Customers

BY ROB MARKEY, FRED REICHHELD,

AND ANDREAS DULLWEBER

Closing the
Customer
Feedback
Loop
In a resource-challenged economy,
empower your frontline employees
to respond fast.

CHERYL PASQUALE, a branch manager at Charles Schwab,

starts her workday with this morning ritual: As soon as
she arrives at her desk, she fires up her laptop, logs on to
Schwab’s intranet, and pulls up the latest customer feed-
back report for her office. Generated by a brief survey the
investment firm e-mails out daily, the report shows the
most recent responses from her team’s clients.
Hanna Melin

Scrolling through the results, Pasquale reviews how well

the six financial consultants she supervises handled the
previous day’s transactions. She sorts through the aggre-
gate scores from customers and reads the comments of
individuals who gave high or low marks and sees if any par-
ticular kind of interaction has elicited praise or complaints.
As she clicks through the screens, Pasquale notices that
several customers have voiced frustration with how hard
it is to use the in-branch information kiosks. She decides
she’ll ask her team for insights about this in their weekly
meeting. Some customers are confused by one of Schwab’s
forms; she reminds herself to raise this with other branch
managers at the regional meeting later in the month. And
she spots an opportunity to counsel a new account rep on
how to build better rapport with clients in their next one-
on-one training session.
Art Credit

A “manager alert” – a special notice triggered by a client

who has given Schwab a poor rating for a delay in posting

hbr.org | December 2009 | Harvard Business Review 43

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 Customers Closing the Customer Feedback Loop
a transaction to his account – grabs her
attention. The client has indicated that
he’s willing to discuss the issue in a follow-
up call, so Pasquale makes a note to try
to reach him that day. Surprising as it
may seem, she usually looks forward to
such calls. They give her a chance to find
out what’s on customers’ minds and solve
their problems – and potentially turn
critics into fans.
Every day, managers at each of
Schwab’s 306 branch offices and five
call centers conduct a similar drill. It’s
an integral part of a new focus on di-
rect customer feedback that the firm’s
founder, Charles Schwab, credits with
turning around the company. When he
came out of retirement to take its helm
in 2004, the business was struggling.
“We had lost our connection with our cli-
ents – and that had to change,” Schwab
confessed to shareholders in the annual
report. The new customer feedback sys-
tem has helped reestablish that connec-
tion. In 2008, the firm saw its revenues
increase by 11% and the scores that cus-
tomers gave the company jump by 25%.
And while the financial services industry
was rocked by turbulence, Schwab cli-
ents entrusted $113 billion in net new as-
sets to the firm, and the number of new
brokerage accounts increased by 10%.
Getting Customer
Feedback Right
Most companies devote a lot of energy
to listening to the “voice of the customer,”
but few of them are very happy with the
outcome of the effort. Managers have
experimented with a wide array of tech-
niques, all useful for some purposes – but
all with drawbacks. Elaborate satisfaction
surveys that involve proprietary research
models can be expensive to conduct and
slow to yield findings. Once delivered,
their findings can be difficult to convert
into practical actions. The results also
may be imprecise: Our research shows
that most customers who end up defect-
ing to another business have declared
themselves “satisfied” or “very satisfied”
in such surveys not long before jumping
ship. The practice of sending executives
44 Harvard Business Review | December 2009
1692 Dec09 Markey.indd 44
IDEA IN BRIEF
■ It’s never been more impor-
tant to keep the customers
you already have – it’s much
cheaper than acquiring new
ones. But elaborate customer
research may be beyond this
year’s budget.
■ Many companies have suc-
ceeded at retaining customers
by asking them for simple
feedback – and then empower-
ing frontline employees to act
swiftly on that feedback.
■ European manufacturer
Grohe, for example, turned
around a decline in market
share and used its sales force
more effectively after imple-
menting a simple feedback
loop from the distributors who
sold the company’s products.
out to spend time in the field can gener-
ate fresh insights, but few management
teams sustain such efforts – and even if
they do, they often struggle to convert
those insights into prescriptions that
frontline employees can follow. Bringing
in “power customers” – heavy spenders
who tend to be deeply committed to
the company – to talk about their expe-
riences can shine a spotlight on critical
issues. But frontline employees can’t eas-
ily learn about their own behaviors from
those customers or develop remedies for
the problems they raise.
A growing number of companies have
developed effective customer feedback
programs that head off those challenges
right from the start. Instead of building
elaborate, centralized customer research
mechanisms, these firms begin their
feedback loop at the front line. Employ-
ees working there receive evaluations of
their performance from the people best
able to render an appraisal – the cus-
tomers they just served. The employees
then follow up with willing customers in
one-on-one conversations. The objective
is to understand in detail what the cus-
tomers value and what the front line can
do to deliver it better. Over time, com-
panies compile the data into a baseline
| hbr.org
of the customer experience, which they
draw upon to make process and policy
refinements.
The strongest feedback loops do more
than just connect customers, the front
line, and a few decision makers in man-
agement, however; they keep the cus-
tomer front and center across the entire
organization. A number of tactics, such
as hiring “mystery shoppers” to test cus-
tomer service or arranging periodic fo-
rums between employees and customers,
help strengthen this organization-wide
focus. One approach that we believe
works well across a range of industries
is the Net Promoter Score (NPS), which
one of the authors of this article, Fred
Reichheld, created seven years ago.
NPS immediately categorizes all cus-
tomers into one of three groups – pro-
moters, passives, and detractors – allow-
ing employees throughout a company to
see right away whether a customer ex-
perience was a success or a failure – and
why. NPS is generated by asking custom-
ers a single question, “How likely would
you be to recommend [this company or
product] to a friend or a colleague?” Re-
spondents giving marks of 9 or 10 are
promoters, the company’s most devoted
customers. Those scoring their experi-
ence 7 or 8 are passives, and those scor-
A Five-Point Customer
Feedback Checklist
1 Have you reached a consensus on
your business’s five most critical
“moments of truth” with customers?
2 Do employees and managers get
customer feedback routinely, on
a daily or weekly basis?
3 Do you let customers know the im-
pact their feedback had on improving
your processes?
4 Do you know what percentage of de-
tractors your operations now convert
into promoters through service recovery
processes?
5 Can you put a dollar value on turning
a detractor into a promoter?
11/2/09 1:34:59 PM
 ing it from 0 to 6 are detractors. NPS is
the percentage of promoters minus the
percentage of detractors. Customers are
then asked to describe why they would
be likely or unlikely to recommend the
company. The insights gathered from
their answers enable employees to
quickly identify issues that create de-
tractors – and the actions required to ad-
dress them. (For more on NPS, see “The
One Number You Need to Grow,” HBR
December 2003.)

Gathering Feedback
on the Front Line
Say that thousands of transactions occur
daily between customers and frontline
employees at your company. Each is an
opportunity to create a new promoter.
But which customer experiences matter
the most? We have learned that the most
important interactions are “moments of
truth,” those relatively few points of con-
tact that hold the greatest potential to
delight – or alienate – an organization’s
customers. As they mine the steady
flow of customer feedback, companies
should pay particular attention to these
touchpoints.
That was the rationale of Allianz
CEO Michael Diekmann when he set
out to bring his global financial ser-
vices enterprise closer to its customers,
in 2004. Diekmann and his leadership
team recognized that no group was bet-
ter positioned to pinpoint the make-or-
break customer experiences – and come
up with effective ways of improving
them – than the tens of thousands of
customer-facing Allianz employees who
delivered services day in and day out.
The company’s management began by
assembling a small customer-focus team,
reporting directly to the board, that
would design, build, and test a feedback
system and then roll it out to frontline
employees in most of the 70 countries
where Allianz operated. The team chose
NPS as its core metric.
Here’s how the Allianz system works:
After every transaction, an independent
polling firm immediately contacts the
customer and conducts a brief survey. It
Each transaction is an opportunity to
create a new promoter. But which
customer experiences matter most?
e-mails the results immediately to the
employee who provided the service and
publishes aggregated results on local
intranet “dashboards” for everyone to
review. Frontline employees then fol-
low up by calling a sample of customers
who’ve agreed to be contacted. After lis-
tening to the issues customers raise, they
correct the problems or escalate them to
someone who can.
Because the frontline employees take
responsibility for lifting their work unit’s
feedback scores, they meet frequently to
devise service improvements, both large
and small. In one of the firm’s European
health-insurance-claims operations, for
example, NPS feedback revealed that
unexplained delays in reimbursements
were a big source of customer frustra-
tion. When claims representatives fol-
lowed up with dissatisfied customers,
they learned that customers had to call
back repeatedly to inquire about the
status of payments and describe medi-
cal conditions again and again. The
reps’ solution: On the initial call, every
policyholder would be assigned a case
manager who would handle all contact
until the claim was resolved. To man-
age customer expectations, any delay in
the reimbursement process would trig-
ger a call or text message informing the
policyholder of the claim’s status. Soon
after the new protocol was in place, the
claims unit saw a double-digit increase
in its NPS and a significant rise in policy
renewal rates.
This kind of closed-loop process can
fade away without strong leadership and
cultural reinforcement. Allianz’s Austra-
lian property-and-casualty unit, half a
world away from headquarters, faced this
challenge by having the top executives
personally call customers each month
and by using employee rewards and rec-
ognition. Managers in each sales office,

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 Customers Closing the Customer Feedback Loop
claims facility, and call center maintain
a “compliment database,” where they
register feedback that praises frontline
employees by name. Individual employ-
ees’ successes are celebrated at regular
office “town hall” meetings hosted by
a senior Allianz executive.
Managing Change Through
Customer Feedback
For many companies, the route to the
end customer is circuitous. They sell
their products to distributors, retail-
ers, and other intermediaries. Frontline
sales reps typically have little incentive
or ability to reach beyond their imme-
diate customer and connect with the
people who end up choosing or using
the products.
That was the situation that Grohe, a
European manufacturer of premium
kitchen and bathroom fixtures, found
itself in. Grohe sells its products in 130
countries through more than 20 divisions,
to customers like home-improvement
chains, hardware stores, and building
supply outlets. After new owners took
control of the company in 2004, its mar-
ket share began dropping steadily.
CEO David Haines decided that cus-
tomer strategy was the key to reviving
Grohe’s growth and set three priorities.
First, Grohe needed accurate insights
into the chain of customer relationships
to determine how frontline sales reps
and marketing support teams might in-
tervene to boost sales. Second, the com-
pany needed to quickly measure whether
the new approaches its sales reps tested
were working. Third, it needed a feed-
back system that would promote contin-
ual frontline learning and would work
well in all its markets.
Brief telephone surveys revealed a
major disconnect between Grohe’s dis-
tributors, wholesalers, and retailers and
their customers – the folks who influ-
enced or made the ultimate purchase of
the company’s fixtures. Grohe sales reps
learned that their direct customers, most
of whom also sold competitors’ products,
required a lot more help communicat-
ing the attributes – innovative design,
46 Harvard Business Review | December 2009
1692 Dec09 Markey.indd 46
Give Customers a Voice
in Running Your Business
M any companies have discov-
ered that closed-loop customer
feedback systems can energize their
frontline workers. To inspire customer-
centered learning throughout an orga-
nization, however, you also need feed-
back loops in the executive suite and
the middle ranks. There, customer input
can influence decisions on everything
from where the company will compete
to product development, pricing, poli-
cies, and processes.
The top-level strategy loop.
Direct input from customers can help
make strategies coherent. Allianz, a
Munich-based financial services firm,
uses Net Promoter Scores to bench-
mark the strengths and weaknesses
of its major business units around the
world. Annual NPS surveys measure
how each operating enterprise (OE)
performs against its competitors in the
eyes of customers. The surveys identify
which OEs are customer loyalty leaders,
which are at parity with their rivals,
and which are laggards. When Allianz
compared the scores and annual growth
rates for each OE, the results were
striking. Best-in-class OEs (with scores
higher than their competitors) increased
revenues significantly faster than OEs
that trailed their rivals. CEO Michael
Diekmann used those findings to send
an unambiguous message to the global
organization: Improving the customer
experience is a core mission.
The midlevel functional loop.
Middle managers in operations, market-
ing, and finance must convert strate-
gies into policies and processes that
attract and retain high-value customers.
If these managers don’t have direct
customer feedback, tight budgets and
other constraints can lead them to shunt
customers to the sideline. The sad fact
is that many organizations jeopardize
their goodwill with customers by push-
ing up profits at their expense.
| hbr.org
Integration into the learning loop
with customers can help functional
managers avoid the wrong trade-offs.
For instance, instead of trying to hit Six
Sigma quality levels at every touch-
point – which can be prohibitively ex-
pensive – companies can learn to focus
on the few that really build or destroy
loyalty.
For American Express, one of those
touchpoints was the replacement of lost
or stolen charge cards. While combing
through Net Promoter Scores and cus-
tomer transactions, company analysts
saw that initial requests for card replace-
ments went unresolved at about twice
the rate of other call center requests.
Even more alarming, the analysts
discovered that the customers request-
ing replacements were some of the
company’s biggest spenders. Follow-up
surveys with card members who en-
countered delays revealed that their NPS
ratings were one-third lower than those
of peers who did not need a replace-
ment. Tools that measure customer
satisfaction only in the aggregate might
never have uncovered the problem.
The company’s operations managers
pulled process improvement teams off
many other less-urgent initiatives and
focused them on card replacements.
The teams developed new card replace-
ment protocols, which increased first-
call resolution rates by more than 20%
and raised the NPS of the customers
involved to parity with other customers.
When using NPS to set strategic
direction at the top; refine processes,
products, or policies in the middle;
or sharpen service at the front lines,
customer-focused organizations are not
preoccupied with simply attaining high
scores. Instead, they spur organizational
action, close the loop with customers,
and collect subsequent customer feed-
back to gauge if the actions they took
produced results.
11/2/09 1:35:10 PM
 ease of installation, dependability – that
were Grohe’s competitive advantages.
Grohe quickly launched programs
to address these shortcomings. Sales
reps began sponsoring workshops in
distributors’ showrooms to teach con-
tractors how easy the products were to
install. They provided new floor and win-
dow displays to showcase the products’
decorative appeal. And they recruited
a select group of high-volume distribu-
tors into an elite “Grohe Club,” offering
incentives and extra sales support. To
close the feedback loop and determine
whether the techniques were boosting
customer loyalty and sales, Grohe con-
ducted regular NPS surveys with the dis-
tributors. In the year after it launched
the new program, Grohe saw its NPS
climb more than 20 percentage points.
The company also uses NPS in con-
trolled experiments to field-test ideas
before rolling them out systemwide. For
example, in one of its markets, the com-
pany began tracking how often sales
1692 Dec09 Markey.indd 47
reps visited their customers and what
effect the number of visits had on NPS.
It found that scores spiked at three visits
and began to fall off with more frequent
contact. By cutting back on the unpro-
ductive extra calls in most of its sales
territories, Grohe freed up an estimated
25% of its selling capacity.
•••
At companies where strong customer
feedback systems take hold, business-
unit leaders and frontline employees
start to own customer loyalty the same
way they own their targets for revenue,
profits, and market share. Indeed, in-
creasing positive customer feedback
and meeting conventional financial ob-
jectives are becoming one and the same
goal. Analysts at Grohe, for instance,
have calculated that a 10% improvement
in NPS correlates with a six- to seven-
percentage point increase in revenue
growth.
As employees at Grohe, Schwab, Alli-
anz, and other companies we’ve worked
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with have seen, you can’t fix problems
you don’t know you have. And unless
you keep the customers you already have
coming back for more and recommend-
ing your company to their friends and
colleagues, it’s hard to grow a business.
Rob Markey (rob.markey@bain.com)
is a partner in the New York office of
Bain & Company and leader of the firm’s
global Customer Strategy and Marketing
Practice. Fred Reichheld (fred.reichheld
@bain.com) is a Bain Fellow and a lead-
ing authority on customer loyalty. He is
the author of The Ultimate Question:
Driving Good Profits and True Growth
(Harvard Business Press, 2006). Andreas
Dullweber (andreas.dullweber@bain.
com) is a Bain & Company partner
based in Munich, where he leads the
firm’s European Customer Strategy and
Marketing Practice.
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