How to achieve true
customer-led growth

Closing the delivery gap
By James Allen, Frederick F. Reichheld, Barney Hamilton and Rob Markey

James Allen is a partner at Bain & Company in London and co-directs
the firm’s Global Strategy Practice. He is the co-author of Profit from the Core.
Frederick F. Reichheld is a Boston-based director emeritus at Bain andthe author of The Loyalty Effect, Loyalty Rules! and The Ultimate Question.
Barney Hamilton is a Bain partner in London. Rob Markey is a partner basedin New York and leader of Bain’s Customer Strategy Practice.

Copyright © 2005 Bain & Company, Inc. All rights reserved.
Editorial team: Katie Smith Milway, Cindy Varga, Susan Donovan, Erik Serrano Berntsen, Louisa Thomason and Emily Gray
Layout: Global design

Closing the delivery gap

How to achieve true
customerled growth

The first is a basic paradox in business:

Most companies assume they’re consistently

a loyal, profitable customer franchise. When

giving customers what they want. Usually,a business tries to increase its revenue perthey’re kidding themselves. When we recently

customer, it tends to do things, like raisingsurveyed 362 firms, we found that 80% believed

transaction fees, that end up alienating

they delivered a “superior experience” to their

its core group of buyers. It compounds

customers. But when we then asked customers

the problem when it tries to expand its

about their own perceptions, we heard a very

customer base, as pursuing new customers

different story. They said that only 8% of

distracts management from serving thecompanies were really delivering. (See figure 1.)

all-important core.

Why does this “delivery gap” exist at so many

The financial software powerhouse Intuit

companies? It’s not because business leaders

briefly succumbed to this paradox, despite

fail to recognize the importance of their

its long record of excellence in customer

customers. In fact, more than 95% ofservice. In 2001, its TurboTax program held

management teams we’ve surveyed claim to

an enviable 70% of the retail market for tax-

be customer focused. We’ve found that the

preparation software and 83% of the online

delivery gap exists for two fundamental reasons.

market. But then Intuit began doing little

Most growth initiatives damage the mostimportant source of sustainable growth—“I am a broken
record whenit comes to say
ing, ‘We haveto focus on the
consumer.’...
I don’t think theanswers are justin the numbers.
You have to get
out and look.”– A.G. Lafley,
CEO, Procter & Gamble

things, such as boosting the price on techsupport calls and limiting software licenses
Figure 1: Identifying the delivery gap

to one computer, which annoyed its customers. Retail growth flattened. As more
web-based tax-preparation sites sprangup, online buyers started jumping ship.
Their loyalty had grown paper-thin. In

Percentage of companies

2003, TurboTax’s online market share100%

declined precipitously.
80%

80%

The second reason the delivery gap exists
is that good relationships are hard to build.

60%

It’s extremely difficult to understand what
“Delivery gap”

40%

customers really want, keep the promises
you make to them and maintain the right

20%

8%

0%
Companies that
believe they provide
a superior proposition

Companies whose
customers agree

Source: Bain CustomerLed Growth diagnostic questionnaire, n = 362;
Satmetrix Net Promoter database, n = 375

dialogue to ensure that you adjust yourpropositions according to customers’ changing or increasing needs. And it’s only goingto get harder. (For further reading, see “TheConsumer of 2020,” by James Allen andDarrell Rigby, Global Agenda, January 2005.)
1

Closing the delivery gap

In our research, we’ve found that• only 50% of management teams tailor
their products and services to the needsof customers;• only 30% organize the functions of theircompany to deliver superior customer
experiences;• only 30% maintain effective customer
feedback loops.
Even initiatives to “better understand” customers typically backfire. A company can get
so engrossed in collecting and sifting throughdata on patterns of use, retention, purchases
and other transactions that buyers become
numbers rather than people, segments rather
than individuals. Companies become deaf to
the real voices of real customers. Procter &Gamble’s CEO, A.G. Lafley, best captured theimportance of getting beyond spreadsheets
when he said: “I am a broken record whenit comes to saying, ‘We have to focus on the
consumer.’...I don’t think the answers are justin the numbers. You have to get out and look.” 1

Closing the gap
So how can you close the delivery gap? The
best way to start is by taking a hard look at
those 8% of companies that customers sayreally achieve a superior experience. What sets
the Achievers apart from the mere Believers?
We found, in analyzing the Achievers’ practices, that they share a simple but powerful
goal: They focus, above all else, on treating
their most profitable customers in ways that
ensure that they come back for more andrecommend the company’s products andservices to their friends. These companies
know exactly what their customer issues areat all times. (See sidebar, “How to PinpointYour Problem,” opposite page.) It’s by turning
profitable buyers into loyal advocates—and2

then working unceasingly to keep those advocates
happy—that the Achievers not only avoid thedelivery gap but also achieve superior revenue and profit growth over the long haul.
In pursuing their distinctive goal, the Achievers
take an unusually broad view of the deliveryof value to customers. Unlike most companies, which instinctively turn to product orservice design to improve customer satisfaction, the Achievers pursue three imperatives
simultaneously. We call them the “ThreeD’s”: They design the right propositions
for the right customers. They deliver those
propositions at the lowest possible systemcost. And they develop the institutional capabilities required to do it again and again. Eachof these Three D’s draws on and reinforces
the others. Together, they transform thecompany into one that is continually led
and informed by the voices of its customers.
(See figure 3, page 4.)

Designing the right propositions
Most large companies are adept at traditional
market research, segmentation and productdesign. But many fail to connect the dots
between what they learn about customers andwhat they offer to customers. They lack theprocesses to ensure that customer research
includes real customer interaction—focus
groups, interviews and observation of purchasing and other behaviors—that actually leads
to insight on the essential question “Whatdo our most important customers really want?”
They fail to convert the insights they glean
into truly differentiated propositions, whichtake into account the product features, thebrand and a customer’s experience with thecompany. Finally, they fail to make sure theorganization understands who each proposition
is for and how it will be delivered to them.

1 Luisa Krall, “A Fresh Face: A.G. Lafley Is Giving Procter & Gamble a Radical Makeover,” Forbes, July 8, 2002.

Closing the delivery gap•

How to pinpoint your problem
Where are your most profitable customers andthey are profitable right now but in fact

how can you deepen your relationship withare sticking around only because they

them? Where are your problem customers? The

have no good alternative. You must

chart shows the level of customer advocacy asaddress this group urgently, either bymeasured by Net Promoter ScoreTM on themoving them to the right set of products

horizontal axis, and the level of customer

or by fixing delivery issues. They are

profitability on the vertical. Let’s consider theturning the market against you.

key boxes:•

Beginning in the upper right, this group

In the upper left box are the “false profits,”
customers who are “buying but mad”—•

In the lower left are the “unhappy andunprofitable”—the buyers who are notof customers is a company’s natural designa natural fit with the company and whotarget, its core, the segment that should be

are not happy anyway. Helping them

the prime focus of the Three D’s describedmigrate to other providers makes sense.

in this brief. You want to keep them, findmore like them and explore what additional

We have found companies routinely surprised

products or services they need. They are yourby which customers are highprofit promoters,

prime source of new innovation, so listen

how much potential for crosssell exists among

to them.

lowprofit promoters and how many detractors
lurk in their portfolio.

Figure 2: Where are your customers on this relationship matrix? What actions
should you take?

High

Address
immediately

Opportunity todelight

Buyingbut madAmbivalent

Targetcustomers

Target more

Current
customerprofitability

Low

Unhappyandunprofitable

Detractor

Happy butthrifty

Passive

Crosssell

PromoterLevel of customer advocacy

TM Net Promoter is a trademark of Satmetrix Systems. A Net Promoter Score is calculated as the percentage of customers who
would recommend your company (the promoters) minus the percentage that would urge friends to stay away (the detractors).

3

Closing the delivery gap

Figure 3: Six actions you can take to deliver the Three D’s

1 Identify your most important customers
and understand their needs and value

GN

er R
liv E
LDeIV
DE

2 Design a unique proposition tomeet their needs

3 Treat every customer interaction
as a precious resource

DDEesiSgIn

Design4 Create crossfunctional teams todeliver a compelling experience

DeliverDevelop capabilities

DEVELOPCAPABILITIESDevelop capabilities

5 Develop an institutional capability to identify your important customers so thatyou can deliver an experience tailored to their needs; develop feedback loops
6 Align your goals, measures, systems and organizational structure to becomea customerled organization

Vodafone offers a good example of a successful
approach to design. The UK-based mobile
phone company grew rapidly through acquisitions in the 1990s, becoming one of theleading mobile providers in the world. To
ensure that its offerings could be effectively
delivered to target customers in any country,
it stopped categorizing its customers simply
according to where they live, as most cellularproviders do. Instead, it divided its immense
marketplace into just a few, high-priority
global segments: international business travelers; “young, active, fun” users; occasional
users; and a handful of others.
It then developed targeted, experiencefocused offerings. The “young, active, fun”
group, for instance, was offered Vodafone
Live!, a state-of-the-art service that delivers
everything from games and popular-songringtones to news, sports and information.
Occasional users were offered Vodafone
Simply, which provides, according to thecompany’s annual report, an “uncomplicatedand straight-forward mobile experience.”
Such clearly delineated service platforms
4

allow everyone in the organization tounderstand the strategic priorities andfocus on innovations that will better serve
the segments. All the platforms create
advocates, but they do so in very different
ways. Moreover, the whole company knows
who these customers are—ask anyone from
Vodafone who is a “young, active, fun” userand he or she can describe that user’s needs
and how Vodafone can support them.
In designing propositions for specific segments, the Achievers focus on the entire
customer experience. They recognize that
customers interact with different parts of theorganization across a number of touchpoints,
including purchase, service and support,
upgrades, billing and so on. A company
can’t turn its customers into satisfied, loyal
advocates unless it takes their experiences
at all these touchpoints into account. Designis thus closely tied to delivery from the very
beginning. Planning focuses not only on
the value propositions themselves but also
on all the steps that will be required to deliver
the propositions to the appropriate segments.

Closing the delivery gap

Delivering propositions
to the customer
When customers turn against companies, thefault lies as often in the delivery of offerings
as in their design. Firms fail to realize that
propositions presented in the boardroom too
rarely are delivered to customers. They forget that the promises you keep, not the ones
you make, determine growth. Worse, whileorganizations may understand that they areaccountable for the full customer experience,
they often fail to recognize that the frontline
employees who deliver it may be the least
respected and empowered group in the company. As one frustrated call center manager
reported to us: “As long as we are treated as
second-class citizens in charge of protecting
management from ‘pesky customers,’ ourcompany will fail to keep our promises.”
To ensure effective delivery, the Achievers
typically adopt two practices. The first is attitudinal. The Achievers treat every customer
interaction as a precious resource. They
understand that while data mining and CRM
systems can help companies assess whatcustomers might be thinking, the ultimate
test of any company’s delivery lies in whatcustomers tell others. The best companies
find ways to listen to the real voices ofcustomers every day. The second practice isorganizational. They create cross-functional
teams—involving employees from marketing to supply chain management—andmotivate them to deliver the targeted value
propositions in a coordinated, flawless manner across the entire customer experience.
They recognize that customers don’t reallycare which function in a company responds
to their needs or how cost-effective it is—they just want promises kept.

One company that’s particularly adept atlistening to its customers and delivering what
they want is Superquinn, the Irish grocery
chain. Founder Feargal Quinn walks eachof his stores’ aisles every month, talking to
shoppers. Twice monthly, he invites 12 customers to join him for a two-hour roundtable.
He asks them about service levels, pricing,cleanliness, product quality, the new pastryline, reactions to displays, advertising promotions and so on. He also probes to find out
what items they still buy from his competitors
and why. Distributing notes the next morning,
Quinn uses the learnings to evaluate store
managers and to constantly fine-tune thedelivery of the company’s value propositions.
As an example, Quinn learned that an executive he had hired from a larger grocery chain
was inadvertently damaging customers’
shopping experience in his zeal to cut costs.
Stunned that Superquinn’s promise of “fresh
bread baked daily” meant the grocer gave tocharity tens of thousands of loaves of leftover
bread each evening, the executive orderedthat bread baked after 3 p.m. could be solduntil 3 p.m. the next day—technically within
a 24-hour day. Sales plummeted. “Customers
told us the smell of freshly baked bread was
one of the reasons they came to the store,”said Quinn. Rescinding the efficiency policy,
Quinn had bakeries bake new bread every
four hours, which increased waste 30% but
lifted bakery sales 35% and profit 10%.

“As long as
we are treatedas second
class citizens
in charge ofprotecting
managementfrom ‘pesky
customers,’ ourcompany will
fail to keep
our promises.”– Call center manager
at leading telco

Superquinn’s experience shows that the mostwell-intentioned operational improvements
can have unintended consequences for customers. The people staffing the front lines
need to truly understand and stand up forwhat customers value if a company is going
to deliver on its propositions. It also reveals
the importance of customer research—in5

Closing the delivery gap

this case, interviews—in helping companies
ensure their delivery continues to meet theneeds of the target segments. But traditional
metrics, focused on the performance of individual functions, aren’t enough; measures
have to be crafted to inspire and sustain
the cross-functional collaboration thatlies at the heart of effective delivery of thecustomer experience. (For further reading,see “Motivating Through Metrics,” byFrederick F. Reichheld and Paul Rogers,
Harvard Business Review, September 2005.)
This is tricky. We know that the best measures
are simple and easily understood, but achieving a balance between pleasing customers
and running operations efficiently is complex.
In our work, we’ve identified a trend that we’ve
come to call the “1/3–1/3–1/3” rule. About athird of company measures of operational
effectiveness have no negative consequences
for the customers and may even lead torevenue opportunities. For example, a bankwhose retention measures find that new customers are most likely to defect in the firstmonth might create a goal of phoning eachnew customer within one week of opening
a checking account. Another third of metrics
at any company typically lead to actions that
harm the customer experience, and the decline
in revenues overwhelms any cost benefit. In
the UK, for example, a cable company at one
point rewarded its service technicians for calls
completed in a day. Because of this, whenservice reps realized a customer had a problem
that would take hours to solve, they’d leave
without fixing it, leaving the customer frustrated and stranded. A final third of operating
measures require a lot of debate between
functions to understand whether they can beapplied without tipping the balance between
costs and customers.
6

Informal measures are also important—customers, after all, don’t speak in numbers.
Superquinn awards shoppers “goof points”
for pointing out problems such as an out-ofstock item, a dirty floor or a checkout line
longer than three people. The goof points,
which provide discounts off future purchases, have proved a good way to get customers
talking about their experience.

Developing the capabilities
to do it again and again
Finally, Achievers recognize that understanding
what their customers really want and delivering it to them is not a discrete exercise—it’sfundamental to the way they do businesseach and every day. The leaders of thesecompanies recognize therefore that in addition to designing and delivering the rightpropositions, they must also develop thecapabilities to do it again and again. To dothat, they invest heavily to build processes
to maintain a real dialogue with their mostimportant customers. That doesn’t mean
collecting mounds of data—which can
be blinding. Rather, it’s about gaining realcustomer insight and timely feedback.
The Achievers have established a numberof capabilities that foster ongoing, systematic
improvement. They maintain formal feedback loops, for example, to stay ahead ofshifts in customer needs and attitudes. SAS
Institute, the North Carolina–based software
company, creates a “SASware Ballot” every
year, giving customers a chance to vote on
a list of potential software improvements.

Closing the delivery gap

At eBay employees known as “pinks” monitor

agreed to serve as a kind of ongoing, web-the company’s message boards, quickly learn-

based focus group. They supplied basic

ing which issues, complaints and concerns

demographic information, along with their

may need attention. American Express calls all

response to the all-important question “Howcustomers who don’t quickly activate their new

likely are you to recommend TurboTax tocards to find out if they’re having problems.

friends or colleagues?” They were then asked

Having decided what and how to deliverto their most important customers, thesecompanies realign their goals and measures,
systems and organizational structures to thismission. One of the best ways to measure
whether they have succeeded is by tracking

to explain in their own words their numberone priority for enhancing service in any
aspect of the customer experience, including
shopping, buying, installing, using and techsupport. A follow-up question let them prioritize a list of 10 suggestions made by others.

a company’s Net Promoter Score, calculated

The Internet software that collects these ideas

as the percentage of customers who would

allowed Intuit to better segment customers,

recommend your company (the promoters)

and the company found that each groupminus the percentage that would urge friends

had different priorities and issues. Someto stay away (the detractors). Because such awanted a new approach to tech support andsimple measure will be understandable to all

customer service. Another segment ranked

parts of your business, it can serve to rally andrebate programs as their top priority for

coordinate the entire organization—to focus

improvement. The company probed further

everyone on designing the right customer

for details: where rebates were concerned,

experiences and delivering them flawlessly.

was it awkward proof-of-purchase require-

Creating repeatable processes is not easy
and often requires major investments in IT,

ments, slow turnaround times or the amountof the rebate that most needed attention?

training and change management programs,

Thanks to these moves, Intuit was able toand a tough examination of the mission, vision

redesign its core TurboTax product, deliver itand values of the company. Above all itto the customer more effectively than everrequires committed leadership, devoted

and maintain a mechanism for continuously

to keeping the promises a company makes.

developing its related capabilities. Customer

Intuit turned around TurboTax’s online market-share slide by, in part, institutionalizing
its ability to constantly improve its offerings.
The Consumer Tax Group, which had seen
the biggest share decline, created a 6,000
member “Inner Circle” of customers who

How to begin achievingtrue customerled growth?
See sidebar, “Getting
Started,” page 8.

advocacy among both first-time users andveterans rose dramatically, and the company
regained market share in web-based channels. By systematically attacking the Three
D’s, it had closed the delivery gap—andregained its competitive edge.

7

Closing the delivery gap

Getting started
Achieving true customerled growth typically requires a sustained multiyear initiative. To trigger
such an initiative, CEOs need to create a sense of urgency. Companies may have burning
platforms simply because they have lost sight of the key elements of focusing on their customer.
The process begins with three simple actions:First, ask yourself the following questions.
1. What are my customers saying about me? Am I successfully delivering a consistent customer
experience to my most profitable customers?
2. What is my customer issue? Do I need to fix issues with my current customer base?
Or do I need to attract more of my “target customers”? (See sidebar, “How to PinpointYour Problem,” page 3.)
Second, run a simple diagnostic with your management team.
1. What are the key customer issues my company is facing? Is my team aligned on these issues?
2. How is the company doing on product/service design? Delivery? Capability development?
Third, mobilize the team to act.
1. Begin by identifying your core business, that is, the customers and propositions where you aremost differentiated and make the most money.
2. Fix any major issues relating to the customer experience within this core.
3. Once you’ve bolstered the core, then expand outward from it into new segments andnew offerings.
One of the most effective ways to begin answering these questions is to benchmark yourperformance against others. For more information on the Bain Management Diagnostic,email customerledgrowth@bain.com.

8

Closing the delivery gap

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