Net Promoter has been a popular business metric for years.  We understand the number’s appeal – it is a well thought-out and reliable predictor of sales growth.  But it can fail your organization in one of the most critical ways. 

Back before I was ever in the software-for-retailers business, I was simply in the retail business.  I owned and operated a chain of retail stores. 

One day I had the idea that it would be great to circulate a weekly memo to everyone in my company.  I'd outline our goals for the week, celebrate victories, observe trends and champion ways to improve. 

My first one weighed in at 3 pages, and included two charts and a photo.  It looked like an advertisement for desktop publishing software.  I was pretty proud of it.  That is, of course, until I realized that none of my employees could recall anything I’d written. 

Following weeks saw the editor’s knife, and after a few months what remained was a weekly one-paragraph memo of fewer than forty or fifty words.  In 16-point type.  Each memo focused on not more than one concept together with some employee attaboys.  People read it, absorbed it and acted on it.  My broader literary abilities would have to lay dormant, pretty much until you came along. 

My lesson was that my front-line employees had their own daily routine and priorities, which are intimately connected to the substance of their daily job on the store floor.  Absorbing bigger business concepts and incorporating that information into how they performed their jobs could only happen if I didn’t overload them with too much stuff.  And the point where even very good employees tune-out is a lot lower than most managers realize.

The Problem with Net Promoter.  Net Promoter, developed by consultant Frederick Reichheld, is a well thought-out and reliable predictor of sales growth.  You calculate Net Promoter by applying a formula to the result of asking your customers to grade how likely they are to refer your organization to a friend or colleague.

But there’s a problem.  Like version 1.0 of my employee memo, it is too complex to be used as a tool to coach the front lines of your organization. 

To illustrate my point, try this two-part test.  First, see if you can remember the formula for calculating Net Promoter off the top of your head.  Over the years I’ve asked this question of a wide variety of people, and almost nobody can remember how to do it.  It’s so unintuitive as to escape the memory of almost everyone.

Second, try to imagine yourself and your front-line managers explaining that formula to every new hourly emplooyee hired in your company, and including that explanation in every review and staff meeting occurring throughout your organization daily.  It’s a formula for making eyes glaze over.

Let’s Remember Why We Measure.  The goal of measuring customer experience isn’t just so you can know where you’re pleasing customers and where you’re not.  It’s to enable your field teams to change their behavior such that the customer experience improves and, presumably, sales go up by virtue of improved retention.  And that change requires enough simplicity that necessary actions are totally clear and can remain front-of-mind during your employees’ work day.

And the truth is that you don’t really sacrifice much by keeping it simple.  It’s not clear to us that the complexity of Net Promoter yields you anything.  When we compare store lists of our clients’ locations stack ranked by Net Promoter with, for example, a simple average grade on Recommend to a Friend those lists are remarkably similar. 

Keeping it Simple.  Though we generally ask the Recommend to a Friend question first, we always follow it with not more than a handful of the most actionable questions relating to the success of our client's business.  And we always present the results to customer-facing employees in the simplest, clearest way possible.  (Usually a simple 30-day average grade.)  Employees waste no bandwidth trying to interpret what are clear, easy results. 

Net Promoter might well have an application in your organization at the executive level.  But when it comes to driving up performance where your customer-facing employees are concerned, we’d encourage you to employ a much simpler measure.   Your employees will thank you.
 

Your toughest competitor for the next 10 years isn’t going to be a rival brand, a new channel or a new technology.  It’s the suddenly massive US household debt.  The pain it will put Americans through as they divert spending to hack down their card balances will rob you of sales far more effectively than could any competitor.  Here’s why – and how smart companies are preparing.

About once a quarter for the past five years, our own Joe Dion would walk into my office glowering at a chart a lot like the one below.  The blue line on this chart represents US consumer debt as a percentage of GDP, and Joe was the earliest person I know to vocally warn that the logical end point of all this debt would be a rupture in our financial system along the lines of what we’ve recently experienced. 

This week I’d like to share why we think you need to view the HHD number as your biggest competitor for the coming years, and adapt your business appropriately.

How did it get this bad?  The last decade’s borrowing frenzy is an interesting story, but it happened largely in the background of our national consciousness until the financial meltdown in Q4 ‘08.  (This American Life did an excellent wrap-up of the bank collapse – and how it relates to consumer debt – which I recommend.)
   
The story starts slowly.  Household debt stayed pretty steady at under 50% of per capita GDP for most of the 20th century until the 80’s, when it started to climb.  In recent years it rocketed out of control, and the consequences caused our economy to shudder.  In a very real way, the global economic meltdown of the past year is a direct result of unhinged consumer borrowing hitting the red line. 

In fact, US household debt is currently over 100% of per capita GDP, a level which we frequently hear economists regard as unsustainable.

Unlike consumer confidence or some other wishy-washy indicator, this one won’t change just because a few news cycles go by.  Consumers might be shaking off the confidence-rattling effects of our economic crisis, but the fundamental causes have yet to be addressed.  Americans have to make monthly payments on vastly more debt than they did in years past.

Household debt cannibalizes sales.  Twice.  So, American families are groaning under the weight of their payments.  How does this impact you?  The combination of maxed-out borrowing capacity robs sales – twice. 

Consumers are deprived of the credit lines which financed a significant portion of their past purchases.  Worse, paying down principal such that our debt levels return to what we can afford to service will require yet more cash from already anemic household budgets. 

And an awful lot of that cash will come from one place – your sales.

Retention vs Acquisition.  We’re seeing companies are responding to this change in a number of ways. 

In the worst cases, I’ve seen companies whose strategies focus on a combination of discounting and hell-bent overhead slashing, with the goal of staying afloat “until the economy recovers”.  The economy may well bounce back, but it won’t return to anything like it was before for a long time.  This isn’t a strategy for the future.

The fittest companies we’ve met this year have adapted to the reality that their customer list is their most precious asset, and they’re guarding it carefully.  They’ve retooled their marketing departments to make them as focused on customer retention as they are on its more sexy cousin – acquisition. 

The defining competency of successful companies from retail to restaurants in the coming years will be their ability to constantly teach front-line employees the value of existing customers and how to stay close to them.  Investments in feedback, social media and the training to make that information part and parcel of their employees’ day will be vital.  This will enable them to remain approachable and relevant to customers through the coming years of paying down a great deal of debt.
 

I've made several references in the past to Tyler Brûlé's excellent magazine, Monocle. I’ve been a reader since their first issue and, after finishing their holiday issue, would like to recommend it to you as a must-read. Here’s why.

While it's true that we occasionally poke a bit of fun at Monocle's Affairs section, which can at times come off as a bit naïve, their unique view of retail, fashion, design and urban culture is really something worth reading.

Moreover, the book is a delight to take with you because, in part, of its form. Its delightfully designed pages are bound like a hefty trade paperback book, similar to Foreign Affairs.

Unlike most magazines, this one is something to experience over a few days. While recently on vacation in Madrid, for example, we lugged their Madrid City Guide around and found it to be packed with great insights on the city, its leading creative thinkers and places to stay, shop, eat and drink. (Several of the stores we visited had copies behind the counters as well.)

The magazine is a treat – and an expensive one at £75 pounds a year. It can be yours today for free, though. Drop me a note via the contact form on our website to say hello. I’ll pick a few winners at random next week and will have six month subscription delivered to your door, my treat.

Happy New Year
Max Israel
CEO | Customerville

Luxury brands depend more than ever before on retaining a relatively small number of high-value customers.  So why are they so uncomfortable asking those customers for feedback? 

Last week’s vacation in Madrid was a real balancing act between dropping in on the best and brightest luxury retailers to see what’s cooking while simultaneously not allowing Mrs. Israel to make them vastly more successful than they already are.  Despite a little stress in that department, I had a great time watching pros like Loewe, Hermès, and Prada, as well as an exciting number of luxury brands which were new names to me. 

All this luxury brought to mind a subject we’ve looked at for some time now – the riddle of why that group of retailers which is most dependent on building long-term customer relationships stumbles so badly when it comes to soliciting feedback.

Why It’s More Important in Luxury.  Think about luxury brands as compared to Main Street brands.  Luxury brands’ customer lists are comprised of a smaller number of customers, each of whom represents a higher lifetime customer value.  Losing one of these customers due to an unfavorable experience with product or the buying experience is a very damaging proposition.

In fact, many of these customers are what researchers call “aspirational” buyers.  An economic up-and-comer might spend 1 or 2% of her pay for the year on a single piece, simply because of the way it makes her feel.  This can start a long-term relationship with the brand, which will grow as her own economic situation prospers.  If that early store experience leaves her feeling otherwise, however, that lifetime of brand loyalty can be irreparably damaged.  (For more on this, see our post on The Value of One Lost Customer.)

Why Can’t They Ask?  So why don’t you typically see luxury retail brands asking for customer feedback?  We see two main reasons. 

First, one of the cardinal rules of positioning your brand at the top of the luxury pile is that everything about you needs to resonate and reaffirm that you are already the best.  Even a tacit acknowledgement that there could be room to improve can run counter to that message. 

Second, consumers everywhere first got comfortable with the notion of using the web and technology in general to give feedback on Main Street.   This means that the most effective ways to gather and share feedback can have – if we’re being honest – a somewhat pedestrian feel.  I think we can all understand why a company like Nordstrom might hesitate before pulling a page out of a company like Target’s playbook, regardless of how effective it is for Target.

And that’s a problem, because luxury customers – like everyone else – are embracing technology to share their thoughts about these brands with everyone else in the world through social media sites of all kinds. 

Not doing so themselves simply makes a luxury retailer the last one to get the news when something's going very right or very wrong in the field, which is an expensive mistake.

How can they make the leap?  The economy has experienced more than a hiccup – it’s experienced a sea change which has altered the way consumers think about how they spend their money for a long time to come. 

As luxury brands reconfigure themselves to survive and – in some cases – prosper, a vital element will be learning to find ways to measure their customer experience in ways which are congruent with their larger brand experience.

The good news is that this can be done very effectively using tools and skills already on hand in luxury brands everywhere.  Next week we’ll distill our thoughts on how to do this into the three most important Luxury Retailers’ Rules for Feedback.

Until then, have a happy and safe New Year’s!
 

Over the last few months I’ve been in American Apparel stores in San Francisco, Barcelona and Denver.  Each time I walk in there ready – eager, in fact – to appreciate and understand this brand.  Today I got half way there.  And not the “appreciating” half.

The first thing you’ll notice when you walk through the door is that these clothes are really, really ugly.  I know they make a big deal about being vertically integrated and being made in the USA, but I’m starting to wonder if that’s only because all those other countries refuse to have their names associated with clothes this bad.  Also, they’re small.  “Men’s” pants go up to a 34 inch waist.  I asked if the white cords came in a 36 inch waist and the employees stared at me like I had just asked if they came made of molten lava.

Second, their employees are just cranky.  In three out of three stores, I got scowled at from behind the counter.  It’s as if the awful fluorescent lighting and cheesy aluminum displays make them openly hostile, which I guess makes some sense.  In fairness, it could also be that 40-year-old guys in Brooks Brothers blazers don’t exactly scream “big sale!” to the associates.  Still, I could have been shopping for my kids.  For all they knew, they sent the biggest sale of the day headed for the exit.  

Lastly, these guys openly use borderline pornographic pictures of extremely young women wearing (or not wearing, as the case may be) their products.  I spent several hours on American Apparel’s website over several days to be sure about this, and it’s true.

And that’s when it hit me.   American Apparel’s market is young, urban hipsters.  The urban hipster ethic, I’m told, is that the uglier the clothes I wear are the cooler I must therefore be.  And people of this demographic are, as any parent of teenagers will tell you, nothing if not surly. 

So the company has perfectly connected with their customer, which I am clearly not.  You have to respect that, and I wish the company nothing but the best. 

That said, there is a serious observation for us to make.  I hope that their formula proves an enduring one.  Having so much of their brand wrapped up in an edgy fashion ethic might be hard to sustain in the long term - especially when fashions change.   There's a real risk for any brand in focusing on its image so much at the expense of its buying experience.

And as for how to measure the experience in their stores in order to best serve said customers?  Well, for now that will have to remain a mystery.

Not being able to identify when your organization is experiencing this dangerous cycle sets you up for a series of unpleasant consequences.  Here’s how you’ll spot it.

A healthy customer feedback system engages customers at all times and in a variety of ways.  Your customers are already grading you, after all.  You just need to ask them to share that information with you.  And when that happens the result is that you’re looking at feedback from a nice cross section of your customers.

But the process of consistently asking can break down for a variety of reasons.  Turnover at home office, people get busy, something becomes a big priority.  The bottom line is that the means of asking customers for feedback falls short for a while. 

The Complaint Line Effect.  The result is what we call the Complaint Line Effect.  Those customers who have a great experience which they’d like to share aren’t reminded to do so.  Customers who have an axe to grind, however, will continue to find your guest satisfaction survey to share their concerns.  As traffic in your feedback channel drops and complainers become a disproportionately large percentage of traffic, your “customer grades” drop.  

Here’s an example.  In this case, turnover at this company’s home office created a period of time when their regular means of asking customers to share feedback – website, signage in their restaurants, their email club – fell by the wayside.  Their average grade is calculated on a trailing 30-day period so as the weeks went by and traffic continued to decline it dragged their average customer grade underwater with it.

Why is this important?  Most companies take some form of customer feedback seriously, and their managers and corporate leadership are used to seeing these grades in one form or another on a regular basis.

Failing to recognize that satisfaction metrics are dropping because the profile of your feedback traffic has changed can cause morale to take a hit, especially if there are other challenges that your organization is facing.  This can also create wasted time as your team works to address illusory drops in performance.

Worse, if left unattended this situation can create the perception that a higher than usual percentage of complaints is normal.  And that can be poisonous to any culture of service.

Next week: How Companies Make the leap from Complaint Line to Feedback Loop.

Enter-to-win sweepstakes drawings are a fantastic way to get customers interested in grading your business. They’re quick, fun and easy to implement. Here are some good things to know about getting this right.

Keep the Farm. I recently saw customer feedback reward drawing for $250,000 and just about went bananas. Let me tell you, if you need to offer your customers a quarter million dollars to tell you what they think of your business, you’ve got problems even we can’t solve!

Our clients nearly always find that a gift-card drawing in the low hundreds of dollars works like a charm. What’s more, you can do the drawing as frequently as you like. Customers tune into the gift card amount, but generally don’t care how frequently you do the drawing. You marketers can almost always find a great PR opportunity around giving the award, too!

Know How To Message. When you advertise or distribute collateral in your stores or restaurants, be sure to get the message right. We usually see the best traffic when the message starts with the headline: Win $XX, and then says “We’d love you to grade us”. The website address should usually be last in line on the page.

Get the Legalese Right. You’ve got to include the rules, and they need to pass muster with your State’s sweepstakes laws. Drop me a line if you’d like our boilerplate version and I’ll make sure you get it.

Is It Really About The Prize? Here’s the biggest surprise: No. Customerville’s system allows our clients to use either a sweepstakes drawing or a printable gift certificate. The redemption rate of the gift certificates is a tiny fraction of the number issued. In speaking with our clients’ customers, many of them express to us the sentiment that it’s not really about the prize. They love shopping with you and just want to be included, listened to and valued!

A well planned sweepstakes drawing or printable coupon is like a warm “hello” when you meet someone new. It’s not essential to the conversation that will follow, but it sure goes a long way toward whether or not they want to talk.

This might be the last thing you’d expect a company known as the “un-mystery shopper” to say: Mystery shop can have a role in your organization’s future.  Here’s how – and why – we think it’s true.

We’re as surprised as anyone to find ourselves advocating for the role of mystery shoppers / mystery guests.  Companies shouldn’t pay for an imitation customer to share their thoughts when there are hundreds of actual customers walking through the doors each week.  Why not ask them to use your customer feedback system?

With that said, the conditions are right for some companies to leverage mystery shopping in a different way.  Providing meaningful value to managers who must do more than ever before will require the mystery shopper industry to reposition and re-evaluate the role it plays.

Pressure on Managers.  Pressure has mounted over recent years for multi-unit managers – especially Regional and District Managers – to do more with less.  Today, this position has more responsibility for higher unit performance over a broader geographical area than ever before.  In some cases, these managers even run stores of multiple brands owned by one parent company.

Now take a look at almost any mystery shop scorecard and you’ll see a bunch of questions which, frankly, are things no customer would ever observe or remember.  The people whom you’d expect to do both, of course, are that location’s managers.

But there are some cases – especially in today’s environment – where it’s just not practical or cost-effective for that district-level manager to visit as frequently as you might like.  In particular, this is true for chains of locations where the organization is spread across a broad geographic area.  The distances are just too far for a typical district manager to visit regularly.  Quite often, a phone meeting with that location’s on-site manager will need to suffice.

An economical extra set of eyes. In cases like this, we’ve seen some of our clients combine their live Customerville feedback with a pared-down mystery shop schedule.  The mystery shopper ends up serving as a kind of surrogate for the DM’s visit.  The fact that the employees can usually identify a mystery shopper isn’t really a showstopper in this case.  Rather, you’re just looking for a third party to perform something of an objective site checklist.Since this doesn’t need to be done with anywhere near the frequency of a traditional mystery shop schedule, budget can be used elsewhere.

The result: Regional and district managers can have a fuller view of the business.  Live customer feedback provides awareness of what matters to customers, and a re-tooled mystery shop provides an extra set of eyes on the ground to monitor operating tasks.

Our view is that there is a role for the traditional mystery shop / mystery guest.  It’s a smaller piece of the puzzle, performs a different role and rests on erasing the notion that mystery shoppers are facsimiles of customers.  They are not.  Instead, treat them for what they should become – a local assistant for DM or RM.