Management guru Peter Drucker said that the purpose of abusiness is to create a customer. What did he mean by that simple phrase thatformed the cornerstone for much of his excellent advice?

 

Business combines capital, material, and labor resourceswith knowledge to generate something of economic value called a product. Abusiness survives and succeeds if that product satisfies a buyer’s wants at aprofit. Customers then are created by fulfilling their needs.  They don’t buy products however. They buyfulfillment of a want in exchange for a price willingly paid.  

 

So Drucker says the critical task for business success isunderstanding what a customer wants. Only then can executives be certain that theircompany’s processes are satisfying its customers. That’s the job of marketing:the business process that identifies, develops, arouses, and satisfies customerneeds. Its aim, to paraphrase Drucker, is to understand the customer so wellthat your product fulfills her needs and sells itself.

 

Marketing therefore solves the question that can only beanswered by looking outside of a business: what does the customer want to buy? Druckerpoints out why those responsible for customer satisfaction must test theirassumptions:

 

  1. Only by observing and questioning the customercan you fully understand who she is, what she buys, where she buys, what shevalues, what she expects, and what needs she is seeking to fill.
  2. Customers seldom buy the product attributes thatthe business believes it sells. Features the producer thinks are of value maybe unimportant to the buyer.
  3. The customers’ rationality may differ from the producer’s.

 

With the customer being so critical to success, your company’smission cannot be correctly defined without assessing its marketing strategy asif no customers or products exist. Such a zero-based approach forces you todetermine if your business is making the right products for the right customersin the right distribution channels, and whether your strategy is delivering thetarget outcomes.

 

That review must answer eight critical questions:

 

  1. Who are our customers? At the risk ofrepetition, the assessment requires an outside-in perspective.
  2. Where are our customers in our value chain? Mostbusinesses have at least two customers: the end consumer and the distributor,each with different values and expectations.
  3. What do our customers buy, meaning what needs doour products fulfill?
  4. What is our business? For example, we producesolid wood furniture that satisfies our customers’ need for style,availability, delivery, and at a moderate price. The most effective missionstatements define purchase attributes in detail.
  5. Why do our competitors’ customers buy from themrather than you?
  6. What customer wants are we not satisfying? Forexample, we do not offer an internet sales channel or home deliveryalternatives. Don’t forget to include the non-customers in your market research.  
  7. What should our business be? Brainstorm newopportunities that may deepen your relationships with existing customers or maysatisfy current non-customers.
  8. Are we satisfying our current customers?

The most significant question in the review is the last. Academicresearch has shown the positive connection between customer satisfaction andcritical outcomes such as customer retention, sales revenues, and growth,especially in mature industries like value-added wood products. Most businessesunderstand that relationship and invest in long, complicated customer surveysthat collect tons of ambiguous, useless data.

Fred Reichheld, a consultant at Bain & Company, sought asimpler method. His research found that sufficient, actionable information oncustomer satisfaction can be gathered by asking a single question – howlikely would you be to recommend (insert company name or product) to a friendor colleague?

 

Responses to Reichheld’s question are scored on a scale ofzero to 10 with 0 being extremely unlikely to recommend, 5 being neutral, and10 being extremely likely to recommend. Customers submitting scores of zerothrough 6 are dubbed detractors, 7 to8 as passives, and 9 to 10 as promoters. From the percent of total responsesin each group, a Net Promoter Scoreequal to the percentage of detractors subtracted from the percentage ofpromoters can be calculated.

 

Short follow-up questions to the detractors asking why acustomer is dissatisfied or what is the most important improvement you canimplement are valuable in improving your score or identifying purchaser needsand values. Using the collected data you can quickly compare results fromgeographic regions, distribution channels, customer types, and more importantlyscores from NPS surveys you conduct with competitors’ customers.

 

With that information in hand you must work to improve yourscore. Your aim should be to turn detractors into promoters. Companies likeAmazon and eBay receive scores of 75 to 80 percent.

 

The logic behind Reichheld’s single-question survey is thatcustomers who provide strong recommendations for a company and its products areputting their own reputations at risk. Loyal customers bring in new customers. Whileno single factor can guarantee profitable growth, Bain’s testing of his surveyshowed that loyal customers are a key driver of company growth.

 

Bottom Line: Companiesneed loyal customers if they are to prosper. World-class customer satisfactionmust be a key objective of your company’s strategy. Don’t leave achieving thatgoal only to the marketing department. It’s everybody’s job.

 

Sidebar

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Pointers for a bettersurvey

 

To optimize the information you receive from the Net Promoter Score, follow these tips:

 

  • Ask only the one key question
  • Survey all touch points, such as consumers,distributors, and buyers
  • Give dissatisfied customers an opportunity totell you why
  • Survey lots of customers
  • Begin with your core, most profitable customers
  • Aim for a response rate of 65 percent
  • Refrain from using gimmicks to boost response rate– they bias the results
  • Encourage honesty when respondents areidentifiable
  • Report results frequently to encourageimportance of customer satisfaction
  • Treat survey results as an operating managementtool

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Source: The UltimateQuestion: Driving Good Profits and True Growth, Fred Reichheld, 2006

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