesn't have a way to put people on the no-fly list the way good airlines do, the way good cruise ships do, Uber has, and Costco. If you abuse an employee at Costco, you will get a refund of your membership, and you're not allowed back. I think every company needs that.

Is transactional NPS a useful metric?

Michael Krigsman: We have another question (from Twitter this time). This is from Alexander Bockelmann, who is the chief technology officer of a major European insurer. He's also on their board of directors. He says, "NPS scores are often subject to interpretation and difficult to compare between companies. Would a better approach be to focus on the improvement of your own customer satisfaction scores at your customer touchpoints, often called transactional NPS measurement?"

Fred Reichheld: Very, very careful of just looking at transactional satisfaction or NPS. It doesn't tell the whole story. Yes, it is hard to compare, especially when every company is doing it differently and reporting it differently.

What I have found is when you carefully compare, and usually within each country because there are cultural differences in how people give tens or fours or sixes. Germans score much lower than Latin American's do. So what? You shouldn't be comparing. [Laughter]

In Latin America, you don't compete in Germany. You want to look at your local competitors and have a real apples-to-apples comparison of relationship NPS in each key business.

We've done that at Bain & Company. We've built a business called NPS Prism that helps clients do that right.

For everybody in the insurance business, and every sector of the insurance business, they can go to Prism and get data that shows how you stack up versus each competitor at the brand and the relationship level, but it also then breaks down into each of the episodes of the customer journey, so new application, onboarding, claims experience. Each one of those episodes will have, think of it as, a partial derivative NPS score.

How much impact did it have on the overall relationship? That is powerful data, and it's what any large insurer will need.

You either need an NPS Prism in your markets or you need to create it yourself. Many of our clients at Bain have just made the investment to do that kind of analysis themselves.

Michael Krigsman: How important is it to be able to compare your NPS score to your peers or your competitors?

Fred Reichheld: It's vital. How do you know if you're doing well or not? It's always relative to the competition.

You'll see in chapter two of the book, we look at competitors in the same market in the same industry, what their net promoter score is at a relationship basis versus their total shareholder return. Industry after industry, you see them line up almost perfectly. The guys at the top who are delivering shareholder return are the ones that are better than their competition.

Now, some industries are running at 70% NPS and some are running at 20%. The key is that you're at the top of the chain in your industry and are figuring out ways to get better.

Until you know where you stack up versus the competition, you're flying blind. You're just making up your own reality. Therefore, investors ignore it. They say, "Get back to those accounting numbers. At least we know what those mean."

How to apply NPS results to improve customer loyalty?

Michael Krigsman: We've discussed NPS and we've discussed various permutations and how it should be used. Okay. We have sent out this simple question, whether it's 1 to 10 or whatever the mechanism is, and now we have a result. What do we do with that information?

Fred Reichheld: If the survey was generated after a transaction, you make sure you get the feedback back in the hands of the people in the departments who touched that customer so they can learn in real-time. They didn't even know who that customer was, and they can look and learn.

Some of the learning is up at corporate, for sure, but most of it is going to be the people who are touching customers whenever it's a transaction-based survey. For a relationship-based NPS, I think you want to make that available, but it's really for strategy and leadership.

But I would go back. I wouldn't start there. I'd say my goal is (for every customer in my book of business) I want to have my best understanding of whether they're a promoter, passive, or detractor.

Sometimes, it's going to be based on a survey response. Given that most people don't respond to surveys anymore, I'm going to have to use signals instead. I have to watch. Are they buying more stuff? Are they using the kind of language with our service reps that show that they are respectful and happy? Are they saying things on social media?

Until you know whether a customer is a promoter, passive, or detractor, you don't know what to do next. Yes, the survey, the 0 – 10 is a part of the solution, but there are so many other signals in the business, so customer-based accounting, this idea of how can I create earned growth as my real metric means that you're going to have to get (for every customer) some bet, some guess, at least, about have I enriched their life, they're happy, and coming back for more, or have I diminished?

That's a long way to go for most companies. They've sort of put their toe in the water sending out NPS surveys and think they're doing NPS.

Read the book and see what Net Promoter 3.0 looks like. If you're not feeling very humble halfway through that list, then you're not reading very carefully.

Michael Krigsman: Let me play devil's advocate for a moment. I send out the survey and it comes back with whatever score. It does not help me diagnose where the problem lies. The problem could lie in the service delivery at the point of sale. The problem could lie upstream that, simply, my product sucks. What about that? Is net promoter score too simplistic a measure to help you conduct that type of diagnosis?

Fred Reichheld: Only complete nincompoops would just ask how likely you'd recommend us to a friend.

Since I invented the system, there were always one or two questions: Why do you feel that way? And what could we do to improve?

Those are open text verbatims that customers will tell you in their own words what's the most important feedback they have. That needs to be read by human eyes and thought of through human brains about what the appropriate response is.

Instead, I see people sending out millions and millions of surveys and saying, "Oh, I couldn't possibly read all these verbatim comments." Well, send out fewer surveys. You get better, and you will find that the brilliance, the gold in the NPS system is in the verbatim comments.

One of the guys that adopted NPS early on was Scott Cook, the founder of Intuit, a very successful software company mostly in North America. I think their market cap is now $150 billion, $200 billion. It's been an amazing success story.

His marketing team always says, "Oh, we don't want to deal with this unstructured data in verbatim comments. That's really hard. We have to read all that. Somebody is going to read those comments. We need structured data because then we can apply all the tools we learned about in a statistics class."

He says, "Well, yes. Obviously, it's easy for us to have structured data. But to have structured data, we're basically leading the witness. We're telling them what are the important dimensions to think about in evaluating that experience," and that destroys the whole idea behind net promoter.

We want to know what is driving what they feel and why. The customer is the only one that can tell us that – in their own words.

How important are the verbatim comments when using NPS scores?

Michael Krigsman: Would it be correct to say then that the score, the net promoter score itself, is the entryway to the verbatim comments, to help us?

Fred Reichheld: Yeah, absolutely. Net lives enriched. Have I enriched a life? Have I diminished a life? Success or failure?

Then I'm in diagnostic mode. But first, I have to decide whether I've got a success or a failure.

A lot of people have mushed those together and thought, "Oh, gosh. That's simplistic. Let's have 20 questions," and they've basically destroyed the brilliance, the simplicity of, "I need to know if I've enriched a life or not," or if it's just a transaction, "Have I strengthened that relationship or weakened it?"

From then on, I don't want to waste more time with surveys. I need to diagnose. Sometimes, it's the verbatim comment, but it's usually a follow-up email conversation or SMS text.

If people are going to learn and build a relationship, there needs to be a two-way communication. Given the technologies that exist today, there is no excuse for not doing that if you really love your customers.

Michael Krigsman: Again, would it be accurate to say that the NPS score itself is a broad or general measure, diagnostic of health, but it's the comments that's really the precision medicine that will allow the business leader to drill and address the general perception embodied in the score itself?

Fred Reichheld: 0 – 10 is the score that lets you know success or failure. The verbatim comments help you begin the diagnostic of why and what to do about that. But the appropriate full set of diagnostics will involve looking at other signals from that customer and similar customers, talking to your employees and getting their feedback about why they think it is the way it is and what needs to change, and running experiments to test out their suggestions and watching whether that's paying off in the net promoter score (the little NPS).

It's an entire system. NPS used to stand for net promoter score. Then I figured it out. That's close to useless. You need a system of taking that and learning and doing something. Net promoter system is at least what I mean when I talk about NPS.

What is the future of the Net Promoter System?

Michael Krigsman: Can you give us some insight into where this is going? Where is the net promoter system going and why?

Fred Reichheld: The most important transition is to make the shift or create the capability to track earned growth. Earned growth rate as a real outcome that investors will clearly care about a lot more than they do NPS. They like NPS because it predicts earned growth, but it's earned growth.

Coming back for more, bringing their friends, that's the profitable kind of growth. That needs to happen in every business.

I think the other big transition (I hope) is that leaders understand that net promoter (both big NPS and little NPS) exist to make the lives of employees better, to give them work that has meaning and purpose because great service to others, enriching the lives you touch is what makes work worthwhile.

A good human being is going to be inspired when they're put into a job—even when it's really tough—to do something so important for their customer that their customer feels that their life has been enriched; they want to share that with their loved ones, that act of love and that chain reaction. That is, in my mind, what makes people love their work.

In today's great resignation, good luck at building and maintaining a good workforce if you aren't inspiring them with a purpose. Not just any purpose that's sort of cool and what's politically correct this month, but for the one purpose that has proven to work over the centuries. When you commit to enriching the lives of customers, you start that flywheel spinning of back for more and bringing their friends. All stakeholders can be better off.

Yes, compensation is great, and employees will get paid more in businesses that have a lot of those flywheels spinning. But I think great leaders, great employees, they want to lead great lives. They want to have a meaning and purpose.

Yes, wealth is good. What's even better is knowing that you have left the world a better place, that you have enriched the lives you touched.

Michael Krigsman: Fred, you've spoken with so many companies and business leaders of every kind. What are some of the obstacles, the common obstacles that you've seen that interfere with the creation of this customer love that you've been describing?

Fred Reichheld: Number one, most of the leaders in business today don't believe in it. I was shocked and dismayed when we surveyed senior leaders around the world and found that only 10% believe that customers should come first. If you have a leadership team that doesn't believe that customers are the most important stakeholder, it's very hard as an employee to live a great life and to feel fulfilled and proud.

I think part of the job is going to be convincing more and more leaders to see that, yes, all stakeholders need to be treated appropriately with golden rule standards. But customers do need to come first, and we need a set of metrics that let us know when we're making progress toward that purpose. That's a big change.

I thought, boy, 20 years ago when I wrote the first book on net promoter, Mike, I was ready to retire. I like to garden and I had a big garden down on Cape Cod. I was ready to dig in.

But I was just astonished at how far off-track people took this net promoter revolution. Why have I come back from the garden, come out of retirement, and I've written another book? Well, it's because I want people to get the idea of big NPS and how important this is, not just for a successful business but to living the right life.

Michael Krigsman: We have another question from Twitter, a really, really good question from Lisbeth Shaw. She says, "Many retired CEOs and chairmen focus on purpose. For example, Hubert Joly," who was a guest on this show, "Former CEO of Best Buy, calls it 'Noble Purpose.' How should companies find their noble purpose and tie that to NPS?"

Fred Reichheld: Well, at the very end Winning on Purpose, I have the distillation of my philosophy that explains all the great companies that I've seen and the great leaders that I've seen. It's called The Net Promoter Manifesto, but it's also the customer capitalist manifesto. It's this idea that customers are at the center of the world.

Great leaders, they help their teams lead great lives of meaning and purpose by enriching the lives of customers. We measure that. We set up our accountability systems. We govern. We pay bonuses. All of those things have to orient themselves toward this purpose at the core of all great organizations.

Yes, I agree. Some of the most admired companies got this right, and it was intuitive leadership that fought against the accounting numbers (when appropriate) to create something truly special and to make the world better. I hope that the net promoter system (both little NPS and big NPS) make it easier for normal leaders to implement that same wisdom by focusing their organizations on the one winning purpose.

There are not bunches of winning purposes. There's one: Making your customers' lives better.

Michael Krigsman: Okay. Well, that was a pretty simple breakdown to a very complex and deep issue. Unfortunately, we are out of time. I would like to thank Fred Reichheld. He is the creator of NPS and the author of this book, Winning on Purpose. Fred, thank you very, very much for taking the time to be here today. I really appreciate it.

Fred Reichheld: My pleasure, Michael.

Michael Krigsman: Thank you to everybody who watched and especially to those folks who ask such excellent questions. Now, before you go, please subscribe to our YouTube channel. Hit the subscribe button at the top of our website so we can send you our newsletter. It's a really good newsletter, and we'll notify you about upcoming shows. Check out CXOTalk.com. We have amazing shows coming up. Thanks so much, everybody, and I hope you have a great day.