The Indian economy seems to be starting its growth engines with changes in regulatory frameworks inspiring hope and confidence. As the economy rebuilds and nudges income levels up, more companies will compete to win over the Indian customer with new choices and platforms.
This presents huge opportunities, but also many challenges for companies in what is expected tobe a dynamic and competitive market. How should a company respond? The economic argument for retaining existing customers and driving advocacy is compelling. Bain & Co. analysed data for several industries and discovered that a 5% increase in customer retention could yield anywhere from a 25% to a 100% improvement in profits.
Easier said than done though. Many companies talk of driving customer advocacy to foster growth, but few actually do. Only one in nine companies globally achieves sustainable and profitable growth. These winning companies have a high probability of being market leaders and one common feature: they invariably achieve twice the level of customer advocacy as others. Such loyalty leaders outperform the market on both growth (more than twice the average) and costs (15% lower), as loyal customers stay longer, command a higher wallet share and refer more—eventually leading to healthy financials and strong brand equity (see figure 1).
So, why can’t most companies focus on creating happy customers? Bain & Co. research found that 80% of companies believe they are providing a superior customer experience, but when customers were asked their opinion, only 8% were really delivering. This delivery gap exists mainly because most companies find it difficult to understand what the customer really wants. Hence, what you ask the customer, how you analyse responses and what you do to translate it into action are of critical importance.
Less than a decade ago, American Express faced similarly tough questions. Ken Chenault, chief executive of American Express, came to believe that the company’s service quality was going down and the team was failing to build lasting bonds with customers. It was then that the organization decided to adopt our approach to customer advocacy called the Net Promoter System (NPS). The outcome was a significant increase in customer satisfaction, higher margins and lower attrition across its US service centres.
The system, developed by Fred Reichheld, founder of Bain & Co.’s loyalty practice, has been used by global market leaders such as eBay Inc., Apple Inc., General Electric Co., Philips and Allianz SE. In India also, a number of companies across sectors—automotive, airlines, apparel, e-commerce, financial services, healthcare, hospitality and retail—are deploying NPS as a pivotal measure for assessing customer advocacy.
NPS measures advocacy by sorting customers into three groups—promoters, passives and detractors. The economic value of delighting customers and creating promoters can be clearly established. For a leading Asian cement company, a promoter is three times more valuable than a detractor. Similarly, a promoter brings six referrals in the case of an Indian automobile major, while a detractor negatively influences nearly two potential customers yearly.
Turning customers into loyal advocates requires persisting with three essentials.
First, companies should regularly sort customers into promoters, passives and detractors by simply asking: on a zero-to-ten scale, how likely are you to recommend us to a friend and what is the primary reason for your score? The score (calculated as shown in figure 2) should be tracked frequently. Many CEOs are in the habit of checking NPS every day. As Walt Bettinger, CEO of Charles Schwab, says, “NPS is the first screen I look at on my computer when I arrive at the office each morning.”
The second requirement is to develop processes for short-cycle, real-time, closed-loop feedback systems for learning, recovery and action. A mistake many companies make is to only focus on the score and disregard factors driving the score. Instead, the feedback should be shared real-time with the employees responsible for creating that customer’s experience. The idea is to drill down to the root cause, make improvements and serve an experience that actually delights the customer. An Indian retailer, for example, is putting this into practice. Employees are learning, every day, what wows customers and using the insights to delight more customers. The result? Promoters are spending, on average, Rs.1,500 more per transaction than detractors.
Lastly, but most importantly, CEOs must make it a top strategic priority to earn customer and employee loyalty. Often, employees naturally want to delight customers but are held back because they do not feel adequately empowered. Unless the top leadership backs the system and enables the front line to execute change, the exercise becomes meaningless.
As companies in India look to ride on the expected upturn, they need to delight customers, work to retain them and earn their positive word of mouth, if they are to move ahead of their competition. There is no underestimating the power of such a customer-oriented culture. As Andy Taylor, CEO of Enterprise Holdings—one of the world’s largest car rental companies—says: “The only way to grow is to treat customers so well they come back for more, and tell their friends about us...loyalty is the key to profitable growth.”
This is the first in a five-part series on customer loyalty and advocacy.
Sri Rajan is the managing director of Bain India. Yaquta Mandviwala is a senior principal in the India office, and a leading practitioner of the Customer Strategy & Marketing practice.
Net Promoter® and NPS® are registered trademarks of Bain & Company, Inc., Fred Reichheld and Satmetrix Systems, Inc.
Net Promoter SystemSMand Net Promoter ScoreSM are trademarks of Bain & Company, Inc., Fred Reichheld and Satmetrix Systems, Inc.