I've been watching a trend that encompasses companies as diverse as Lenovo, EMC and Logitech, and I think it bodes well for both consumers and IT professionals. It's a shift away from customer satisfaction, which basically makes companies think they are doing A work when they may be doing D work (on a scale of A to F where A is the top grade and F is failure), toward derivatives of the Net Promoter Score (or NPS).
While watching the Olympics yesterday, I made a connection. Those of us in the U.S. bask in the glory of the U.S. swimming relay team kicking the arrogant French relay team's butt. In fact, on that, I'd like to thank the French for being so annoying because we in the U.S., given all the bad news recently, really needed something to lift our morale. That win improved my outlook on things significantly. The U.S. swimming team (and all of the athletes) are rewarded for good work when they win medals, which is what the NPS score measures -- but typical satisfaction scores do not.
Customer Satisfaction Sucks
What if, rather than giving a medal for first, second and third in the Olympics, you got a medal for finishing the race, really finishing the race, and really, really finishing the race. I imagine there would be a lot more golds, silvers and bronzes and that the awards would have more to do with the judges' moods than the athletes' performance.
Yet, when you think about satisfaction, isn't it kind of like that? You are either satisfied or you aren't. Granularity, while it clearly is in the surveys, logically doesn't make sense. In addition, what does it mean exactly? Doesn't it mean that the product or service works? But compared to what?
For years, I've watched companies receiving high customer satisfaction scores get blindsided by customer erosion simply because they weren't focused on customer loyalty. But look at Apple. Companies with high customer advocacy can be vastly more profitable because their customers, in effect, become a reasonably low-cost portion of their sales and marketing efforts.
Wouldn't it make more sense to measure customer loyalty and customer advocacy?
As I mentioned a few weeks ago, EMC has taken a very aggressive stance; it has put customer loyalty in and taken customer satisfaction out of its quality measurement. I recently found out that Lenovo has done something similar. Both appear to be showing a much better grasp of what their customers like and don't like as a result.
Too often, I've watched the tendency for large companies to appear to disregard what the customer wants and provide what the company thinks the customer needs. Microsoft is likely the poster child for this, but IBM and AT&T preceded it with this problem. If we were talking transactional analysis, this would be Parent/Child behavior, with the Child (us) being us and increasingly pissed off.
In Microsoft's case, it is this kind of behavior that helped fuel Linux. And it's the company's refocusing on what the customer is actually asking for, at least in the server/tools unit, that has helped reduce the popularity of Linux of late. This is consistent with customer loyalty. While I'm not aware that Microsoft has fully embraced customer loyalty as a metric, its behavior through folks like Sam Ramji indicates that it is becoming more interested.
Logitech, Apple, Sonos, Dell and NPS
Last week, I met with Logitech, one of the few companies that has successfully competed with Microsoft over the years. Growing revenue at 15 percent and operating income at 24 percent in the very tough 2008 period, and running against Microsoft's hardware unit hard, Logitech reports nearly three times the market share of its nearest rival, Microsoft, across a diverse portfolio of products.
But it realized that while it was doing well, customer loyalty in its segment wasn't being measured, and its own measurements indicated that too many customers simply bought on price and placement, not connecting the Logitech brand to anything meaningful. Research showed that 60 percent to 80 percent of satisfied customers are likely to defect to another vendor. The end result is that Logitech was experiencing relatively high churn and was at risk for competitive displacement. In addition, customer acquisition cost was substantially higher than it needed to be.
As a result, and working from the book Ultimate Question: Driving Good Profits and True Growth, it has shifted to tracking NPS scores and was shocked to find out that the company's score was only around 50 percent. It had high satisfaction scores but the 50 percent NPS score was a wakeup call. A good score is 80 percent or more and, it turns out , a small competitor (Sonos) actually achieves that score.
Top-scoring companies are USAA (insurance) at 82 percent, Harley-Davidson (motorcycles) at 81 percent, Costco (bulk retail sales) at 79 percent, Amazon (largest online retailer) at 73 percent, Apple (this will surprise you) at 66 percent, Cisco at 57 percent, Dell at 50 percent, and Adobe at 48 percent.
Results of this shift to NPS won't show up for months, but Logitech is already redesigning products and shifting support services to increase customer loyalty and reports that initial feedback from customer groups has been very positive. The only downside to how Logitech is doing this is that it has the effort reporting into marketing rather than the CEO, which often results in the need to fudge the numbers so the scores are more marketable rather than focusing on accuracy. Marketing success is tied to customer loyalty but there is a common trend in marketing to focus on appearance rather than reality. To be successful, the NPS scores must be accurate. Otherwise, they lose meaning. However, if marketing is measured more on sales success, this still could work. Customer loyalty should increase both sales and profitability for Logitech over time.
Hope for the Future
This will be an interesting test for Logitech, but I think it showcases a broader move to more meaningful metrics that could transform the companies that use them into vastly more responsive, popular and profitable entities. As buyers, it means we will get more products for which we will want to be advocates. That, my friends, would be wonderful.