BAD Profits

The basics – Bad Profits

By now, most of you following this blog would have known what NPS or net promoter is. To refresh, it is based on one question – on a scale of 0 to 10, how likely are you to recommend my company, my service or my product to you friend or a colleague? Customers rating 9 to 10 are Promoters while the ratings of zero through 6 are Detractors. NPS is % Promoters minus % Detractors.

While thousands of companies have jumped the bandwagon to try the latest and the greatest initiatives like NPS, sadly not many have truly benefitted the real value of implementing the system. Many companies are merely measuring NPS and do nothing about it. NPS is a management gauge to tell how a company is doing. It is like a speedometer that tells the speed of your vehicle and as the driver you will need to act if you want to change that speed.

When understood well, management will be able to identify key drivers that affect the loyalty of customers and develop plans to improve that. Additionally for quick learning and recovery, companies need to use the dynamic customer feedback to coach the front line employees and take this as an opportunity to engage customer that is disgruntled.

The other less known benefit of NPS, perhaps the fuel to generate more promoters and lesser detractors is in a company with NPS implemented effectively identifies and eliminate “bad profits”.  Bad profits are gained by extracting value from a customer. Profits that are acquired unethically but by legal means such as contract fine-prints, long term and confusing contracts that traps customers are bad profits. In short, whenever customer feels they are coerced, misled or cheated, the product is a bad profit.

Bad profits create more detractors who diminish the value of a company by increasing the cost of serving them such as complains, false claims and generate negative word of mouth that increases the acquisition cost of new customers. Some of the examples of bad profits are exorbitant late payment charges, unbelievable hotel phone or internet charges, (extra) baggage charges and trapping customers on long term contract with poor service.

On the other hand, “good profits” are profits delivered by creating value to customers. These are profits that made by making customers feel good and they would want to come back again, on their own. Many profits are usually good profits where a fee is paid in an exchange of a product or a service. The issue is when companies take advantage of customer by over-charging, dubiously add extra fee to mislead customer.

Though it is not possible to know what composition of a profit is good profit and bad profit from the accounting system, it is not difficult to know them. The guiding principle to know the difference between the good and bad profit is the Golden Rule – Treat others as you would want them to treat you. Use your conscience to ask if you would want someone do what you are doing to your customer. If your answer is a resounding “no”, then you would want to eliminate such fee or task, gradually if not immediately.

Can you identify “bad profits” in your organization?

Satya Narayanan

Loyal Customer ... do anyone care?

101 of Netprmoter video

This four minute video will be able to provide you with a clear and concise explanation of the not very well understood Netpromoter. Rob did a wonderful job in explaining this clearly. He explains how the NPS is measured using the one question and followed by a diagnosis on the score as well.

Cameron Valley Tea & Diner

Yesterday I was at Solaris Dutamas on business and since my job over over by 2pm and I only need to pick my daughter at 6pm, I thought I will find a place for a tea and catch up on mails. Checking the directory, I found a familiar outlet, the Chawan. After asking the direction to get there from teh Information counter, I head towards Chawan. On my way there I cannot stop but to notice an even familiar name that takes me to the past - Cameron Valley Tea & Diner. It reminds me of sweet memories of Cameron Highlands where my uncle use to live and we often go there for holidays on that cool mountain.
So, what else, I veered to this outlet hoping to get the best tea as Cameron Highlands is known to produce their best tea, name it Boh Tea, Cameronian etc and I have visited the tea plantation, the factory  and the people.
The outlet was impressive and decided to sit outside for a cup of teh tarik, which could find in the menu. I was served promptly but the waitress, a mid aged lady with a tattoo on her wrist did not give me an experience that I would want to go again. She was cold in taking orders and was not so pleasant when I asked for the wifi password. Anyway, that is Malaysian attitude when it come to customer service!
Th product...when the tea arrived, the glass was not cleaned before serving with tea drops at the base of the glass.  This may be a non-issue to many and that is fine. It is not an issue to me as well but think of it as an impression that you have just created to a first time customer. When you cannot get this simple thing right, how can I expect your kitchen to be able to serve me well as a regular customer? The glass was unique though! Overall, my experience with this place was lousy and would never want to go there unless I really dont have a choice. Recommending to a friend or colleague? You guessed it right!

This is a classic example where huge investment is put into rolling out new concepts but fail in preparing their staff to be customer focused. What a waste of resources!

NPS is crap!

Yes, in most part, NPS is crap because it does not deliver results as expected! By a quick survey, one will find that a considerable amount of home grown companies are seemingly using NPS. No, no, don't ask the CEO or GM or the Sales VP and don't even have the slightest thought of the CFO. Ask the CRM manager or perhaps the Quality manager who will tell you - "oh yes, we 'are' measuring NPS!" Sadly, they can get as far as that.

It is the hype about NPS and not so much about truly understanding the concept of what, why and how NPS is a key business strategy in improving a company's financial performance. I am only talking about homegrown companies because they may be relatively new to this concept versus the MNCs such as Dell, Amex, Philips, GE, Allianz and Apple, just to name a few. Being new to this new concept and especially being used by major MNCs around the world, many tend to jump the band wagon without first understanding the fundamentals. This is a grave concern because significant investment into this program will go to waste and cause great anxiety to the management team.  They will not get the desired outcome as expected out of NPS in addition to all the effort put to get a meaningful outcome. This causes frustration among the initial 'promoters' of such program and eventually they become detractors of NPS and in the extreme some may lose their job. Hence NPS is crap!

No! NPS is effective, not just in increasing customer retention, but its an excellent tool to transform organizational culture. If understood well, NPS can be a successful program in transforming an organization to have an outside-in approach as their core strategy in growing the business. Common pitfalls for calling NPS a crap:

- Did not understand the concept well - NPS is a management concept, while intuitive, could be tricky in implementing it because it involves the entire organization's buy-in, so they need to understand it first.
- Management buy-in - I often come across many organization who may have ISO certification but can't remember where their Quality Management System is, forget about them knowing what is in it. Similar to that, when senior management is not on board, then you can smell trouble for NPS.
- Taking action - Like any other loyalty metrics, when actions do not follow with the result, then it is as good as not having one. Why bother asking customer for feedback, when you don't want to act on it?

The Power of Word of Mouth

The age old maxim on word of mouth that you are incline to tell 4 people if you are delighted with a particular service you experienced recently and you will possibly tell 12 people if you experienced a lousy service is the fundamental to the dynamics of word of mouth today. Picture that you dine in a first time visit restaurant with your family. The food was excellent, price was reasonable, ambiences was great and most importantly the service was simply marvelous. You simply had a fulfilling experience and your family had a great time together in that entire experience. The next day at work or among your friends or neighbours, you may relate this wonderful experience with them. Now lets backtrack and picture that you had a real bad experience in a restaurant that you visited for the first time. The food was bad and service was horrendous! You will be so disappointed at that event which is suppose to be an important moment for you and your family that you will talk about this bad experience to anyone and everyone, from your friends, neighbours and total strangers.

It is also said that it’s easy to ruin a reputation but not as easy to earn back. It’s not linear equation. The maxim further denotes you have to work three times harder to earn back a good impression from losing it with a bad one (3 x 4 good = 12 bad). This suggests an important implication in building customer loyalty. When you lose a customer due to poor services, it takes you three times the effort to earn one back. Hence companies need to spend much more to acquire new customer than to retain one. The late Zig Ziglar said that 90% of disgruntled customers leave you without telling you why they are leaving, but tell everyone else. 

Today word of mouth is ‘amplified’ with the advent of social media. There are a dozen of websites that provide avenue for un-happy customers to voice their dissatisfaction about a company, service or product. People prefer venting out their frustration on the web than to write or talk to the company that created that impression. It may be because of various factors such as difficulties in voicing their frustration to a service provider, fear of reprisals, no confidence of action taken or don’t want to invest any time in improving a company that gave a bad experience.  People trust recommendation or word of mouth from (online or offline) friends more than any traditional marketing advert sponsored by the company trying to sell its products or services. It is no surprise that they say traditional marketing is dead. A market study by Forrester found 73% trust their friends and family to make purchase decision while only 19% trust adverts.

Word of mouth is prevalent among the Consumer business (B2C) as poor experience encountered gets online and become viral among consumers because they can personally relate to such experience and react by stop using a product or service. Though not as widely influential in the business to business environment (B2B), the word of mouth would eventually be key among the business decision makers as they would want to know how the other players in that industry (even their competitors) are treated by a company.

This trend of word of mouth getting more importance especially the negative ones is a big concern to companies in retaining their profitable customers. However, the forward-looking companies see this as an opportunity instead of threat as they leverage these word of mouth to learn, recover and act with urgency to convert un-happy customers to their loyal customers.

Satya Narayanan