Imagine walking into a retail store and, upon crossing the threshold, have it know you are there. Not the store personnel mind you, but the store itself. That’s been the experience of 25 year-old shopper Diana Ku for more than a year, thanks to an app called Shopkick.

Prior to her discovery of the app in August 2010 (she saw a poster in a dressing room of American Eagle that talked about it), Ku was primarily an online shopper. “Before I found the app, I did most of my shopping online, but the app has caused me to go into stores,” said Ku. “Otherwise, I would be doing more online shopping without the app than I do now.”

That change in shopping behavior is music to the ears of Shopkick creator, Cyriac Roeding, who designed the app with the revolutionary goal of transforming retail shopping in the real world.

“Shopkick is changing how consumers shop into a much better experience using their smartphones by realizing that someone is at a store where they get rewarded just for coming in,” said Roeding.

Shopkick uses a virtual currency called “kicks,” which consumers can redeem at participating retailers, including BestBuy, Macys, Target, American Eagle and seven others stores. Alternatively, consumers can use the rewards points to give donations to charity, purchase dinner vouchers, Facebook credits, or a number of other ways.

The technology differs from other geo-location apps such as Foursquare because it doesn’t rely on GPS, which Roeding says is “highly inaccurate.” Rather, Shopkick uses what he refers to as “presence technology” through a small box located in stores that emits an audio signal, which is imperceptible to the human ear, but that smartphone microphones can pick up and decode. The signal is only perceived by the microphone once the shopper crosses the store’s threshold.

Retail’s Number One Problem

Roeding said the number one problem faced by retailers is foot traffic, so getting customers through the door is the key to driving incremental transactions. The predicament, he says, is that most stores have it backwards, which led him to ask, “If foot traffic is so important, then why not reward customers for coming into store?”

The answer, according to Roeding, is that no one has a clue that a shopper is there until they purchase an item with their credit card. “That’s the first moment when it’s too late to add an item to you basket. Most stores only greet you when you’re leaving and that’s a little awkward,” he stated. “The purpose of the app is to turn this around and welcome shoppers when they come in, not the other way around.”

Based on in-store conversion rates, which can range between 20 – 95 percent (as opposed to e-commerce, which averages less than one percent) based on the type of store, getting more foot traffic can be the difference between a store becoming little more than a showroom for Amazon or other online retailer as opposed to a destination where shoppers like Ku spend more of their time.

Retail is a $3 trillion industry, the third largest industry in the United States behind energy and healthcare. Therefore, the importance of making the shopping experience a better is of inestimable value. Overlaying a digital layer onto it  is what Roeding believes will make for fundamental change.

Stores need a renewal of vision as to why they exist, states Roeding: “They are not places to pick up items sitting on shelves, but, rather, destinations designed to provide consumers with a good experience, solve problems or give them great forms of entertainment. Stores exist to enrich the consumer’s life.”

Roeding sees a confluence of two trends that mandate the need for retailers to change:

1. Consumers demand it. Prior to the advent of the Internet and e-commerce in particular, retail had no reason to change, which often meant the consumer was left with a less than desirable shopping experience. That is no longer the case. “Consumers are much savvier. They have alternatives that didn’t exist before. Now they can go online where no one mistreats them,” he said.
2. Mobile commerce has transformed shopping. “Smartphones are the only interactive medium you carry with you when you enter a non-interactive physical store. By overlaying the real world with a digital layer, you enhance the shopping experience  and make it better.” remarked Roeding.

Shopping Versus Social as the Core

Even more revolutionary than the app itself is Roeding’s belief about how social commerce should function. “There is a misunderstanding in the market about social commerce. Retailers are not going to win by trying to move people from social layer to shopping. The leap from social to commerce is to far. It feels awkward to sell things in social environment,” he stated, and cited Facebook’s shutting down of Deals after only three months as case-in-point. Instead, Roeding believes that, in order for social commerce to work, shopping must comprise the core, with social as an additional layer.

Roeding’s stance is not based on reason alone. His passion for leading the way to such change is evident, as can be seen in the following soliloquy:

“I’m for dramatically changing how consumers experience shopping. I’m for people waking up in morning and knowing exactly what is interesting to them; for people having Sunday afternoon without having to wade through piles of newspaper shopping inserts to find the one deal that’s interesting to them; for people walking into a store and being treated like an individual rather than a nameless face. I’m for people walking out of the store with a smile on their face rather than frown – feeling well-treated rather than being treated like a number, without having found what they were looking for. I’m for creating the possibility that consumers can have wonderful shopping experience in real world.”

Roeding’s zeal has certainly rubbed off on Diana Ku, who says she likes getting rewarded for in-store shopping. In fact, it has caused her to visit stores that she never considered prior to downloading the app. “The added incentive provided by the app has made me want to go out and shop more. It’s made me get off my computer and get into the store. Now I even go to stores that I wouldn’t otherwise,” she acknowledged.

It is his belief that overlaying a digital layer on top of shopping in traditional brick-and-mortar retail will be the key to getting people like Ku off their sofas and into stores. That is the driving force behind his creation of Shopkick and is precisely the reason we consider him to be a social commerce revolutionary!

Roeding’s Revolutionary Rule

“Don’t mistake social as the core of the shopping experience. Social is a means to make shopping better, not vice-versa.” 

1. Convergence Emergence – social goes transmedia; social OOH (out-of-home -aka interactive posters/billboards) and social POS (socially connected point of sale)
2. The Cult of Influence – measuring, harnessing and exploiting social influence – Klout is just the beginning
3. Gamification Nation – increasing social app appeal with game techniques breaks out of consumer-ville and into professional and public applications
4. Social Sharing – from frictionless (automatic) sharing to elective sharing, we’ll be sharing more of what we do with the world
5. Social Television – second screen social interaction around TV; Twitter voting/feedback and TV check-in apps like Get Glue are just the start
6. The Micro Economy – peer-to-peer marketplaces, open-outsourcing (crowdsourcing) contests to flourish in an economy where efficiency rules

Check out the comments too – in-between Klout-haters there are some interesting reactions.

That’s quite a shift away from how f-commerce has been conducted up to now. For the most part, brands engaging with the platform have done so through Facebook Pages. From what the article suggests, that is about to change. Wade Gerten, CEO of social commerce platform provider 8thBridge, went so far as to say that “the days of fan pages are dead.”

The culprit mandating this change is the new Facebook Timeline, a scrapbook-like replacement for personal profiles, which will be rolled out to everyone next week. Brands can create apps designed to fit within the Timeline and, to date, about 80 have.

A related article at Internet Retailer explains how these apps work. For example, Facebook users can go beyond the “Like” to a whole new level of interaction in that they can now choose to “Love, Want or Own” a product. When a consumer interacts with these features that information gets shared in their Timeline, on friend’s newsfeeds and via the Ticker.

The apps promise a greater degree of integration with ecommerce websites, as well. Wade Gerten says, “These tools allow us to add social features to web sites, which is where everyone is shopping, instead of doing so on a Facebook fan page, where not that many people go.”

Does this mean that, with the introduction of Timeline, apps are in and Facebook Pages are out? I won’t go that far, but it does mean that sharing of brand-related information becomes more natural. Again, to quote Gerten, ““Brands can literally be woven into a consumer’s life. Billions of Facebook users use the site for the same reason they buy brands – they want to be loved and they want to belong.”

Based on my own experience, Facebook Pages do seem like a third leg. Once I Like a page, there is often very little incentive to revisit it, so I can see Gerten’s point. Conversely, because these new apps tie directly into a user’s Timeline, it stands to reason they will warrant more attention.

Another question to be considered is, will Pages also take on a Timeline-type structure? Though no word has come from Facebook suggesting that will be the case, I can see no reason not to make a change. That’s been Facebook’s practice in the past and it makes sense to maintain symmetry between Pages and user profiles (er, Timelines, that is). Also, with the much richer graphic appeal of Timelines, Facebook Pages look passé and archaic.

Even though they may have very active fan pages, my advice to smart brands is to jump on the app bandwagon sooner than later before the gold rush hits. With the mandatory rollout of Timeline coming next week, this seems like the perfect time.

In a guest editorial at Forbes, John Caron, Senior Vice President of Marketing at Modiv Media, a mobile shopper marketing company, has some definite opinions and studied insights about the growth of mobile commerce in 2012. He sees it as a year of “convergence and context.”

Caron defines convergence as a time when “bricks and mobile finally integrate to provide a holistic shopping experience” within the confines of the physical store.

Context, he says, is when mobile “couponing, offers, location, check-ins, etc. become personalized to the individual shopper.” It is the combination of those two trends that retailers need to understand in order to reinvigorate in-store shopping.

This is precisely what Shopkick is doing with its mobile application. It knows when you cross the store’s threshold and provides the personalized experience that Caron prizes so highly he refers to it as “transformational.”

Caron sees several benefits accruing from the incorporation of these trends among retailers that include saving shoppers both time and money, while providing a truly personalized, seamless shopping experience within the store..

He delineates between mobile-enabled e-commerce, which he says is nothing more than transacting a sale on an e-commerce site via a mobile device and full mobile commerce, which is “the ability to purchase physical goods in the store via an app that interacts with the store’s point-of-sale system.” He says that 90% of what we refer to as mobile commerce really fits within the framework of the former.

In Caron’s mind, true mobile commerce is the amalgamation of brick-and-mortar and digital technology. Everything else falls outside that category. In 2012, according to Caron the handwriting is on the wall. He says stores that embrace this methodology will thrive, while that who don’t will continue to be “showrooms and warehouses for mobile apps that have displaced them.”

Look up the definition for “serial entrepreneur” and you may find Josh Berman’s name. Berman, who co-founded MySpace in 2004, then sold the company for $500 million, has cast his gaze yet again on the social media horizon and what did he see? Social commerce.

In an interview with Sprouter, a company that provides help and advice to startups, Berman said,”Similar to how I saw social networking arise with MySpace, I see similar trends happening today as shopping is becoming more and more exciting and is changing so quickly.”

The desire to integrate social and e-commerce led to the creation of his latest venture, social commerce company Beachmint, a site that partners with celebrities and designers to curate fashion collections. (We’ve covered Beachmint several times here at SCT.)

The company, launched in 2010, is rumored to be valued at $150 million, said the Sprouter piece.

Berman attributes the company’s success to “being at the right place at the right time.” While luck may have dealt Beachmint a winning  hand, smart moves on Berman’s part didn’t hurt either. He cites four factors that made a significant contribution:

• Building a strong team, including co-founder Diego Berdakin;
• Letting customers serve as advocates;
• Leveraging other social networks where customers maintain a presence; and
• Keeping focused on priorities, rather than trying to be all things to all people.

“You get presented with beauty deals, and international growth, and a bunch of other things, but really you have to go back to what you’re trying to achieve and you can’t possibly do everything,” remarked Berman.

Berman’s eye on the future qualifies him as someone we refer to as a social commerce revolutionary. But it is his trail of web startups that include not only MySpace and Beachmint, but ecommerce companies ResponseBase and Xdrive Technologies, as well as his own startup incubator, Slingshot Labs, that may better qualify him as an “evolutionary.”

Based on his own experience, Berman offers two pieces of advice for other budding revolutionaries:

From the outset, build a great team – “Have teammates, don’t just keep all the equity … You’re working 12+ hours with your teammates, and that’s critical to have the right team.”

Pay attention to your customers – “They’re going to be your advocates, your early adopters, and if you have any question on what you’re building and why you just have to keep asking them because that input truly is the best way to execute a successful product launch.”

“You can show me your sales curve, plot my life on your flow chart, but there’s just some things that numbers can’t measure – matters of the heart.” – Bob Bennett

The above quote, taken from a song penned by singer/songwriter Bob Bennett back in the 80s, has applicability where social commerce is concerned. Marketing in this era is more about building a one-to-one relationship with individuals, and less about focusing on aggregate numbers.

I’m not the only one who holds to that ethic either. So does the revolutionary being viewed under our microscope today, Marcus Whitney, CTO and co-founder of social commerce platform company, Moontoast.

Whitney qualifies as a revolutionary for this reason – he has a keen understanding of the problem that exists between how marketers use the web today as opposed to how consumers use it.

“The old web is basically broken for the way people consume it today. It  doesn’t respect the shift in power. Thanks to mobile technology, people have computers with them wherever they go, which gives them the ability to consume and post content wherever they are,” asserts Whitney. “There is a general lack of understanding among marketers about need to shift to more human mode of engagement.”

So radical are his revolutionary views, Whitney believes that, in light of the shift toward greater consumer control of the brand message and away from traditional marketing and advertising, the entire marketing vocabulary needs to change.

“Words like ‘consumers,’ ‘conversion’ and ‘traffic’ should be replaced with new ones like ‘interaction,’ and ‘conversation,’ and so should the metrics that surround them,” says Whitney.

Making use of this new vocabulary and analyzing insights gleaned from it is the primary focus of his company, Moontoast. “Our platform is one that distributes marketing messages, special offers and conversation starters across a wide range of social networks, then provides insight back to brand about how they are being perceived in those locations,” he states.

Distributed social commerce is the core component of the Moontoast platform, says Whitney. “We believe that, where social commerce is concerned, there is an undue focus on Facebook. It’s ‘social commerce,’ not just Facebook commerce and our platform is designed to reflect that mindset,” he added.

Social Commerce Nashville-Style

Based in the country music capital, Nashville, it comes as no surprise that Moontoast has made inroads into the music industry, working with labels like Big Machine Music and well-known artists such as Taylor Swift, Reba McEntire and the band Rascal Flatts.

“We enjoy a great advantage having had a start in the music industry in Nashville,” remarks Whitney. “MySpace set the trend that music/celebrity would drive popularization of social networks and Facebook and Twitter are not exempt from that.”

Whitney believes that social commerce holds particular appeal where the music industry is concerned. Rather than “Like” a Facebook page just to receive a special offer or download a coupon, music fans really want to hear from the artist. He is especially complimentary of McEntire’s efforts in social commerce. “Reba is impressive. She has incredible engagement with fans and weaves commerce in and out of the conversation very naturally,” he says.

Country music may have given Moontoast its start, but the company now works with popular artists from other genres – Kanye West, Chamillionaire, Nikki Sixx, Chris Young, and Gloriana, to name a few.

Social Commerce Perfect Storm

Whitney sees three trends that, in his view, indicate a perfect storm is brewing for a social commerce revolution to take place:

• Growing interest in the topic;
• The fast ascent of Google+;
• Growth of mobile devices along with mobile payment capabilities.

He believes that a similar revolution took place in e-commerce years ago. “Ecommerce created more value in terms of time-savings, selection, convenience, and management of purchases,” he states. “Lacking deep inventory and outstanding customer service, it’s been difficult for brick and mortar stores to keep up.

Whitney says the next step is in the disintermediation of e-commerce and other forms of online marketing. “That’s where social commerce plays a role,” he states.

Whitney’s Rule for the Revolution

“The market is early, so set expectations accordingly. Initial campaigns are tests and learning exercises, and should not be done for the express purpose of generating revenue. Quite the opposite, revenue generation should be a goal you measure against for the purpose of learning.”

This part of the speed summary is a chapter summary of the second half of the book which contains practical the “how to” experience of companies – large and small – deploying the Net Promoter System to profit from the recommendation economy by prioritising customer loyalty (read part one for the foundations of the Net Promoter System).  It’s not specifically related to social commerce – or even social media – but you’ll find some compelling lessons about how to turn your customers into an army of loyal promoters.

Chapter Summaries: The Ultimate Question 2.0: How Net Promoter Companies Thrive in a Customer-Driven World (Part II)

by Fred Reicheld with Rob Markey (Harvard Business Review Press 2011)

Part 2 Getting Results

Chapter 6: Winning Results with NPS

The Net Promoter System is about driving change through a strategic prioritisation and operational focus on customer loyalty – creating more promoters and fewer detractors – by applying the Golden Rule (treating customers as you’d want to be treated) – throughout the organisation. Based on experience of NPS adopters, there are three keys to NPS success

1. Embracing the goal of customer loyalty as a mission-critical priority at CEO and board level, and understanding the economic, inspirational and moral imperative that a focus on driving loyalty offers
2. Hardwiring NPS monitoring feedback into key decision processes and integrating it into operational priorities throughout the organisation to create closed-loop learning and improvement.  In other words, not treating it as a metric, or parallel program is critical to success
3. Adopting NPS as solution for driving long-term customer-centric cultural change, rather than a short term program or initiative, and realising the change must touch every part of the organisation

Chapter 7: Economics and Inspiration: The Dual Imperatives

The Net Promoter System is like an arch built from two pillars – one economic and the other inspirational.  Both are needed for success for driving growth through good profit. The economic pillar is about understanding the business case for investing in customer loyalty, and requires calculating the return on investment on creating more promoters and fewer detractors.  It requires having the CFO embrace NPS, and understand why investment in loyalty makes good business sense – and why good profits are more valuable than bad profits.  The inspirational pillar of NPS is about helping organisations enrich peoples lives by providing a simple decision rule or ‘heuristic’ – the Golden Rule – for taking decisions across the business, as well as a simple feedback solution – the NPS score – for monitoring how they are living up to this mission.  By putting the Golden Rule – ‘is this how I’d want to be treated?’ – top of mind of the business, the NPS makes customer-centricity personal, drives loyalty creation, as well as simplifying complex issues whilst making ethical business decisions communicable, measurable, and actionable.

Chapter 8: Close the Loop with Customers

Key to success in driving cultural change and customer-centricity through a focus on customer loyalty by making the NPS a core part of daily workflow and core decision processes within the company.  Most organisations want to become more customer-focused and the Net Promoter System is a simple solution for achieving this cultural change.  Not only does the NPS provide a simple decision heuristic – the Golden Rule – that can be used be used to inform decisions across every level of the organisation, the NPS also hardwires the voice of the customer into the organisation by providing creating customer feedback loops at the front line, mid and senior management levels. Closing the loop at the front line involves monitoring customer experience with NPS and then following up with as many detractors as possible, ideally within 24 hours of the experience.  Insights and learning from this ongoing exercise are then pooled, and shared with frontline staff and used to inform decisions. Closing the loop for mid-level managers requires using NPS feedback to create products, services and processes designed to attract and retain high value customers.  Closing the loop for senior executives involves setting up a forum for senior teams to talk with customers, and setting NPS targets as a strategic object for business units.

Chapter 9: Organise for the Long Journey

The payoff of NPS – a customer-centric organisation generating good profits through a single-minded focus on customer loyalty – can be substantial.  But the commitment required is substantial too. Based on the journey of successful NPS companies there are 7 key requisites of success: 1/ Assign the Right Leaders and Position Them for Success. 2/ Pull The Organisation Together 3/ Reorganise Around the Customer 4/ Hire & Fire the Right People 5/ Be Careful About Linking NPS to Compensation 6/ Don’t Skimp on Support from the IT Department 7 / Never Give Up

Chapter 10: The Road Ahead

Building a Golden Rule business thriving on ‘good profits’ is a long road with opportunities and challenges.  Two key opportunities include using NPS as to monitor employee experience and loyalty, as Apple, Rackspace, JetBlue and Bain, and developing new NPS monitoring tools using social media; Facebook and Zynga have adopted NPS internally, can their platforms be used to monitor NPS?  However there are some key challenges too; dealing with legacy systems not built with customer-centricity and the prioritisation of customer loyalty in mind, overcoming internal and external resistance from those with vested interests, and ensuring score reliability. In dealing with these opportunities and challenges it is important to keep front of mind the purpose of the Net Promoter System – as a solution for creating a customer-centric organisation that prioritises customer loyalty with decisions that enrich lives, rather than diminish them.

Appendix: Advice for the Journey

Net promoter companies share their experiences and real-world top tips for successfully deploying the Net Promoter System: Allianz, American Express, Atlas Copco, Cancer Treatment Centers of America, Cintas, E-on, Intuit, Lego, Philips, Progressive Insurance, Qantas, Schneider Electric, Sodexo, Swiss Reinsurance, Verizon, Westpac.  Get the book for details, and join the netpomoter.com forum.

NB. The Net Promoter System logo in the header is owned by Bain and is a Bain service mark.

Cathy Halligan, CMO at PowerReviews, has an insightful post on the state of social commerce today, especially as it applies to Facebook. Here is a quick run-down of what she had to say.

• The number of people on social networks today exceeds the number of Internet users in 2006. Seventy percent of those use Facebook.
• Marketers are getting f-commerce all wrong, approaching it purely as an advertising and engagement medium.
• Most execute social media campaigns solely within the confines of Facebook, completely ignoring the open graph.
• Measurement is focused on media activity only – reach and frequency, impressions, buzz, and fan count – and do not factor in social commerce metrics such as referral traffic and customer acquisition.

Halligan cites the efforts of four brands – Amazon, Step2, TripAdvisor and Louisville Slugger – with a view toward analyzing how each stacks up in terms of their own respective approach to Facebook.

Amazon

• Amazon has clearly approached Facebook as a net new business initiative by using the open graph on its site with the result being a more personalized Amazon.com experience.
• Consumers want personal, customized experiences. Up to now that cherished relationship has been the sole purview of small businesses.
• Amazon’s Facebook integration via the open graph has added a personal element, which Halligan praises. She states: “Amazon’s Facebook programming further solidifies its value to customers as a top retail brand, while driving real business results in the form of referral traffic and sales.”

Step2

• Through use of the open graph and PowerReviews rating and review product, children’s toy manufacturer/e-tailer Step2 allows customers to connect where they buy.
• Review data is blended with Facebook profile information on product pages, giving customers the ability to have richer, more relevant research experiences.
• Customers get value from trusted, authentic reviews and greater relevance thanks to the Facebook integration.

TripAdvisor

• TripAdvisor’s integration of Facebook has led to an “ultra-personalized experience” where consumers can plan their a vacation based on places their friends have traveled or plan to go.
• The site provides global mapping capability so that consumers can see hotels and restaurants that their friends have reviewed. Consumers can take a deep dive and see places friends have Liked and checked into, and read more about the destination based on reviews from others.
• TripAdvisor’s use of the open graph sets it apart from other travel sites that only offer data from people the consumer neither knows or trusts.

Louisville Slugger

• Following the 2011 World Series, Louisville Slugger created a cross-platform social scavenger hunt that resulted in an increase of its Facebook buzz by 834% in a week.
• Halligan credits the creative merits of the campaign, but says it harkens back to the days when “reach” – the number of eyeballs a brand could get – was the primary standard of success. She questions what long-term value was actually generated or whether the campaign resulted in more sales for the brand.
• She says brands should look at social marketing campaigns “holistically,” tracking commerce metrics (traffic and sales) in addition to earned media numbers.

Halligan concludes her post with the recommendation that brands should expend resources to experiment with new and innovative ways to use the open graph to improve the customer experience, increase lifetime value and generate new business.

Whether influenced by her role at PowerReviews or not, Halligan obviously places great value on use of the open graph. In her view, sequestering social commerce to a Facebook fan page equates to a fail.

Our perspective is that Halligan is onto something. Up to now, through an emphasis on advertising, traditional metrics and a focus on creating transactions, marketers have attempted to put “new wine into old wineskins.” Social media demands a new way of thinking, which will, invariably, give way to new approaches based on the word of mouth and peer-to-peer influence (trusted voices).

If the locus of power has shifted to the consumer, why not give them ways to leverage it through the use of socially-enabled technologies. The integration of third-party technologies – PowerReviews rating and review product in her  case – with Facebook’s open graph is what Halligan sees as the preferred paradigm.

The Ultimate Question 2.0 explains how Apple, Amex, Intuit, Zappos and others are using a simple P&L accounting approach to customer relationships (profit-generating ‘promoters’ minus loss-making ‘detractors’) to thrive in a customer-driven world by building ‘good profits’ through profitable relationships with loyal fans. AKA the ‘Net Promoter System’.

In our view, it’s the one must-read business book for anyone involved in social media and social commerce.  It is not only both inspiring and practical, it also provides the best business rationale for social media investment we’ve seen, and a financial logic for using social media to drive loyalty and advocacy among brand fans (‘promoters’).  Miss it and you risk missing the business case for social media and social commerce.

But for the time-poor, here’s our ‘speed summary’ (speed being a relative term – we’ve broken up the book into chapter summaries and into two parts (second one coming on Monday) – given the richness of the content).  We’ll save our social commerce focused review for later, and stick here to a summary of the content and what you need to know.

Chapter Summaries: The Ultimate Question 2.0: How Net Promoter Companies Thrive in a Customer-Driven World

by Fred Reicheld with Rob Markey (Harvard Business Review Press 2011)

Preface: The book shows a path to true business growth through sustainable ‘good profits’ derived from consistently delivering a customer experience worthy of loyalty.  Whilst there are many paths to growth, none are as sustainable as consistently delighting your customers and reaping the rewards of enhanced loyalty and advocacy.  This book shows how to use the Golden Rule – treating others as you’d want to be treated – to do this and thrive in a customer-driven world through profitable customer relationships.

Introduction: From Score to System

The Net Promoter System is a management approach to business through ‘good profits’ – ethical profits from enriching lives instead of ‘bad profits’ that exploit customers. It’s about building customer relationships worthy of loyalty by treating customers so well they become loyal promoters of your business.  It’s about, in the words of Zappos’ Tony Hsieh, consistently WOWing customers so they come back for more and tell others.  Put simply, it’s about happy customers talking. And for leaders, it’s a leadership tool for making happiness your business model, and joining a quiet revolution for building a legacy built on ‘good profits’. As an open-source adaptable and flexible system for generating good profits, many companies have adapted the NPS to their own needs and with their own labels (fast-food chain Chick-Fil-A calls it the Raving Fan Index), but successful implementations all share three key elements;

• Systematically categorising customers into promoters and detractors to produce a net score that monitors the quality of customer relationships, and communicating this throughout the organisation
• Creating ‘closed-loop’ learning and improvement processes to increase promoters and reduce detractors at an operational level.  If your NPS score drops, investigate the source of bad business – and put it right
• Treating the creation of more promoters and fewer detractors as mission critical at board level.  Developing relationships worth of loyalty is either a strategic priority or it isn’t.  If it isn’t NPS is not for you.

Part 1: The Fundamentals of the Net Promoter System

Chapter 1: Bad Profits, Good Profits and the Ultimate Question

Customer-centricity is the path to growth because it drives customer loyalty, helping make a company mission-driven as well as profit-driven.  Companies know, believe in and can recite the catechism of customer-centricity:  “Why do we want loyal customers?  Because loyal customers come back more often, buy additional products and services, refer their friends, provide valuable feedback, cost less to serve and are less price sensitive”.  Bain & Co found that the Loyalty Effect could boost 25-100% profit boost by increasing retention rates by 5%. As a proxy for whether customers believe you are worthy of their loyalty, NPS score monitoring can help drive growth via loyalty. For example, market leaders such as Apple, Amazon and Costco create high NPS scores around 80, whilst average firms have a NPS score of 10-20%.  Overall, NPS leaders in the US (companies with the highest NPS scores in their category) grow at over twice the rate of the category average.  And whilst only 9% of US companies surveyed by Bain & Co have registered sustained profitable growth of 5%+ over the last decade, those 9% have an NPS score 2.3 times those of industry averages.

Chapter 2: The Measure of Success

A key challenge of building a business around ‘good profits’ – derived from delivering expectation-building experiences worthy of loyalty, is that you need a simple way to measure customer happiness – and then link it to performance.  It’s got to be simple, practical and actionable.  This NPS ‘Ultimate Question’ – propensity to recommend – is useful because it is both intuitive and adds a critical emotional dimension to the monitoring of loyalty.  It also takes into account the referral value of customers.  It is a good proxy for business made by smiles created. It’s better than measuring behavioural loyalty because behaviour alone (such as retention rates) might hide a trapped ‘smile-free’ relationship; whilst willingness to recommend (advocacy lies at the top of the loyalty ladder) is indicative of emotional loyalty.  Asking about willingness to recommend is also an easier question to answer than asking about abstract concepts like loyalty.  But it’s not perfect; firms must establish a question that best links to customer loyalty, and can serve as a proxy for whether their business is built on good or bad profits (or losses).

Chapter 3: How NPS Drives Profitable Growth

The Net Promoter System is only useful if it drives action – specifically investing in customer relationships to build loyalty. Every company would want better relationships with customers if these relationships were free, but high-quality relationships are not free – they require investment, and reducing reliance on bad profits.  So a key step in refocusing a business on customer relationships is to make the business case for doing so; how much is it worth to turn a detractor into a passive or promoter, what would it be worth to raise our relative NPS by 10 points? To make the case for good profits, you need to know the value of loyalty, and that means estimating the lifetime value of your customer segments – promoters, passives and detractors.  Promoters are worth more because they have a higher retention rate, are less price sensitive, have a higher annual spend, are more cost efficient (they cost less to serve than complaining detractors) and refer more.  But how much more are they worth?  To know this, companies need to segment customers by customer type, measure on these dimensions and then compare the outcomes.  Bain, for example, found that a promoter has a lifetime value (LTV) worth $9500 more than a detractor to a US bank.

Chapter 4: The Enterprise Story – Measuring What Matters

Enterprise Rent-a-Car has grown to become the number 1 rental car agency in the US with a singular focus on using the Golden Rule (treat customers as you;d want to be treated) to generate good profits.  It attributes much of its success, growing from $2bn in 1994 to $7bn in 2004, to a single question monitoring system to track customer delight (replacing a lengthy an ineffectual satisfaction survey suffering from question creep), that has allowed the company to drive customer loyalty. Through experimentation, identifying and learning from best practice, closed-loop on-the-spot fixes, ranking branches by the quality of experience delivered, and making quality experience a precondition for promotion, Enterprise has reduced neutral and negative experiences from 12% to 5% since 1994, whilst building growth from loyal promoters.

Chapter 5: The Rules of Measurement

Driving growth through loyalty requires an agile loyalty monitoring system – NPS score monitoring can help.  Experience shows that effective NPS score monitoring follows certain principles: Principle 1: Ask the Ultimate Question and Very Little Else, Principle 2: Choose a scale and stick to it, Principle 3: Avoid Confusion Between Internal Scores  (‘Bottom-Up’ or ‘Touchpoint’)and External Scores (Top-Down, Benchmark or ‘Relationship’ Scores), Principle 4: Aim for High Response Rates from the Right Customers, Principle 5: Report and Discuss NPS Data as Frequently as Financial Data, Principle 6: Learn Faster and Improve Accountability with More Granular Data, Principle 7: Audit to Ensure Accuracy and Freedom from Bias, Principle 8: Validate that Scores Link to Behaviours.

Tune in on Monday for the second half of The Ultimate Question 2.0 speed summary with practical advice on how to generate ‘good profits’ with lessons from the field from NPS companies such as Apple, Allianz, American Express, Ascension Health, Atlas Copco, British Gas, Cancer Treatment Centers of America, Carolina Biological Supply, Charles Schwab, Cintas, E.on, Intuit, Lego, Philips, Progressive Insurance, Qantas, Rackspace, Schneider Electric, Sodexo, Swiss Reinsurance Company, Vanguard, Verizon, Virgin and Westpac.

NB. The Net Promoter System logo in the header is owned by Bain and is a Bain service mark.

Flash sales

Interest Graph is Social Commerce Future Trend

In regard to future trends, Mack joined the chorus of those that suggest the “interest graph” is the direction where things are heading.

“Some exciting developments in social media are new ‘interest’ focused communities such as Pinterest and Houzz. While Facebook does a great job at addressing the social graph, these emerging sites are addressing interest by providing environments for enthusiasts to spend time sharing what they love across a wide range of categories and interests, including design and home décor.”

I concur that interest graphs (also called “taste graphs”) hold a key to the future of social commerce. You may recall that, in the recent Social Commerce Today post – Social Commerce Future About Portable “Taste Graphs” and “Emo-links” - we predicted that the rise of the interest graph will lead the way to a new generation of social commerce characterized by “dynamic demand-led group-buy around people’s passion points.” to quote the post.

Aside from a concentration on interest graphs as a future trend, Mack stated that mobile and tablet-based commerce, along with social media and flash sales will continue to be relevant to consumers.

Specifically, where social commerce is concerned, Mack said, “Social will be embedded in all e-commerce experiences” and – so sites that offer an exceptional consumer proposition will benefit from it while those that are undifferentiated will suffer.”

Flash Sales Require Innovation

It’s commonly accepted that the flash sales model means customers get great products at better prices, says Mack. However, he indicated that innovation is the key to growth, citing his own company, One Kings Lane, as an example.

“[We] were the first company to offer the Flash Sales model in the home market when we launched in 2009. We then followed up by evolving from a pure flash sales model when we launched the Tastemaker Tag Sales series, where we work with well-known designers and influencers to bring curated sales of one-of-a-kind and vintage items to One Kings Lane. Today, we also shop around the world to bring unique, exceptional items that are hand-selected and deliver tremendous value for our customers.”

Multiple times throughout the course of the interview Mack used the term “innovation” as a key indicator for success:

• “…innovation is critical for the continued growth of companies in the flash sale space.”
• “I think we might still be in the first inning of all the innovation we have planned in the years ahead.”
• “ All of these companies started with a core innovation, but did not rest on their laurels.” [Mack's statement in regard to companies that inspire him.]

Challenges for Online Retailers

Mack indicated two challenges that online retailers need to consider going forward: customer experience and a reliance on the use of time-tested tools such SEM and email. He said companies need to “push their thinking on how to be more creative in their customer contact strategies.”

If Mack’s comments are any indicator, a focus on social and mobile commerce along with flash sales, is warranted as they provide the “game-changing” innovation that lead to better customer experiences, stronger brand loyalty and improved LTV.