Is Your Company Earning Growth or Buying It?
By Steve Curtin
Friday, 20th March 2009
While attending a business luncheon in March where the focus of the discussion was the marketing of small to mid-sized companies, all of the usual suspects were mentioned: branding, advertising, public relations, social media, etc.

Conspicuously absent in the marketing materials and presentation was any mention of a company's most effective source of growth and advertising: a delighted customer.

Most companies allocate some percentage of their revenues toward marketing initiatives in hopes of promoting their products and services and attracting new customers. These same companies may allocate a substantially smaller percentage of their payroll expense towards employee training and development—especially in the area of customer service. While every line item is scrutinized during a recession, training and development is much more vulnerable than marketing.

The logic, on the surface, is easy to see. The marketing dollars spent will translate into increased revenues as customers take advantage of promotions. With promotions, it's easy to track the source of the spending and calculate a return on investment of the marketing dollars spent. The return on training dollars invested, however, is not as easy to quantify. This explains why the training and development line item in the budget is so vulnerable.

Last year, I read the outstanding book The Ultimate Question by Fred Reichheld. The book identified a category of customers called promoters. These customers are defined as the least price-sensitive, having the highest repurchase rates, and responsible for between 80 and 90 percent of positive referrals to a company or brand. Promoters are the result of exceptional customer experiences.

Imagine if a company viewed its workforce as indispensable to creating promoters. How might that impact employee training, recognition, performance management, and communication as it pertains to delivering exceptional customer service experiences? What effect might it have on a company's tendency to buy growth through marketing expenditures as opposed to earning growth by creating promoters? If this thought process were embedded in the organizational culture, how much less likely would it be that employee training and development would be reduced or eliminated—as many companies have done in the midst of the current recession?

You see, here's the irony: companies are more likely to spend marketing dollars to attract new customers into a business than they are to invest in providing exceptional customer service that would turn their existing customers into promoters. So what happens when customers have less than exceptional service experiences at a company?

By definition, we know they are not promoters. That means they are more likely to be price-sensitive, have lower repurchase rates, and not offer positive referrals to the company or brand. At best, these customers will be Passives. In his book, Reichheld defines Passives as satisfied but unenthusiastic customers who can be easily wooed by the competition. At worst, these customers will be Detractors—unhappy customers who are responsible for between 80 and 90 percent of negative word of mouth.

Consider this excerpt from The Ultimate Question: "(Bain and Company) research over a ten-year period confirms that, in most industries, companies with the highest ratio of promoters to detractors in their sector typically enjoy both strong profits and healthy growth. This might seem counterintuitive.

After all, the high-loyalty firms tend to spend much less on marketing and new customer acquisition than do their competitors. They also focus intensely on serving existing customers and are highly selective in pursuing new customers, which you might suspect would limit these firms' growth. But the data doesn't lie: the faster growth of the loyalty leaders is driven by the superior efficiency of their growth engines. Earning growth rather than buying it sustains top-line momentum while generating richer profits."

How much could your business save on marketing expenses if you had an unpaid legion of hundreds or thousands of promoters bragging about your product and service quality to friends, family, neighbors, colleagues, and—in some cases—anyone who will listen?

Consider the example of Zappos.com:

Customer service at Zappos is the cornerstone of its marketing, preferring to rely on positive referrals and repeat purchases from its legion of promoters rather than expensive ad campaigns. In fact, 75% of Zappos' sales come from repeat customers. In an October 17, 2008 interview in Advertising Age, Zappos CEO, Tony Hsieh said, "We actually take a lot of the money that we would have normally spent on paid advertising and put it back into customer experience. We've always stuck with customer service, even when it was not a sexy thing to do."

Each Zappos new hire—everyone from the chief financial officer to the children's footwear buyer—is required to go through four weeks of customer-loyalty training. In addition, Zappos offers free delivery, free returns, and a 365-day return policy to demonstrate its commitment to exceptional customer service. It even quietly upgrades the experience by accelerating shipping from four-to-five-day to second-day or next-day, in order to pleasantly surprise customers.

"Those things are all pretty expensive, but we view that as our marketing dollars," Mr. Hsieh says. "It's just a lot cheaper to get existing customers to buy from you again than it is to try to convince someone [new]."


Assuming it does not have a monopoly or dominate the distribution channel (e.g., a utility company), it will be difficult for any company to consistently lead its competitors in growth and profitability without also leading in its percentage of promoters versus passives and detractors. In the near term, marketing initiatives such as promotions and discounting may increase a company's sales and market share but if the customer experience is lackluster, then this advantage will be short-lived.

As one CEO put it: "We believe that the only sustainable advantage in business is world-class customer service." In order to achieve its long-term goals of growth and profitability, a company must rely on earning its growth as opposed to buying it. The most reliable way to accomplish this is by equipping employees with the skills that will consistently transform predictable, process-focused transactions into memorable, customer-focused experiences and—in the process—create promoters!

Steve Curtin is a customer service, training, and public speaking enthusiast based in Denver, CO.

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