Winning on Purpose: 4 Lessons from Customer Loyalty Guru Fred Reichheld

Customer loyalty can make or break business success in the long run and, according to Fred Reichheld, there’s plenty of opportunity to better generate retention and referrals.

Customer loyalty is a highly coveted building block for long-term business success. However, many organizations may find customer retention and brand promoters rather elusive amid the current state of seemingly endless consumer choice. Addressing this challenge in a recent Medallia webinar, the creator of Net Promoter Score (NPS®) and Bain & Company fellow Fred Reichheld suggests that many customer experience strategies achieve just a small fraction of their potential. 

In his new book, Winning on Purpose, Reichheld demonstrates that the primary purpose of a business should be to enrich the lives of its customers. Why? Because when customers experience that sentiment, they’re more likely to return and bring new customers with them. 

Reichheld details several lessons that organizations can use to better drive and manage customer loyalty:

1. Adopt the customer as your organization’s “North Star”

If the last two-plus years have proven anything, it’s that current business environments and customer behaviors can and will change rapidly. In this volatile market, it often jeopardizes existing strategies, which requires organizations to readjust business goals on the fly. 

Reichheld sees recent market chaos as an opportunity for brands to realize and pursue their purpose — also known as their “North Star.” The customer loyalty guru highlights, “Every company should be looking at customer love as their purpose. It seems to be the only way to provide a meaningful career for employees, and the only way to deliver long term value to investors.” 

Periods of change become easier to navigate with a “North Star” guiding business goals, strategies, and operations. When your organization’s core purpose remains to show customers love, it’s just a matter of ensuring every experience reflects it. And with that customer love comes customer loyalty, and with that customer loyalty comes sustainable revenue and growth. 

2. Connect employee operations to customer experience impact

There’s growing recognition across industries that employee experience shapes the customer experience. From frontline customer agents in stores and contact centers to those operating behind the scenes of digital, it’s all but mandatory to engage those employees about their impact on customer experience and customer loyalty.

Joining Reichheld in this discussion, co-author and Senior Partner at Bain & Company Maureen Burns shares, “I think it’s really powerful when you link every individual employee’s impact on customers. Be clear with them about what they do that has an impact on customers. Give them some kind of feedback so they can see the impact they’re having every day.” 

Whether it’s voice-of-customer feedback or experience metrics on the back-end, businesses that measure and communicate the ways employees affect customers better promote customer love throughout their organization.

3. Supplement survey feedback with operational signals

While still a foundational method for collecting voice-of-customer feedback, surveys continue to approach an oversaturation point in many channels. With years of experience implementing direct feedback strategies, Reichheld offers his perspective on the current state of surveys:

“Surveys used correctly can play a very useful role in initiating a dialogue. But today, they have been diminished and polluted by using them the wrong way. When you see response rates of 1% on survey requests, that means 99% of your customers thought you were wasting their time and using it inappropriately. That’s a signal in and of itself.”

The decline in survey engagement proves the value in using operational resources for capturing, measuring, and analyzing customer signals and behaviors. However, Burns emphasizes that you must be specific and intentional about the metrics and data you use to complement survey feedback:

“For each important customer journey, think ‘What are the important signals that correlate with a great experience?’ and track those regularly. It will give you a good sense of how those journeys are going. And we’re seeing plenty of companies track these with dashboards around them and think holistically about journeys from an NPS and operational signals standpoint.”

By using customer behaviors and signals in addition to customer feedback, organizations gain a more complete view of customer experiences and journeys, ultimately enabling more data-driven actions. 

4. Complement Net Promoter Score with Earned Growth Rate (EGR)

The widely adopted NPS has been used for gauging customer loyalty via the likelihood of referrals for nearly two decades. But, according to its creator, Reichheld claims too many organizations routinely misuse NPS. He suggests, “The problem with NPS is that it’s used incorrectly 90% of the time. It reflects whether you enriched or diminished a customer’s life. And too many organizations care more about the score rather than actually showing love to their customers.” 

Identifying a way for organizations to better understand and properly use NPS, Reichheld recently developed Earned Growth Rate (EGR). He explains just how practical it can be when combined with NPS:

“Earned Growth Rate is a completely separate metric used to reinforce NPS. And the two together are so much more powerful. Earned Growth Rate is an accounting metric — it reflects real numbers after the fact. It’s revenue generated by either existing customers or referrals. But it’s not forward-looking like NPS. It’s not ‘Would you recommend to a friend?’”

By adding EGR into the mix, organizations can measure how much revenue customer loyalty generates while still using NPS to gauge the quality of that loyalty and relationship with each customer.

Did you miss the live webinar? Watch the recording on demand: Winning on Purpose: A Dialogue with Loyalty Guru Fred Reichheld and Co-Author Maureen Burns