Net Promoter Scores

Why the Ultimate Question and Net Promoter Scores really are what they claim to be.

There are two disparate sources of management insight that a marketer can turn to for advice.

The first is the proven, academic corpus of business writing that uses rigour and science to guide management thinking. Journals such as the Harvard Business Review and The McKinsey Quarterly, for example, are the sources from which executives learn their trade.

Then there are the bestselling books that claim to offer fool-proof systems and strategies for marketing success. We business academics often refer to this arena as the 'Heathrow School of Management' because inevitably the books that comprise it usually depend on catchy titles to grab the fleeting attention of a marketer rushing for a plane. It is only on-board and on page five that the marketer in question realises that the book is a total waste of tree.

With practice it becomes quite easy to spot these titles, even when they are selling in more innocuous retail locations. Beware any management book that uses numbers in its title. Whether the book claims to offer you the 'seven secrets of direct mail' or 'the three-step guerrilla guide to ambient viral marketing', you can be sure that they are equally pointless.

The other titular clue that a business book will disappoint is when it sounds as if it would make a good Tom Cruise movie. Watch out for any title that claims to offer you 'Power Differentiation' or instructions in 'Fighting for Value!' - especially when it comes with an exclamation mark.

It is with some embarrassment, therefore, that I have to admit that I have recently purchased a book from the aforementioned Heathrow School of Management. The title of the book is, long sigh, The Ultimate Question and, despite being marvellously simple and very persuasive, it is also about to change the way we practise and measure marketing.

The author, Fred Reichheld, was a partner at Bain & Co in the US. He has always focused on loyalty and the power of customer retention but, in recent years, had grown increasingly sceptical of the customer measures being used by large companies.

For more than a decade he has sought the answer to the ultimate question - what single measure will best predict a company's future performance?

The answer, he posits, is the net promoter score. Ask a representative sample of your customer base how likely they are to recommend your product or service to a friend and measure the results on a 10-point scale ranging from one (extremely unlikely) through to 10 (extremely likely). Customers that reply either nine or 10 are 'promoters', those who give either seven or eight points are classed as 'passives' and those who give a mark of one to six are 'detractors'.

Calculate the number of customers who are promoters and then subtract the number of detractors. The percentage remaining after you perform this calculation is your net promoter score and a growing number of leading US companies, from General Electric to Amazon, are using it to measure their current performance and predict future success.

It has a number of key advantages over other marketing measures. First, it is simple. A single question added to an existing questionnaire is all you need. Second, it is comparable. Bain & Co has been compiling lists of net promoter scores and you can quickly compare your own performance against a host of other companies and competitors. Third, it is a predictor of general business success and is not just limited to marketing; this is a measure that unlike many of our more obscure marketing metrics, such as brand awareness or share of voice, will be understood and appreciated by senior managers. Finally, it is proven: according to recent research, the company with the highest net promoter score in a category will outgrow its competitors by an average 2.5 times.

30 SECONDS ON ... NET PROMOTER SCORES

- Bain analysis of 24 industries shows that companies that achieve long-term profitable growth have net promoter scores (NPS) two times higher than the average company.

- According to Reichheld, the average net promoter score of US companies is extremely low - usually less than 10%, yet a Bain survey across 362 companies found that 96% of the senior executives felt they were 'focused' on the customer and 80% said they were delivering a 'superior experience' to their customers.

- Harley-Davidson generated a net promoter score of 81%, Amazon has a score of 73%, eBay achieved 71%, Apple 66%, and American Express and Dell both came out at a very even 50%.

- General Electric tested NPS for six to nine months in its healthcare division, and has since rolled it out across all its 500-plus businesses. It also calculates 20% of its executive bonuses based on the scores.

DHL Cant Deliver in the US

To most marketers, the strength, scale and incumbent power of UPS and FedEx would make the US just about the least attractive target market imaginable. But two strategic factors peculiar to the global delivery business mean that DHL must succeed there.

DHL is a wildly successful brand - on the surface, at least: it is the biggest express carrier in both Europe and Asia, with a 40% share in each market.

In the US, however, it has a paltry 7% market share. The delivery market there is dominated by UPS and FedEx, which enjoy a combined 78% market share.

To most marketers, the strength, scale and incumbent power of UPS and FedEx would make the US just about the least attractive target market imaginable. But two strategic factors peculiar to the global delivery business mean that DHL must succeed there.

First, the business is, by definition, international. Any self-respecting global delivery brand wants to be, well, global, and a weak spot in the world's biggest market is, to say the least, problematic. Second, the vast majority of costs in the delivery business are fixed rather than variable. Whether DHL delivers one letter next year or 1bn of them, it will still need a massive infrastructure to allow it to operate. High fixed costs and a relatively small market share are very unhappy bedfellows.

In 2004, for example, DHL lost an eye-watering $500m in the US.

The company has to make it in the US, and make it big. Hence the $1bn acquisition of US delivery company Airborne in 2003, followed by a $1.2bn investment in its US infrastructure. It has also spent $40m on a complete rebranding of 17,000 staff, 18,000 vehicles and more than 3000 locations.

Finally, there was a $110m advertising campaign created by Ogilvy & Mather.

The campaign was big in every sense of the word. Beginning in June 2004 and including heavy rotation during the Olympic Games, the campaign introduced the US to DHL with the message: 'Competition. Bad for them, Great for you.' Print ads proclaimed that, like the Roman and British empires before them, the FedEx empire was about to fall. Meanwhile, TV ads featured UPS and FedEx delivery staff battling it out for most of a 30-second spot only to discover that both had been beaten to their destination by a DHL courier. Another $50m was poured into a second campaign in which customer service became the focus. Once again, no expense was spared, as major US cities were peppered with DHL outdoor advertising, while prime-time TV spots continued the theme.

'Very soon DHL will be as familiar a presence in the US as we are in more than 200 other countries,' declared the company's US marketing chief, Dick Metzler. Ogilvy's US creative director, Fred Lind, was even more confident in DHL's prospects: 'We are unabashedly putting the stake in the ground. We are here, and FedEx and UPS should be a little nervous. We are here and will not be denied.'

But it didn't quite pan out like that. DHL's annual report for 2005 starchily announced that, despite its best efforts, the US business 'fell short of expectations'. More massive losses are expected this year and many analysts are growing more and more sceptical that DHL will ever turn a profit in the US. One investment firm, MM Warburg, went as far as warning that DHL's US business is 'out of control'.

More than $160m of advertising over the past two years has driven awareness of DHL through the roof, but has had absolutely no impact on the company's US market share. Time to exit? Not DHL.

US marketers have found an even more opulent way to blow their budgets: product placement, and DHL is now employing 'brand integration' to get its message across - for starters, heavily featuring in a recent episode of NBC's Law & Order: Criminal Intent. Next up, an even bigger deal in which DHL will co-star in one of this summer's biggest movies. It will also use its status as 'official shipping and logistics partner' of the production in a tie-in TV ad.

The highly appropriate title of the film? Mission: Impossible III.

Chevy Tahoe's Interactive Incident

Marketers, however, have a passive view of interactivity. In our trade, interactive means visiting a web page or responding to marketing in an active, but intended, manner. We rarely use the term interactive in its true form; where two equal parties meet, share viewpoints and engage. Chevy are just starting to learn the true meaning of the I word.

A+b+c> 3a or 3b or 3c. It is the formula that explains why integrated marketing is such an important concept. Rather than spend their total budget on advertising, for example, marketers should spread it across a range of channels that can include advertising, but also comprise tools such as product placement, PR and interactive media. The synergies, 360-degree impact and disparate strengths of each channel ensure a better return on investment.

Consider the US launch of Chevrolet's latest SUV - the 2007 Tahoe. Rather than the traditional advertising-heavy launch, Chevy's ad agency Campbell-Ewald created a highly integrated campaign.

First came product placement - the Tahoe was the featured challenge on the opening episode of the fifth series of NBC's The Apprentice. After the show, the interactive kicked in at www.chevyapprentice.com - a site where visitors can complete their own apprentice challenge by creating a 30-second execution for the Tahoe using Chevy-supplied clips, soundtracks and their own text. During the four-week competition, public relations would then promote the site through traditional media, while viral communications would allow users to display their self-created ads online.

Marketers, however, have a passive view of interactivity. In our trade, interactive means visiting a web page or responding to marketing in an active, but intended, manner. We rarely use the term interactive in its true form; where two equal parties meet, share viewpoints and engage.

Interactive marketing is an oxymoron. The first half of the concept stands for equality and discourse, the second for control and monologue.

Chevy's Tahoe campaign is turning out to be a perfect illustration of the paradoxical perils of interactive marketing. Chevyapprentice.com is a huge marketing success, with 400,000 unique visits, 4m page views and more than 22,000 ad submissions. But many of the ads created on the site have adopted entirely inappropriate perspectives. Several self-created ads, for example, use the shots of the huge vehicle to point out that SUVs account for more than 1000 deaths in the US every year. Others openly mock the 'penis envy' of potential Tahoe drivers, who assume a big car means a big man. Even more submissions juxtapose the Chevy-supplied shots of the Tahoe triumphing in desert conditions to bemoan the impact of gas-guzzling vehicles on the environment. 'Our planet's oil is almost gone,' warns one ad, 'You don't need GPS to see where the road leads'. More than 3000 of the submitted ads are openly hostile to SUVs, Chevy and the new Tahoe.

And, of course, these are the ads that are now gaining enormous exposure.

Both the public relations and viral dimensions of the campaign are working well - but they are focusing on these unintended, but very newsworthy, versions.

The anti-Tahoe spots, all featuring lingering product shots and ending with the Chevy logo, made headlines on ABC's Nightline, CNN and in the New York Times last week. The Tahoe is even more of a viral sensation, with the web now awash with the environmental and anti-SUV versions of the 'interactive' Tahoe ad.

Officially, Chevrolet expected some negative reactions. According to spokeswoman Melisa Tezanos, 'You do turn over your brand to the public, and we knew that we were going to get some bad with the good. But it is part of playing in this space.'

Chevy may have just spent millions building brand awareness and a huge amount of negative brand equity for the Tahoe, but at least it can claim to be one of the few companies that now understands the true meaning of interactivity.