Beware the oracles who’ll leave you cursing your luck

Loyalty gurus specialise in predicting what must be done to attract customers – but the actual job of doing it is a darker art altogether

Alan%20MitchellOnce upon a time there was a witch doctor who made his living as witch doctors do. Villagers would come to him with their problems, he would listen intently and sympathetically, then close his eyes and start muttering strange incantations. Then he would open his eyes again, look the villager straight in the face, and tell them they needed to sacrifice a chicken to appease the gods and that he would, if they wanted, be prepared to preside over the ceremony (for a handsome fee).

HenOver the years, though, some villagers began to question his results. “You told me to sacrifice my chicken and I paid you a handsome fee to conduct the ceremony, but still my crops failed!” they would say.

Of course, the witch doctor had a very good answer to this. A sad look would cross his face and he would look earnestly into their eyes, preparing them for some terrible news. “I’m afraid,” he would say, “you must have done something else to offend the gods. Can you think what it might be?”.

Crestfallen, villagers would then prattle about possible misdemeanours, at which point the witch doctor would intervene, saying, “You must do something else to appease the gods”. He would then close his eyes and start muttering strange incantations. Suddenly a look of relief would cross his face. “Ah!” he would tell them. “The gods have just spoken. They say that if you sacrifice a chicken, all will be well.”

However, after a time, some villagers grew even more sceptical – and here the witch doctor was ahead of his game. If a villager continued to ask doubting questions, he would fish a clay tablet out of his bag and say: “Look at this”.

The tablet was a list of all the people who had successful crops and failed crops, and all the people who had sacrificed chickens properly, or who had not sacrificed chickens (or who had not sacrificed their chickens properly). This was not something airy-fairy like closing your eyes and mumbling strange incantations. This was hard data. Evidence that clearly showed a direct correlation between chicken sacrifices and successful crops.

“But,” muttered one particularly persistent villager one day, “how do I know it was my chicken sacrifice that saved my crop and not the rains that came later?”

“Ah, you really don’t understand do you?” cried the witch doctor. “It was the sacrifice that caused the rains to come!”

“Prove it!” cried the villager.

“Prove otherwise,” cried the witch doctor. “Of course,” he continued, “you could always decide not to sacrifice your chicken …” He paused for a moment. ” … if you don’t mind risking your crops failing again.”

We humans have wrestled with the terrors of risk and uncertainty, and with the connections between evidence and belief since time immemorial. And it’s by no means certain we’ve put our witch doctor days behind us.

Take the latest craze to sweep the marketing world – a confident belief in a new sure-fired metric of success called the Net Promoter score. Is it really the product of a scientifically rigorous investigation of all the facts? Or could there be a touch of the chicken sacrifice about it?

The Net Promoter Score is the invention of loyalty guru Fred Reichheld who, fresh from admitting that many of his original prescriptions had triggered a wave of “pseudoscience” and had been “difficult to use”, quickly rushed to replace them with a simpler, surer formula for success. The Net Promoter Score – the simple difference in the proportion of people who would recommend your product or service as against those who wouldn’t – is “the one number you need to know” to predict future growth, he claimed.

So is it? Well, new peer-reviewed research by Timothy L Keiningham, senior vice-president and head of consulting at Ipsos; Bruce Cooil, professor of management at Vanderbilt University; Lerzan Aksoy, assistant professor of marketing at Koç University in Istanbul; and Tor W Andreassen, associate professor of marketing at the Norwegian School of Management suggests not.

First, they found no evidence that a positive net promoter score is a good predictor of revenue growth. Second, when they tested other indicators such as share of wallet or customer retention they discovered that past share of wallet is a better predictor of future share of wallet than willingness to recommend; that past retention is a better predictor of future retention than willingness to recommend; and that past willingness to recommend is … an excellent predictor of future willingness to recommend (but not of share of wallet, or retention). When you put all this together, “multivariate” indicators work better as predictors than any one single number, they conclude.

Finally, when they substituted good old customer satisfaction numbers (as generated by the American Customer Satisfaction Index) into charts produced by Reichheld to show a correlation between net promoter score and company growth, the satisfaction scores dismissed by Reichheld as “pseudoscience” worked just as well.

And by the way, all these correlations vary according to which industry you are in.

So is this just one witch doctor exposing another, in order to replace him? (“The reason why your crops failed is you sacrificed chickens when you should have sacrificed lambs.”) Perhaps. That’s up to you to investigate for yourself.

But here’s a thought. When it comes to complex systems like businesses and markets, the search for sure-fire predictors (akin to experiments that are repeatable in physics) is not scientific but unscientific, because the science shows that these systems are always learning, adapting, evolving and changing. The purpose of science in this case is not to predict things but to explain them: clairvoyance and explanation are not the same.

Circumstances
For marketers, the heart of explanation – identifying the real links between cause and effect – depends on developing a detailed understanding of what we actually have to do to deliver superior value to customers. This is always context and circumstance specific. It’s about different types of customers, different forms of value, differing competitive conditions and so on. It’s about the detail.

Now ask yourself this: how do general, abstract concepts such as loyalty, satisfaction, engagement, commitment or net promoter actually help you do this? Answer: they don’t. They are measurements of an output. They do not tell you why the output happened – they do not help you with the one thing you need to know. Sure, they’re useful as monitoring systems. But focus on them too hard and they lead away from explanation, not towards it. Which is what keeps witch doctors in business.

Alan Mitchell, www.alanmitchell.biz

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