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    « Measuring Service | Main | Enduring Success: Exploit versus Explore »

    September 07, 2007

    Isn't All Profit Good?

    In the book "The Ultimate Question" Fred Reichheld distills customer loyalty into an extremely simple yet compelling metric called NPS or Net Promoter Score. He describes how most companies rely solely on traditional financial metrics like revenue and profit, but explains that these are short term measurements of success and are not highly correlated with long term sustainable success.  He describes the difference between "good profit" and "bad profit". Good profits are when you make money turning customers into enthusiasts and bad profits are derived from schemes such as locking in customers, tricking them through deceptive promotions, or hard selling techniques. Good profits create value for customers and bad profits extract value from customers.  Companies can hit short term goals with bad profits and sometimes more effectively than with good profits, but customers who had bad profits extracted from them will count the days until they can find an alternative vendor.

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