Loyalty = Growth doesn't it?

Loyalty = Growth, doesn't it?

Reichheld and his chums in the HBS press espouse the role of loyalty and, more specifically, evangelical referrals as key indicators for growth. I loved this idea, I still do, but I'm beginning to worry that it's not all it's cracked up to be.

To start with, I can see the benefit of a two question satisfaction survey ("Was your experience with us ... exceptional, good, ok, poor, very poor" & "Would you recommend us to others") in terms of the likelihood of faster and more abundant responses but struggle to see the raw benefit of a one-question survey (focusing on referral). My problem is that both of these don't produce anything usable. It produces a headline on the customer's experience but the provides nothing to identify what the problems, solutions or potential innovations are. It might present the patient's symptoms but goes nowhere close to providing diagnosis or curative suggestions .

In a sense (see 'Do Customer's Know best?') it's not for customers to self diagnose, but we can't do this for them if we don't even ask them what's wrong. Well, we might find out by some later ad-hoc research in to the matter but isn't that what the two-question survey was supposed to avoid, a costly 'customer insight' bill? The trouble is we tend to strive towards over-simplification, the 'less is more' approach pervades.

It might be great to walk in to the board room and present the facts that improving top-box satisfaction leads to x% increase in referrals and therefore x% growth, but the first question is going to be "and how do we do that then, what's wrong with us at the moment?" (ok, technically that's two questions, y'see we all do it and it's difficult not to.)

I just want to cite one example, Apple Computers. I bet they could point to genuinely high
top-box scores for satisfaction, they could point to high scores for customer loyalty (people love the iPod and are committed to it) and even high rates of customer referral. How many iPod owners have been overheard telling friends and family that they simply must buy this amazing gadget? Countless. The issue here is then why do Apple only occupy 2% of the $180bn
market for PCs? Why is it that their growth is such that they're not making ground on the likes of
Dell, Microsoft, IBM and HP? Reichheld himself acknowledges that referral is a weak growth predictor in the information technology sector but explains this away with a belief that he simply surveyed the wrong people and that senior management choose systems ahead of
employees. Whilst this may be true I'm not sure it gets to the heart of the matter in Apple's case. And there's the rub. I don't honestly know all the reasons why Apple isn't more successful given the emotional satisfaction that people have for its products and the high levels of referral they clearly experience. The same is true of
Alfa Romeo, a product so universally liked and placed into a niche by its enthusiastic owners that they even have a name, Alfisti. But by not exploring the customer experience beyond the headlines as Reichheld and chums espouse,
companies would simply believe that a single question survey will help them to grow.

[Possible digression ahead...] In my opinion the reason Apple and Alfa are not the major players in their respective market places centres around rational customer satisfaction, the objective facts are that Apple Macs are expensive and not universally compatible. Outside of the satisfaction sphere, they have suffered at the hands of some catastrophic management decisions not to build upon their innovative momentum to produce a range of products that have mass-market appeal (their competitors churn out boxes at an astonishing rate). Even with the iPod Apple failed to anticipate demand and supply lagged woefully behind. Returning to satisfaction, their iTunes package is adored by its enthusiastic users for its efficient simplicity, but delve deeper - beyond the satisfaction scores - and the shop is poorly stocked, leaving the burgeoning MP3 market to mop-up the wayward customer searching for an elusive tune and wider compatability, they're stunting their own growth (q.v this article). In terms of Alfa Romeo,
they're prone to reliability problems and are expensive. But, before we make another assumption, cost isn't the common factor, look at Linux - technically a superior product to Windows (so I'm told) it's also free, recommended by all who use it and accessible. But it still occupies a smaller personal consumer market share, why, because Windows is ubiquitous, universally accepted and standardised, it's populist and it's marketed aggressively in the way only paid-for products can be. There are many other reasons I'm sure but yet again, asking one or two questions about satisfaction/loyalty/referral will not reveal the answers and will not allow executives to accurately predict and amend growth without first considering the external environment (c.f. 'Burke-Litwin'
model of organisational performance and change).

Did I answer the question?

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