A great product isn’t the end-all and be-all of legendary companies. There’s more to it than meets the eye…
| From the desk of Miles Everson: Hi! I’m elated to talk about another investing insight for today’s “The Independent Investor.” Every Wednesday, I feature investing insights and strategies in the hopes of helping you attain financial freedom through this activity. Today, let’s talk about customer loyalty and how it can turn brands into legends in the eyes of customers. Curious to know more? Continue reading below! |
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A great product isn’t the end-all and be-all of legendary companies. There’s more to it than meets the eye… When Fred Reichheld joined Bain & Company in 1977, the firm was in a period of massive growth. Bain & Company’s rise was fueled by its commitment to go beyond just offering companies advice and billing them for that service. Instead, the consulting firm went above and beyond, as it created plans for clients and helped them implement it. More importantly, Bain & Company only worked with one company per industry, enabling the company to focus on its clientele. This hands-on approach and slimmed-down customer base was what gave the consulting business its edge. However, what really set Bain & Company apart was Reichheld’s focus on customer loyalty.
You see, Reichheld understood and valued the importance of loyalty from both customers and employees. Reichheld’s belief was based on his research, which showed it wasn’t enough to keep customers satisfied. Instead, companies had to provide customers with a product and service worthy of their loyalty since doing so could help businesses create a lasting competitive advantage for themselves. Decades later, Reichheld’s strategy transformed how companies think about their businesses. The strategy also led to the development of a game-changing metric: Net Promoter Score (NPS). Promoting Business Success Reichheld created the NPS to go beyond customer satisfaction and capture something more powerful: Advocacy. NPS is at the heart at some of the most successful companies, like Apple and American Express. If you’ve ever used a service from any of these companies, you’ve likely seen NPS in action as it involves asking customers a simple question. “How likely are you to recommend us to a friend or colleague?” The move seemed to make sense at the time since it enabled Borders to focus on its physical stores. Answers to this question are categorized into the following:
A company’s NPS score is calculated by subtracting the percentage of Detractors from the percentage of Promoters. The higher the score, the stronger the advocacy and customer loyalty. A Master of Loyalty NPS is at the heart of some of the most iconic success stories in the world of business. Take Apple for example… The tech giant didn’t just settle with selling great products like the iPhone, Apple Watch, MacBook, and iPad; it also built an ecosystem that kept its users locked in and invested. Apple has many products in circulation today and has spent many years building a seamless ecosystem where it is very convenient for users to sync their data across multiple devices. For example: The Apple Watch makes it easy for users to read and respond to iMessages and sync content between a MacBook, iPad, and iPhone. Due to this integration, most users simply opt to stay in Apple’s product ecosystem… even if it means paying a premium for new products every few years. Simply said, Apple not only delivers what customers want but also creates an ecosystem that turns users into passionate advocates. In the end, these loyal customers are the ones telling everyone they know to invest in Apple’s ecosystem. That’s NPS in action. In fact, in 2023, the company reached an impressive NPS score of 61. This means advocacy has been a key driver of Apple’s incredible stock growth and massive wealth creation over the past decade. Not Just a Tool for Businesses NPS isn’t just a metric used by high performing firms. … it’s a powerful tool for investors too! Businesses that enjoy a high NPS relative to their peers have a strong competitive advantage. A high NPS is usually a signal that a firm has built a growth engine that’s tough for competitors to replicate… and this is precisely why NPS should be a part of your analysis. Strong NPS scores are usually an early indicator of sustained and long-term success. On the other hand, if you notice that a stock’s advocacy score is stagnant or declining, then it’s a sign that the business is slipping. Simply said, NPS can be a powerful tool in identifying which stocks to buy and which ones to sell. Hope you’ve found this week’s insights interesting and helpful.
Stay tuned for next Wednesday’s The Independent Investor! It’s not always the first or the best product that wins the race. Learn more about why quality alone won’t predict AI winners in next week’s article! |
Miles Everson
CEO of MBO Partners and former Global Advisory and Consulting CEO at PwC, Everson has worked with many of the world's largest and most prominent organizations, specializing in executive management. He helps companies balance growth, reduce risk, maximize return, and excel in strategic business priorities.
He is a sought-after public speaker and contributor and has been a case study for success from Harvard Business School.
Everson is a Certified Public Accountant, a member of the American Institute of Certified Public Accountants and Minnesota Society of Certified Public Accountants. He graduated from St. Cloud State University with a B.S. in Accounting.
