The “Primary Purpose” of Business Is the Customer

The “Primary Purpose” of Business Is the Customer

An interview with Fred Reichheld, creator of the Net Promoter System Elizabeth Carducci, SVP, Solutions Principal at Medallia

Medallia Experience ’20 Summit was full of great guest speakers on a variety of topics. One of the discussions took place between Elizabeth Carducci, Medallia’s SVP, Solutions Principal, and Fred Reichheld, the creator of the Net Promoter System and author of four best-selling books. 

In their session titled, “The ‘Primary Purpose’ of Business is the Customer,” Fred spoke passionately about enriching the lives of customers by first challenging companies to focus less on financial metrics of success. Watch the Medallia Talks session on demand.

He explained, 

Leaders put their employees in a position to delight customers and earn their loyalty. That chain of events is what truly drives the economics of a business. And accounting has a hard time tracking this because we don’t track referrals or word of mouth…we need to measure it better, so we can manage it better.

Fred also spoke about a new metric he calls  – the Earned Growth Ratio. I found his explanation of the metric and the reasoning behind it to be insightful. Fred highlighted how some companies use the Net Promoter Score as an objective for bonuses or key performance indicators. As a result, the survey-based statistic can be gamed by employees and leaders focused on earning a score — and therefore, a reward — rather than transforming customers into promoters.

Earned Growth Ratio looks at a company’s revenue growth within a specific period and measures how much of that revenue is generated by existing customers and the referrals they generate. This metric, he argued, can then be tied to specific objectives such as a raise.

Their conversation then transitioned to the topic of rich customer feedback through voice and video, which Fred touted as a strong way to receive a quick snapshot of powerful, emotion-filled insights and feedback. Fred’s suggestion of using curated customer insight videos to kick off a board meeting inspired me as it brings the customer’s voice to the board. Doing so allows board members to  stay deeply connected to customers with rich and deep understanding of their perspectives vs.  just financials to drive decision making. 

Melissa Arronte, head of employee experience for Medallia also inquired about how companies should think about their employees. Fred demonstrated that the only way to make employees happy is to put them in the best position to enrich customer lives and give the “standing ovation” when earned. This launches a closed loop of employee-customer relations.

He also shared an excellent example of his son working at the Apple store. 

“He’ll use A/B tests to determine the best way to delight customers by experimenting with different greetings. This is what companies need to encourage. All employees should feel responsible for figuring out what needs to be done to make customers happier.”

Fred and Elizabeth ended their chat by discussing Fred’s new book, which examines the concept that the primary purpose of a business is to enrich the lives of customers.

I believe Fred’s final statement sums it up best: 

The only way to win long-term is to make sure your customers are winning, too.