The Value of References: Notes from a Conversation with Frederick Reichheld, Part 1
No one understands the strategic importance and business
potential of customer references better than Fredrick
Reichheld. And he has the ear of senior executives. He's a
director emeritus at famed Bain & Company, the Boson-based
consulting firm. He's also a Bain Fellow and founder of the
firm's Loyalty Practice. He has published many widely read
articles for Harvard Business Review, The Wall Street Journal,
the New York Times, Business Week, Fortune and the
Economist. His book, The Loyalty Effect (Harvard Business
School Press, 1996) is an international business bestseller.
More recently, his Harvard Business Review article, "The One
Number You Need to Grow," (December 2003) contained the
results of research that uncovered the tremendous importance
of enthusiastic references (or "net promoters" in Reichheld's
terminology) to a company's top line growth. Click here (www.lee-communications.com/5-07
-04.doc) for more on this in the May 2004 issue of Reference
Point. And more research is on the way.
Recently, I had a chance to chat with him at Henrietta's
Table, a charming restaurant in the Charles Hotel on Harvard
Square, Cambridge. Following are my notes from this
fascinating conversation. If you're running a customer
reference program and wondering about the importance of your
work - and how to demonstrate its importance to senior
executives - I think you'll find it interesting.
-- Referrals drive sales. "Everyone knows" that references
are important to sales. But who can prove it? Can we quantify
their impact? Reichheld is preparing to publish research results
that do precisely that. They will show that referrals drive a
-70% of sales in the companies he studied. Your program - and
its potential impact on sales - is far from "fringe." I can't tell
you which companies Reichheld studied yet, but they are very
high profile technology firms.
(I'll let you know when the study comes out.)
-- Referrals tend to take place "below the surface."
Companies often are unaware that customers are referring
them. This creates an obvious, compelling need to bring
referral activity into the open and leverage it.
That leads to two clear, strategic roles Customer Reference
programs can play.
-- One is the role you're already playing: bringing
customer referral activity to the surface and leveraging it, for
example, by exposing referrals to prospects with which they
otherwise wouldn't have contact. That's a pretty important role
- and with Reichheld's research, one whose impact on top line
sales can be reasonably well quantified.
-- The second is for CR programs to expand the amount of
actionable information they are already gathering from
customers, in order to convert neutral or even unhappy
customers into references, to convert mild references into
enthusiastic ones or "net promoters," and to help deepen and
leverage overall customer relationships. Each of
have a significant impact on sales. And in many cases, these
would be quite natural and strategic extensions of your
For example, if you're surveying customers already on
whether they're willing to act as references and talk to
prospects, why not also ask if they'll talk to product
development about developing new value added solutions? The
result of all such naturally expanded reference activities can
measurable impact on
your company's performance.
In a subsequent issue, we'll look at some ways of using
framework to actually assess the impact of reference programs