Fred Reichheld, the inventor of the Net Promoter Score (NPS), defines bad profits as earnings at the expense of customer relationships. These are profits from customers who feel misled, mistreated, ignored or coerced. Customer relationships are harmed by blatantly bad experiences like a parking valet returning your car with a damaged fender and refusing to accept responsibility. But customer relationships are also harmed by the more mundane – raising prices, charging for support, or removing features.
Why are bad profits bad? Because these bad experiences turn customers into detractors. And detractors won’t be shy about telling others to stay away from your products. What Reichheld has taught us is that an offering with a negative NPS (more detractors than promoters) will have a hard time growing and is primed to be displaced by a competitor.
But if bad profits are so bad, why do so many companies use them? That’s because bad profits are seductive. They are almost always the fastest way to shore up earnings during a weak quarter or fiscal year. Bad profits are also addictive – before you know it, mistreating customers can become a habit, engrained in the company culture.
So how do we avoid bad profits? By leaning into good profits – giving customers products and experiences they value. How do we know what customers will value? By talking to them, running experiments, and using good old common sense.
Here are some thoughts on how to lean into good profits:
1. Instead of simply raising the price of your product, consider creating a new higher priced tier that has new features that less price-sensitive customers will value.
2. Instead of completely changing a user-interface that customers have grown used to, consider offering a “classic mode” setting.
3. Instead of removing features, consider supporting a “legacy” SKU only available to existing customers.
4. Instead of charging for support, consider making your product easier to use (make reducing call drivers a priority) and make self-help convenient and effective.