Measuring Retail Customer Loyalty with Earned Growth Rate: Fred Reichheld Q&A

An in-depth Q&A with Fred Reichheld, best-selling author, loyalty thought leader, and creator of the Net Promoter System (NPS) and Earned Growth Rate (EGR).

Retailers are in a never-ending race to meet and exceed evolving customer expectations. They need to impress their customers and transform them into enthusiastic promoters — and drivers of business growth.

In the early 2000s, the Net Promoter Score (NPS) methodology was introduced. NPS measures how consistently a business turns its customers into brand advocates by identifying promoters, passives, and detractors. Since then, countless retailers have incorporated NPS into their operations. 

Now, in his new book Winning on Purpose, NPS pioneer Fred Reichheld introduces earned growth rate (EGR), a complementary metric to NPS for loyalty-based growth. In this Q&A with Medallia, Fred explains the new retail landscape and how customer loyalty can drive measurable business growth.

Let’s first start with the future of retail. As we look ahead to the next 18 to 24 months, what is your take on where it’s headed?

Digital innovation is — and will continue to be — a priority for many brands. However, the relationship between online and offline experiences can impact consumer behavior in a drastic way. While it’s different for every category, most retailers need to balance digital online experiences with some physical reality. In order to be effective, both must be perfectly integrated. Some traditional direct-to-consumer brands are realizing this important correlation and entering the brick-and-mortar space.

So how should retailers be thinking about business investments and prioritizations, in terms of where they spend capital? 

There’s no one simple answer, but the best place to start is by listening to your customers and your frontline employees.

We need more ways to gather information from frontline employees after they’ve had conversations with customers. Collecting customer feedback and employee feedback in separate vacuums will do your brand no good. Frontline employees are your eyes and ears; your brand ambassadors. They’re in a great position to synthesize what they are hearing and experiencing with customers, which can then be messaged and prioritized for executives. 

For example, a leading financial institution has their executives listen to contact center conversations on a regular basis. These customer-employee dialogues offer a treasure trove of intelligence, in terms of pain points and opportunities for improvement. It helps them identify the system investments that will make it easier for their customer service reps to delight customers.

Leading retailers astutely recognize that employee behavior = brand experience

Fred Reichheld

Let’s touch on what makes leading experience brands more successful and competitive. How important is a dual focus on customer and employee experience? 

Investing in human interactions helps retailers create more “wow” moments and opportunities to delight customers. Leading retailers astutely recognize that employee behavior = brand experience. Employees have to be confident and excited about their ability to do something special for the customer — something that makes them proud. 

Start by identifying where people are struggling. What are the obstacles to providing great experiences, both for the employee and the customer? Empower your employees to offer ideas and test the promising ones in a thoughtful way. “Wow” is the new standard of excellence, unless you want your customers to go elsewhere. 

Keep in mind, what’s remarkable now won’t be in a few years. Retailers must constantly innovate. For instance, it’s inexcusable these days not to offer an automatic call-back option without losing your place in line. Everybody knows the technology is available, but some choose not to invest in it. By doing so, they are prioritizing their short-term investors over their customers, and that’s a sure path to disaster.

Further reading: A Retailer’s Guide to Understanding Employee Experience + Customer Experience

Tell us about your new book, Winning On Purpose. 

What really distinguishes leading retailers is their very conscious decision to delight customers, innovate, build better experiences, and deliver on their brand promise. That’s why my book is called Winning on Purpose. I do see a difference: great companies believe that they primarily exist to make their customers’ lives better. However, when we survey execs around the world, only about 10% cite that as their purpose. 

There’s no simple digital answer or new management trick or fad. Understanding your core purpose and then living it puts you on the path to greatness. Companies need to ask themselves: Why aren’t we doing that? What’s getting in our way of treating our customers and employees with love and care? To remedy this, there are a lot of changes companies need to consider and make. 

When retailers act in a loving, caring way and make peoples’ lives better, the response you get is the loyalty behaviors: customers coming back for more, bringing their friends, telling the world about you, and boosting your reputation and bottom line. 

That’s a great segue to customer loyalty, Fred. You are a pioneer of the Net Promoter Score (NPS). And now in Winning on Purpose, you’re introducing its companion: Earned Growth Rate. What does EGR entail? 

Let me start by saying that, at the center of all great companies, are employees who treat customers in a way that makes them come back for more and bring their friends. Unfortunately, this is often not measured or managed very effectively. Accounting doesn’t track it; many can’t tell you how many customers you have, let alone how much of your revenue growth came from customers who were with you last year plus their referrals. 

Earned growth is just that simple idea: let’s keep track of how much of our business is coming from customers who know us and did business with us last period. Very few companies measure it, and even fewer report it in a reliable, audit-worthy way. 

A small team from Medallia and Bain & Company helped me get earned growth and referral rates tested. We found that at some superstar companies, as much as 90% of their new customer flow is coming in primarily as the result of recommendations and referrals. Yes, advertising and marketing help, but the real driver is happy customers telling their friends. 

EGR needs to be measured like it’s a science, as we’ve begun to do with NPS. Together, in tandem, I believe Network Promoter Score and Earned Growth Rate is the winning combination.

In closing, what practical advice can you share with retailers? 

Start by looking at the good economics that come from your referral flows. Stop “buying” new customers and new growth, which can be crazy expensive and may never translate into loyal promoters, and instead put organizational energy into creating promoters. 

Make sure you are measuring and using NPS properly. The score is not the goal; it’s about creating more promoters who come back for more and bring their friends. And be fully aware of where you stack up against your competition, which I know is a big investment. One leading retailer knows to a decimal point what their NPS is, apples to apples, versus their key competitors in every sector in which they compete. If you take a half-hearted, sloppy approach, it is nearly impossible to make the right decisions. 

Winning on Purpose centers on the unbeatable strategy of loving your customers. It shines a light on what really drives success in an organization: enriching customer lives and putting employees in a role where they can earn lives of meaning and purpose through their work of enriching lives.

Want to learn more? Watch the webinar, Winning on Purpose: A Dialogue with Loyalty Guru Fred Reichheld and Co-author Maureen Burns