A History of Customer Love in Three Acts

New ideas that challenge the status quo are often mistrusted. Consider Copernicus.

Nicolaus Copernicus is widely credited with convincing mankind that the Earth rotates around the sun, not the other way around, as most people had believed through history. When he published his seminal article on the topic in 1543, his advocacy of heliocentrism over geocentrism caused quite a stir. By the next century, the Church in Rome was denouncing this radical idea as outrageous and blasphemous since it contradicted scripture as well as common sense, going so far as to place Galileo under house arrest for preaching the gospel of heliocentrism. 

Almost 40 years ago I noticed that, in successful business organizations, the world revolves around the customer, not the investor. My observation was based on the enormous returns generated for investors by companies that earned superior customer loyalty. While this insight is of far less significance than the world-changing discoveries of Copernicus and Galileo, in the realm of modern business, customer-centrism is no less radical a departure from the traditional worldview—and also has been dismissed and derided by the mighty forces that believe in an investor-centered universe. Indeed, the governance of public companies demands that boards of directors honor a primary duty of loyalty to shareholders. This investor-centric view has shaped the world’s understanding of capitalism and the primacy of profits.

But the numbers don’t lie. In most industries, the winner that delivered the best financial results behaved in a manner that put customer interests first, my research found, and that eventually resulted in superior results for investors. In 1996, I consolidated these ideas and the economic evidence supporting my theories in The Loyalty Effect, published by Harvard Business School Press.

Customer love metric 1: retention rates as proxy for customer lifetime value

The book argued that the best way to look at a company was through the lens of customer lifetime value. Since calculating customer-specific cash flows is challenging, I suggested that firms focus on retention rates, a simple summary statistic that captured most of the essential insights of lifetime cash flows. All else equal, the longer a well-selected customer stays on board, the more profits they generate. In a wide range of industries, a 5% increase in retention could boost lifetime cash flow from each customer by 25% to 95%.

Customer love metric 2: Net Promoter Score

While true, this wasn’t sufficiently practical to influence daily priorities and decisions in a world dominated by financial metrics, which companies use to gauge progress. So, I came up with the Net Promoter Score—a survey-based signal that could help employees learn whether they had made a customer happy. It had the weaknesses of any survey-based technique, but also a very valuable strength: It enabled each part of the business to learn in real time what delighted and what frustrated customers. For companies that believed in a customer-centric world, it offered a wide range of useful tools and processes that focused on solving customers’ problems and making them happy.

Customer love metric 3: Earned Growth

Unfortunately, many firms made the mistake of linking survey scores to employee bonus calculations. This resulted in score manipulation and pleading, begging, or cajoling customers for a high rating.

In order to relieve the artificial pressure on scores, my Bain & Company colleagues Darci Darnell, Maureen Burns, and I introduced a different metric in our book Winning on Purpose. Based not on surveys but on observable behaviors, it both illuminates when customers feel loved and helps hold teams accountable for progress. This metric, Earned Growth, simply measures how much revenue each period comes from existing-customer repeat and expanded purchases (net of reductions) plus the revenues from new customers who were referred by existing customers. 

A few companies have begun to measure Earned Growth, and their findings point to wide variations from company to company in both components—Net Revenue Retention and the portion of new customers that are referred. Measuring these statistics requires more work than simply calculating customer retention rates or Net Promoter survey scores, but as we observe more data through this new telescope, we see even more evidence supporting the validity of a customer-centered theory of business. 

For leaders who want to convince their employees, governance boards, and investors that they know how to navigate in a customer-centered universe, it is time to insist that their chief financial officers build the capacity to measure and track the company’s progress at earning growth. This information should be as trustworthy as any financial metric and distributed throughout the company. Every team needs to understand how well they are performing based on how many of their customers are coming back for more and referring their friends.

When I recently presented these ideas to leaders of one of the world’s largest and most well-established financial services organizations, they asked why it has taken so long for customer-centrism to be accepted, since it makes so much sense. I thought about using the Copernican analogy—but hesitated since it required more than a century for the world to adopt that new view, even though it was demonstrably correct.

In truth, this is much more than a metric or a new economic theory. It is an entirely new way of seeing the business world and its governing forces. Leaders must not only believe in the truth of this framework; they must also convince their colleagues, governance boards, and investors. The processes, systems, and policies that have been developed over previous decades to navigate the old paradigm will have to be revised and adjusted.

How fast a company must change will be determined by its competition. In most industries, the challengers and disrupters are already operating with a customer-centric mindset. Their progress will set your deadline to adapt or perish.