Riffs on Loyalty Myths

Some months ago I picked up LOYALTY MYTHS: Hyped Strategies That Will Put You Out of Business and Proven Tactics that Really Work. In this book, the authors contend businesses fail at creating customer loyalty because they mistakenly follow conventional marketing wisdom. They also debunk over 50 commonly accepted loyalty marketing practices. Can’t say I agree with everything the authors say because much of their reasoning is more argumentative than constructive. However, the book does make you think.

For example, LOYALTY MYTHS debunks Frederick Reichheld’s “Net Promoter” theory by writing, “… the concept of net promoters is a bad idea that would not likely have seen the light of day had it not come from such a respected individual. “

If you’ve been following the Word-of-Mouth Marketing game for the past year then you’re probably familiar with Reichheld’s influential Harvard Business Review article outlining his Net Promoter theory. In “The One Number You Need to Grow,” Reichheld’s research indicates there is a strong correlation between a company’s growth rate and the percentage of its promoters. (Promoters are customers who are willing to recommend the company to a friend.) According to Reichheld, “The more ‘promoters’ your company has, the bigger its growth.”

Reichheld contends companies no longer need to rely on expensive studies and complex statistical models to measure customer loyalty in hopes of increasing sales. Instead, Reichheld’s research says a company only has to ask its customers one question: “How likely is it that you would recommend [company x] to a friend or a colleague?" Knowing the answer to this one question allows a company to easily interpret where it stands in creating net promoters (evangelical customers) which in turn lead to sustainable, profitable growth.

In discrediting Reichheld’s Net Promoter research, the authors of LOYALTY MYTHS point to four issues.

Issue #1
”… the implication that all customer satisfaction and loyalty measurement systems fail to correlate with profits is ridiculous.” The authors go on to list a slew of marketing research papers which contradict Reichheld’s research.

[Hmm … are the LOYALTY MYTHS authors mistakenly following conventional marketing wisdom by referencing so many conventional marketing research papers?]

---

Issue #2
Reichheld’s Net Promoter score is not actionable enough. The authors say just knowing the likelihood of a customer recommending a business to a friend isn’t enough. Marketers need to ask more questions in order to know the underlying reasons why so they can develop specific action to increase a net promoter score.

[Good point. Maybe Reichheld will address the “actionability” of the Net Promoter score in his to-be-published book titled, THE ULTIMATE QUESTION.]

---

Issue #3
Reichheld seems to have unusual data. The LOYALTY MYTHS authors believe the data is unusual because Reichheld contends the net promoter score is independent of other measurements such as customer satisfaction and repurchase intent.

[I agree. Although, I’m not a marketing research wonk so I do not fully understanding how a customer’s satisfaction rating and repurchase intent with a company are not highly correlated to a net promoter rating of recommending that company to a friend. Any marketing research wonks wanna enlighten me?]

---

Issue #4
”… loyal customers don’t always act as advocates for brands, services, and companies.” Under this thinking, the authors contend a net promoter score cannot be accurately measured and because of this, the net promoter concept is flawed and useless.

[A net promoter score is just one tool in a marketer’s toolbox. It is not a marketer’s Rosetta Stone allowing us to all speak and understand the same language as it relates to customer research and growing sales. However, this information is extremely useful in understanding the role customer evangelists can play in whether or not a business succeeds or fails.]

---

Further Learning:

“The One Number You Need to Grow” | Harvard Business Review article | $$$

Net Promoter White Paper (pdf) | SATMETRIX

THE ULITMATE QUESTION preview excerpt (pdf) | Frederick Reichheld (author)

Attend the WOMMA Conference | Frederick Reichheld keynoting | Jan 19-20, 2006

Comments

[Mack Collier]

Something else to consider, do you want customers to do all your promoting? Ideally, no one should know the story your brand can tell better than your company. When you ask your customers to spread that story, the content becomes diluted and corrupted the more it is passed on. This is simple human nature, remember the old exercise of a group of people sitting in a circle and whispering to each other the same story and then by the time the story has made its way around the circle, how it almost never resembles the original story?

I think it's far more important for the company to spread its story. Make sure that EVERYONE in your company knows what your brand's story is. From top to bottom. And make sure they know how to communicate that story to your customers, and perhaps most importantly, know WHY your customers should care to hear that story.

IMO you want customers to augment your efforts to tell your brand's story, not be on the front lines of communcating that message to potential customers.

BTW great blog, I have no idea why it took me this long to find it!

[Gabriel Salcido]

John,

Putting Prof. Reichheld's theory into practice:

How likely is it that you would recommend LOYALTY MYTHS to a friend or colleague?

5 Very Likely
4 Somewhat Likely
3 Neutral
2 Somewhat Unlikely
1 Very Unlikely

GS

[johnmoore (from Brand Autopsy)]

[2] SOMEWHAT UNLIKELY

While the authors put forth lots of HMOs (hot marketing opinions) dispelling conventional wisdom on customer loyalty, I found none of the "7 Loyalty Truths" they offer as being worthy enough to recommend LOYALTY MYTHS to a friend or colleague.

Nice question Gabriel!

[Tim Whelan]

Well your 4 issues are very reactionary. Talk about a self defense mechanism. Knowing everything before taking action is a another way that marketers use to stone wall what they don't understand and to say they are the only ones that understand customer issues. A little arogant isn't it? Actually If some of these who are commenting would read the book first they wouldn't be so rash.

In defence of the concept simplicity is of more use in developing decision models than complicated metrics that even most marketers can't come to a consensus on and depletes company assets.

The professors point isn't excluding other avenues of exploration put is pointing out that we have lost our way in the metric maze. In simplifying the problem the answer really is would they or not and if not why? To make a statement that not all customers are not advocates and thus this nullifys the argument is is rather childish and shows short sighedness. Generalizations by those who advocate research? What percentage of customers advocate and what percentage don't? When do they promote, within one week, two weeks 6 months? Does it really matter when. Studies have shown that satisfied customers significantly promote when given the opportunity. What matters is that they do and this should be considered as an important part of any marketing or branding program worthy to be called a marketing or branding effort.

The score card is enough if used correctly and melded with other programs and data. It is used to measure one thing. You can decide after that how to incourage more advocacy and to redeem those customers who aren't. That information is powerful in its own right.

In a time when customer indexes are reaching all time lows as well as their confidence in the abillity for companies to tell their own story should hilight the importants of customer advocacy. To ignore it would show short sightedness. Customers are in constant iformation overload. Marketing and branding is loosing its effectiveness and new ways need to be explored and enhanced to bring back the ability to tell a companies story.

Yes everyone inside the organization needs to know it, better yet they need to believe in it. Don't forget that employees are also customers and the advocacy theory applies to them as well.

By the way the latest information out of the UK and here in the US supports the professors stand that customer loyalty programs have lost their effectiveness. In fact by some 46% at last count. The only people that really use them are the core clients anyway. Check your figures before sounding off.

[DUST!N]

Good points Tim. I haven't read the book, so I'll avoid your ire by not attempting to discredit the author.

johnmoore, forgive the blatant self-promotion, but Tim's points reminded me a lot of my post on the "5 Es of Branding."

http://thepeoplebrand.com/blog/?p=20

It's a pretty basic overview. I developed more on this which isn't covered in my blog. It's part of my client presentation.

[Maryann Devine]

While I'm no market research wonk, I could see (#3) how a customer could have intent to repurchase but not be a net promoter. In a word: inertia. An example: when I was looking to change doctors, I asked around to my friends for recommendations. While all had doctors and intended to keep seeing them, NONE of my friends would recommend his or her doctor. They just felt they had no good options. Someone in a business purchasing situation often has even less impetus to change vendors unless someone presents them with a much better option.

[Christopher grove]

Re Tim's comment:"When do they promote, within one week, two weeks 6 months? Does it really matter when. "
Surely the importance of 'the when' is linked to the product or service and the sale and life cycles for the said product or service. If a company decides to invest in a new piece of software (accounts software, CRM, ERP, MRP, whatever), the decision making process is long because the investment is important. If somebody recommends a different application after the software has been bought, the company will not change their mind and replace the new software with the recommended application. The software will have a relatively long life cycle and when the company eventually looks to change its software again, the recommendation will be out of date (and the person to whom it was recommended may no longer work there either). Companies selling products and services like this should therefore cultivate the promoters and their recommendations actively, so as to try and ensure that as many potential customers receive the recommendations, which would seem to me to be one of the marketing basics to cover.
Now if I buy some shoes, and receive a recommendation for a different brand or shoe from somebody, I can act on this recommendation even if I've already got a pair. I won't necessarily do so straight away, but whenever I decide to get a new pair of shoes, I'll probably remember the recommendation and take it into account. The same works for all products that don't require a large investment and/or have (relatively) short life cycles, and for products that can be substituted.

[Timothy Keiningham (Loyalty Myths)]

I am glad that Loyalty Myths is sparking debate. The ultimate goal of the book is to demonstrate that there is no one-size-fits-all, simple solution, despite the promise of these myths.

It is interesting to me that this discussion has focused on only one myth, as there are 53 listed in the book. We, the authors, have worked diligently to use the latest scientific research to support our conclusions, which is why many thought leaders in the scientific community have endorsed the book. Nonetheless, disagreement with our conclusions is not only healthy, but also desired by the authors. It means we have done our job. Our readers are forced to think about what they believe and why they believe it.

John, I would like to respond to your comment regarding issue 1: that the authors are relying on "conventional" marketing research papers (and by implication, unable to see true relationships). We are relying on peer-reviewed, scientific papers, as opposed to management/trade journals. Scientific papers have research standards and protocols, and are reviewed by other experts for theoretical and methodological soundness before acceptance in leading academic journals. For some of the best journals, the data itself must be made available for others to review. That is not the case with management journals, which is why we have seen the rapid rise and fall of so many business buzzwords over the years.

With regard to the net-promoter concept (for which most of this discussion has centered), it has not been demonstrated in any leading scientific journal of which I am aware, despite having been published in one of the leading management journals and having been in the public domain for some time. Replication is the ultimate test of science. Without scientifically sound replication one should examine the validity of any claims, no matter how respected the individual making the proclamations. The greatest thinkers have always made mistakes in their fields; even Einstein never accepted quantum physics.

[Tim Whelan]

Tim Keiningham (Loyalty Myths)

In defense of the book and the good research that you did offer thank you. My earlier comments stand as is however, but I do agree one hundred percent that the reason companies fail is because they do follow conventional marketing and branding methodologies and/or wisdom.

Its amazing how in the marketing industry the marketers display such lemming attitudes toward their work. Everything seems based on follow the trend attitudes. This has proven very dangerous and has cost businesses billions in a realized ROI. I have several friends in this field of endeavor and it always amazes me how hard they work to defend the flaws in their methodologies. I deal with a variety of subjects centered on customer experience management in my blog http://cdccustomerservice.blogspot.com if any one wants a look, which has a lot to deal with the loyalty issues. Not as a total solution, but as piece of the whole. Like the professor says loyalty development is different for everybody.

The new trend is in using new power words and phrases. For example the marketing industry over the last 6 months as a whole has started to coin the phrase “Customer Experience”. Funny thing is that their methodology hasn't changed. Hmm, this looks like the same old loyalty routines and the same old myths. Good job on the book by the way I agree with most of your perceptions. Just took an exception to the one discussed above.

Happy New Year

[Airsoft Guns]

I think it's far more important for the company to spread its story.