Frederick Reichheld's Article on Company Growth

Summary

The article, “The One Number You Need to Grow” by Frederick F. Reichheld discusses the use of a simple measurement that could predict company growth rate through customer recommendation, referral, and repurchase behavior. Companies such as the Enterprise relied on the traditional customer-satisfaction assessments that measure the quality of their customers’ rental experience and the possibility that they would rent from the company again. This simple process may have given the company the advantage of determining the ranks of each branch in terms of customers’ satisfaction within a short period of time but it has focused heavily on satisfied customers, leaving out those who are less satisfied or dissatisfied with the company service.

The Enterprise method led the author to design a survey that can serve as a predictor of company growth and loyalty. The survey studied the correlation between survey responses and actual behavior, e.g. repeat purchases, or recommendation to friends that would lead to profitable growth. The most effective question across industry is on “How likely is it that you would recommend (company X) to a friend or colleague?”

Two other questions were only effective predictors in certain industries while the rest had little applicability.

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A scale measuring the possibility of recommending a company and three clusters were also designed to determine clients who are promoters, passively satisfied, and detractors. The survey revealed that the best way to earn profitable growth is by having more customer promoters and lesser detractors. This is one number that needs to grow.

[Word Count: 250]

Author’s Main Points

The article was written with the purpose of informing business organizations that traditional surveys are not useful in measuring customer satisfaction and loyalty which are regarded as indicators of profitable growth. The author stressed that previous surveys are long, ambiguous, complicated, and have yielded low response rates making it difficult for operating managers or senior executives to correlate the results with profits or growth.

The author has not only given a detailed description of customer loyalty but has also shown how true loyalty affects profitability. Customer loyalty goes beyond repeat purchases. Reichheld (2003) stated that when loyal customers act as references for the company, they are willing to risk their reputations to strengthen a relationship due to the good economic value they received from the company.

Their recommendations bring in new customers at no cost to the company and this in effect makes loyal customers the company’s marketing department. The word of mouth that increases the number of satisfied customers is one of the best indicators of loyalty and income growth.

The author has also proven that the simplicity of the survey design makes it convenient and easy for managers to interpret customers’ feedback data as the survey becomes an operating management tool and not a market research instrument. The greatest strength of the survey lies in its ability to predict profitable growth and loyalty by correlating customer responses with their referrals and purchase behaviors. In addition, the survey could also detect clients who are promoters, passively satisfied, and detractors. [Word Count: 250]

Personal Opinion

The design of the survey questions by Frederick F. Reichheld and his colleagues is impressive. Although the survey questions are simple, it was able to predict customer loyalty and growth. The ranking of the survey questions provided important information on which of the questions was the most and least effective across industries. The survey was also able to detect the promoters, passively satisfied and the detractors. The tested survey was proven to be reliable, practical, and operational.

Although I agree that word of mouth can affect the profit of the company, there are other factors that contribute to the growth or downfall in company revenue. For the purpose of argument, let us take for instance a newly launch T-Mobile Blackberry versus a Nokia mobile phone.

A customer who may be loyal with Nokia may shift to Blackberry because of the versatility of the new product and his desire to have the latest gadget. Although the client may recommend the latest product to his colleagues, he may still be satisfied with the product and services of Nokia. The customer’s recommendation will be based on the lifestyles of his friends and not on the reputation of the company. Hence, the customer will only qualify as a one-time promoter or detractor because sooner or later, he may purchase another model.

In my opinion, the survey may not be a good predictor for loyalty and growth for a fast paced technology driven companies such as mobile phone companies where loyalty seems to be unpredictable. [Word Count: 250]

Author’s Writing Style

Although the opening paragraph did not summarize the most important point of the article, it prepared the reader for a greater level of detail of the research paper. The article was written in a manner wherein the author, Frederick Reichheld was directly conversing to the readers in a non-technical language. Hence, this informative paper will also be appreciated by people who may not be familiar with any business or research terminology.

The title of the article is an attention grabber. A curious reader may never know that the paper is related to business until the lead paragraph is read or unless it is discovered to be part of the Harvard Business Review. The author also used the definition of term, e.g. loyalty, to highlight the main point of the article and to emphasize its relationship to the variables being measured. The inclusion of graphic figures added clarity to the results of the study.

The author discussed and compared previous surveys with his own survey and has focused on a single company named Enterprise Rent-A-Car. Initially, he mentioned the customer satisfaction survey used by the company and how ineffective the tradition tool was in proving loyalty and growth. Towards the end of the article, he used the same company and discussed the simplicity and effectiveness of his survey. This has established an effective flow of the main topic. Writing the last paragraph as a response to the title of the paper was the author’s unique way of ending his research article.  [Word Count: 250]

Reference

Reichheld, F. F. (2003). The one number you need to grow. Harvard Business Review, 1-9.