DESPITE WHAT they say - and often even think - many, perhaps most, companies are surreptitiously at war with their customers. Through nuisance games, dirty tricks and small print they take every opportunity to extract more from your wallet for no extra service. Orange now wants to charge me for providing a paper copy of my mobile phone bill each month. Rather than employ more staff, Tesco asks me to scan and check out my shopping myself. Despite earning a whopping pounds 21bn before tax last year, HSBC no longer allows me to use direct debits and standing orders on my 'high-interest' current account (high interest being strictly relative here).
Trivial stuff, you might think. But the consequences of this subterranean struggle are momentous. We don't trust our service suppliers and are increasingly willing to drop them at the drop of a hat. Despite huge amounts spent on aids like customer relations management software, customer satisfaction levels are low and falling, and so is the esteem in which business is held. On the company side, that translates into more effort (to replace lost customers) for lower growth. More insidiously, the warfare often brings with it the dead hand of the regulator, as happened in financial services, building in bureaucracy and and in some cases holding back the growth of the market as a whole.
'You can't grow a business if you're at war with your customers; you can only grow by treating people in a way that they come back for more,' says Fred Reichheld, director emeritus of consultancy Bain, who has made a career of studying the economics of loyalty. Well, yes, it shouldn't take a business school education to figure that one out. So why do so many firms go on doing the former at the cost of the latter?
The culprit, says Reichheld, is the profit-based system most companies use to manage performance. Managers are judged and often rewarded on their profit figures. But financial measures make no distinction between how profits are earned. Are they the result of creating new value from customer relationships ('good profits' from increasing loyalty), or were they earned by appropriating value from them ('bad profits')?
The trouble is that customer value is a wasting asset. When it is exhausted and the consumer moves on, the firm has to buy more, with baits, promotions and special offers. Buying growth this way is expensive and hard work, which is one reason, believes Reichheld, why so few large companies grow by more than 5 per cent a year. As churn increases, they have to work harder and harder to stand still. Eventually, value may be eroded faster than companies can acquire it. Compare General Motors, for example, with Toyota, going in the other direction.
So how does a company focus on 'good' profits and break the addiction to 'bad'? After much experiment, Reichheld and Satmetrix, a company that focuses on measuring customer experience, boiled it down to a single question: on a scale of 1 to 10, would customers recommend the product? Customers who rate the product 9 or 10 are 'promoters' those who rank it 0 to 6 are 'detractors'. Subtract the percentage of detractors from the percentage of promoters and you get a 'net promoter score', or NPS.
NPS is controversial, because it puts any number of vested interests out of joint. 'It's not something over there in the marketing department,' says Reichheld. 'It involves changing almost every process - budgeting, strategy, rewards, the economics of the firm.' It has implications for leadership too: any company taking it seriously really does have to put the customer in the driving seat, in effect turning the company inside out.
It's early days, but the figures seem to stack up. According to Reichheld, across 36 industries the company with the top NPS score is growing 2.5 times faster than the average. Obvious really: a company with, in effect, an virtual marketing department of consumers advocating its products is likely to sell more stuff than a company with a virtual anti-marketing department, which is what detractors become. It will surprise no one that in a recent Satmetrix report on hi-tech industries, Apple had the highest NPS among computer firms, as did Google in online services. While the top companies have NPS scores of 70 or more - in the US Harley-Davidson scores 81 and Amazon 73 - in some industries (financial services, mobile phones and cable TV among them) the scores are negative, meaning they are creating more detractors than promoters every day.
Reichheld acknowledges 'there is still more that we don't know than we do' about making NPS operational. It could become just another number to manage by. But one company taking it seriously is industrial giant GE. It has adopted it as a central element of its ambitious attempt to grow at above 8 per cent a year and is using it to identify customer concerns before swinging in process improvement teams to address them, and are already claiming substantial results. It stands to reason: as in other spheres there are no long-term winners from fighting, while everyone gains from peace.