The Ultimate Question: Driving Good Profits and True Growth

These are just some of the issues tackled in "The Ultimate Question." In this book, we learn why delighting our customers is the surest path to good profits. "Good" profits are the profits that truly reflect how we're doing, and how likely we are to succeed in the long term.

So what are "bad" profits? Well, bad profits are the profits that most companies out there seem to be chasing. The pursuit of bad profits alienates customers, steps on employees, and chokes off opportunities for long-term growth. All because the powers that be want high margins and skyrocketing stock prices.

Now, the book doesn't say that companies have to choose between satisfying customers and chasing profits. Of course, it's entirely possible to delight customers and create healthy profits. Companies like Amazon and eBay do it all the time. Rather, the author believes that companies benefit from focusing more on customer satisfaction and loyalty, rather than only the bottom line.

The author, Fred Reichheld, is Director Emeritus and Fellow at Bain & Company. He's the best-selling author of "The Loyalty Effect and Loyalty Rules."

So, keep listening to find out what the ultimate question is that every company should be asking, why your organization's customer satisfaction surveys might have to be thrown in the trash, and what you need to remember when you carry out a survey for your organization.

"The Ultimate Question" is a relatively short book. It comes in at 175 pages, and it's divided into three parts.

Part one is titled "Why the Ultimate Question Works." Here the author clarifies what the ultimate question is, and he goes over the difference between "good" and "bad" profits in greater detail. He also introduces the Net Promoter Score, which is a way companies can effectively measure how happy their customers are.

Part two is titled "How to Measure Responses." We've all heard the business adage, "what gets measured, gets managed." This bit of wisdom is why companies need to constantly measure customer happiness on a regular basis. And, this doesn't mean handing out a bunch of customer satisfaction surveys. There's a lot more to it than that, and here we learn how to measure our customers' moods and feelings with far more accuracy.

Part three is titled "Becoming Good Enough to Grow." And this last section covers implementation. It aims to help readers create strategies to win customers over. And we also get plenty of real-world examples that illustrate how some companies have transformed their businesses around this simple concept.

The author spends the first chapter diving into the three elements that form the backbone of the book. These are good profits, bad profits, and the ultimate question.

Again, good profits happen when customers are happy. Good profits grow exponentially because customers are loyal, and they spread the word about their favorite companies to their families, friends and co-workers. Good profits also grow a company because employees are happier and more motivated. They feel good about their job, and the organization they're working for, because the corporate values are often aligned with their own.

By contrast, bad profits are gained when companies mislead, mistreat, ignore or coerce customers. A good example of bad profits is when a sales rep pushes an overpriced or inappropriate product onto a customer and uses high-pressure sales tactics to get them to buy.

Now, bad profits do cause a short-term spike for the organization and make everyone feel good because they're earning money. But bad profits are ultimately unsustainable because they don't create any customer loyalty, so they strangle growth in the long term. They always end up doing a company more harm than good.

Now you're probably wondering what the ultimate question is, and why it's so important.

Remember when we talked about the businesses you'd feel comfortable recommending to family and friends? Chances are there's just a small handful you'd feel like promoting, right?

This is the ultimate question every company should be asking itself on a regular basis. Would our customers recommend us to their friends and family?

That's the ultimate question, and in its simplicity lies its power. It's basically the Golden Rule most of us were taught as children. That is, we should treat others the way we would want to be treated – or better still, the way they expect to be treated.

If we follow that one simple rule, we can't help but succeed, the author says.

This is something most of us already know. CEOs especially understand that they have to treat their customers right if the organization is going to succeed.

The problem comes in the next step. We can all get super excited about treating our customers like gold, but most organizations don't have a system in place to do it. We have no way of measuring loyalty, and no policy that holds our teams accountable for the results.

And too often, companies are rewarding the wrong metrics.

To put this in perspective, imagine you're the manager of a customer service call center. Your employees know that if they process so many calls per hour over the course of the quarter, they're going to get a bonus.

But what does this ultimately mean for your customers? Well, it means your team's motivation is to get people off the phone as quickly as possible. Instead of rewarding good customer service, you're rewarding expediency. This often means the customer's issue is rushed, or ignored entirely. Your team's numbers look great, but it's likely that you're angering and upsetting the very people keeping you in business.

This is just one example of why we need to focus on treating our customers right, and then create systems that measure and promote that loyalty both in our teams, and our customers. The rest of the book aims to help us overcome these common challenges.

One of the first things we need to do is measure our good customers. We do this with the Net Promoter Score, also called the NPS Score.

Every company's customers can be divided into three categories. Promoters are the golden goose; these are the customers who are loyal and enthusiastic about your business. Passives are those customers who are relatively satisfied, but not really excited about your company. These people can easily go over to the competition. Last, there are detractors. These are unhappy customers who don't think twice about telling their friends how awful their experience was with your organization.

If you take the percentage of customers you think are promoters and subtract the percentage who are detractors, the number you get is your Net Promoter Score. The higher than number is, the better you're doing at satisfying your customers and turning them into Promoters.

The author says legendary customer service companies like Amazon, eBay and Costco have Net Promoter Score ratings of 50-80 percent. Other organizations that focus solely on profits might have a negative Net Promoter Score. That is, they're creating more detractors than they are promoters.

We thought this was a highly useful concept managers can start using to gage their own pool of customers. After all, if you can figure out how many promoters you're making, you can get an immediate glimpse of where you stand.

Of course, you'll need to know how to find which customers are promoters and which are detractors. And that's no easy task.

Most companies try to do this with prepackaged customer satisfaction surveys. But, as the author points out, these are notoriously unreliable. He spends all of chapter five explaining why.

One of the reasons why traditional customer satisfaction surveys don't work is that they're often too long. Many surveys that are sent out to customers contain thirty or forty questions. And, the questions are often vague or unspecific. They're questions that could be asked of any business, in any industry.

Another reason why these surveys don't work is that the people who fill them out are often a very specific, self-selected group. Think about it. Most people don't have the time or inclination to sit on the phone, answer 30 questions, or fill out a long form. Those who do are often lonely, bored or have a beef with your organization.

This means you're not getting a true reflection of your entire customer base.

So, how can you develop a measuring system that accurately reflects how your customers see your organization? Chapter six shows you how.

One of the first things we need to do is stop spending so much money on traditional customer surveys. The author says that gathering good data is time consuming and expensive, and we need to take the funds we're spending on surveys right now and use them to find our Net Promoter Score.

We need to start simple. And that means asking our customers the one, ultimate question: How likely are you to recommend our company to family and friends?

The author advises us to use a score from 0 to 10. Zero should indicate a customer who's extremely unlikely to recommend your organization, and 10 should be for your customers who are thrilled with your organization.

For customers who give a low score, there should be a second question that asks them the reason for their score.

There are a handful of other questions you could add here, but the author cautions not to go overboard. We have to keep it simple. Every question carries hidden costs, so don't go over four or five if you want it to be effective.

There's a great deal of information in this section about how often you should poll your customers, why you should spend the time and money to audit the polling process, how to prevent bias in the data, and why the information and customer metrics need to be as specific as possible.

Like the rest of the book, the author packs a lot of information into a short chapter. If you're serious about revamping your current customer service satisfaction process and you want to find your organization's true Net Promoter Score, you can learn how to get started here.

Once you've found your Net Promoter Score you'll probably want to improve it. How can you transform detractors into promoters? How can you make sure more of your new customers end up in the promoter category?

There's no point in setting up an NPS system if you're not going to take action on what you find out. The last section in the book offers a few tips and strategies you can use to increase your score, although in our opinion, not enough.

One of the changes the author suggests is to design value propositions that focus on the right customers. This means we segment our customer base, and get to know each segment really well. Then, we design complete customer experiences that focus on delighting each different segment.

Next we need to make sure every person in the organization delivers these propositions from end to end. Every department and team member needs to fully understand the reasons why delighting the customer is so important, and they all need to be pulling in the same direction.

So what's our last word on "The Ultimate Question?"

The book contains useful information senior level managers and leaders can use to transform their organizations so they're more focused on customer happiness. It's also easy to read and, thanks to its relatively short length, it's quick to get through.

We felt the most value came from the introduction of the Net Promoter Score. This is a unique concept that provides leaders with a useful way to measure how their organization is doing in the eyes of the customers. Companies that have high Net Promoter Scores have higher profits, lower staff turnover and longer sustained growth than those with low scores.

That being said, the book does lack strategies for implementing a good NPS system. The author goes over three important considerations for implementation, and then provides case studies that show how other companies transformed their own NPS scores. Although it's nice to see how this can be done in real life, it's going to leave many readers wanting more real advice and expert tips.

We think it's also important to take the book's entire message with a hefty grain of salt. Although the Net Promoter Score could be useful, is it possible that asking just one question to your customers can transform your entire business and its long-term growth? Well, perhaps. Our concern is that the author doesn't provide any proof that asking "the ultimate question" really works. Yes, there are case studies, but these come over as anecdotal, and there are no sourced statistics from any scientific or reputable business journals. We basically have to take his word for it.

So, although there is some good information in here, we feel the book should be read using your own judgment about what would work best in your organization. There's a good message here, but the book's lack of proof and solid information on implementing these changes is sorely lacking.

"The Ultimate Question, Driving Good Profits and True Growth," by Fred Reichheld, is published by Harvard Business Press.

That's the end of this episode of Book Insights. Thanks for listening.