The One Number You Must Increase.

The CEOs present were well aware of the importance of loyalty. They had already succeeded in transforming their businesses into market leaders, largely as a result of forging incredibly devoted bonds with their clients and staff. The CEOs of a half-dozen other top corporations, including State Farm, Chick-fil-A, and Vanguard, had come together for a day-long event to share knowledge that would help them improve their loyalty initiatives. And what Andy Taylor, the CEO of Enterprise Rent-A-Car, was saying to them was fascinating.

Without the complexity of conventional customer surveys, Taylor and his senior team had developed a method for measuring and managing client loyalty. Enterprise surveyed its clients on a monthly basis, asking them two straightforward questions: one about how their rental experience was, and the other about how likely they were to rent from the company again. It was quick because the procedure was very easy. Because of this, the business was able to publish rated results for each of its 5,000 U.S. branches in a matter of days, providing the offices with real-time feedback on their performance and the chance to observe successful colleagues in action.

The survey was unique in yet another significant way. The business only took into account consumers who offered the best ratings for the experience when ranking the branches. The CEOs in the room were taken aback by the company's laser-like concentration on loyal clients. A hand raised. What about the remainder of Enterprise's clients, the only happy ones who remained its tenants and were crucial to its operations? Wouldn't it be preferable to track mean or median statistics in a more sophisticated manner? Taylor answered no. Customers who not only return to rent from Enterprise again but also refer it to their friends could be the company's main source of profitable development if it focused entirely on individuals who were most pleased with their rental experience.

I was also taken aback by Enterprise's strategy. Most surveys on consumer satisfaction aren't particularly helpful. They frequently have poor response rates and confusing implications that are challenging for operating managers to act on because of their length and complexity. Furthermore, because the majority of top executives, board members, and investors don't take them seriously, they are rarely questioned or audited. That's as a result of the little correlation between their outcomes and growth or profit.

However, Enterprise's approach—and its capacity to achieve profitable expansion using what seemed to be a rather straightforward tool—got me to believe that the business could be onto something. By concentrating just on consumers who gave the most enthusiastic responses to a short list of questions designed to gauge their brand loyalty, might you achieve comparable outcomes in other industries—including those that appear to be more difficult than car rentals? Is it possible to condense the list into a single query? In that case, what would the query be?

To come to that conclusion, I had to spend two years conducting research that connected survey results with actual consumer behaviour, such as purchase trends and referrals, and eventually with business expansion. The outcomes were unmistakable but unexpected. It turned out that just one survey item might be a helpful growth predictor. However, despite what it would seem like, that question has little to do with patron satisfaction or even loyalty. Instead, it concerns customers' propensity to refer a good or service to a friend. In fact, in the majority of the businesses I analysed, the proportion of clients who were willing to recommend a friend or colleague—possibly the strongest indication of client loyalty—correlated directly with variations in growth rates across rivals.

Loyalty and Growth

Let's take a quick look at the idea of loyalty and some of the errors businesses make when attempting to measure it before I detail my research and the findings from a number of industries. A definition first. An individual's desire to invest in or make a personal sacrifice in order to advance a connection is what is meant by loyalty. If a supplier treats a client well and provides him with good value over the long term, even if the supplier does not have the lowest pricing in a given transaction, the customer may choose to continue with them.

As a result, client loyalty involves much more than just making consistent purchases. In fact, even a customer who makes repeated purchases from a business may not be loyal to that business because of inertia, apathy, or exit barriers put up by the business or situation. (Someone might frequently travel with the same airline merely because it provides the most flights to that city.) On the other hand, a devoted consumer can stop making frequent follow-up purchases as a result of a diminished need for a good or service.