Net Promoter for the Rest of Us
- Growing Your Business by Managing for Customer Loyalty
by Cedric Nash,
If you follow trends and research in Customer Loyalty, you have probably
come across the term "Net Promoter" or "Net Promoter Score" (NPS). For
those not familiar with the concept, this two-part article will provide
a brief overview of the NPS approach to Customer Loyalty, and describe
how even small and medium sized firms can adopt this powerful approach
to growing revenue and profits by managing for customer loyalty.
What is NPS? The Net Promoter approach is a structured way of
implementing a truly simple business philosophy – that managing your
business around the concept of creating highly satisfied and loyal
customers will result in growing revenues and profits.
The Net Promoter approach involves two interrelated sets of activities
as part of an on-going process: 1) Systematically measuring and tracking
customer loyalty using the NPS metric, and 2) the steps management takes
to "move the needle" and improve customer loyalty as reflected in NPS
scores. These will both be discussed at more length, but first a little
NPS Background. The Net Promoter methodology was developed over a
period in the 1990s and early 2000s by Fred Reichheld, then a practice
leader in loyalty at Bain Consulting. Fred Reichheld has authored
numerous books about loyalty and the Net Promoter approach, and has
written several acclaimed articles which have appeared in the Harvard
Business Review. He is considered both a "thought leader" and a leading
practitioner in loyalty management consulting.
The NPS approach is based on a deceptively simple premise – that
systematically measuring customer loyalty, and managing a business to
increase the loyalty scores, will result in superior growth and
profitability performance of the business as compared to its peers. This
concept seems at first to be both inherently logical (who doesn't want
loyal customers?), and overly simplistic (is NPS really that good an
indicator?). Yet it is backed up by research and empirical evidence.
There is a documented and strong correlation between high NPS loyalty
scores and high growth rates and profitability. Many large
"loyalty-leader" firms have adopted the NPS approach and pay Bain and
Reichheld big bucks to help them implement it. GE, Enterprise Car
Rental, Intuit, Vanguard, State Farm, to name a few.
Measuring Customer Loyalty with NPS
Net Promoter (loyalty) Scores are derived by surveying the customer base
on a regular basis and asking a specific but simple question, and then
doing a little basic math. Here is how it works:
The question: "How likely is it that you would recommend (your firm) to
a friend or colleague?"
The scale is 0 to 10, with 0 meaning "not likely at all" and 10 being
Survey respondents are grouped as follows based on their numerical
9-10 are "promoters"
7-8 are "passively satisfied" (or "neutrals")
0-6 are "detractors"
To calculate the NPS score, first you calculate the percentage of
customers who responded with a 9 or 10 (promoters) and the percentage
who responded with a 0 through 6 (detractors). Then subtract the
percentage of detractors from the percentage of promoters to arrive at
your "Net Promoter Score" (NPS). This process is typically performed on
a regular basis (sometimes monthly to different sets of customers, more
often semi-annually) for the purpose of tracking changes and
understanding the impact of programs or measures designed to improve the
Behind the Labels
Promoters Promoters are loyal not only in the sense that
they remain customers, they tend to buy more of your products over time
and best of all, they actively promote your firm to others. They
generate positive "word-of-mouth" and referral business. Customers come
to you because of them. The value of a promoter goes far beyond the
value of the direct business from that specific customer. They are value
Detractors Detractors are the opposite of promoters. These
customers are not only likely to defect to competitors; they will "bad
mouth" your firm to friends and colleagues. They drive potential
customers away from you to your competitors. The value of a detractor
customer is often thus negative!
Passively Satisfied Passively satisfied customers are, as
the name suggests, neutral about your firm. They are neither promoters
nor detractors. However, while these customers may not have an ax to
grind with your firm (like detractors) they are still essentially at
risk. They can be easily lured away by competitors for a variety of
reasons since there is no loyalty bond of any strength.
Note: Keep in mind that these categories are not static. Today's
promoter can become tomorrow's neutral or even detractor. Vice versa for
detractors. Neutrals can go either way. This is why managing the
business for loyalty is so important, and the topic of part two of this
article – stay tuned for the next CCI newsletter.
About QuestBack: QuestBack (www.questback.com)
is an enterprise feedback management tool for gathering and analyzing
feeback from critical constituencies via online suveys. With unique
ASK&ACT TM follow-up capabilities, QuestBack transforms the data
gathering process into a dialog that enhances customer relationships.The
company is based in Europe and represented in the US by QuestBack Boston
Customer Data -
Promoting Awareness of the Problem
prior article in the series Customer Data – Are You Neglecting a
Key Corporate Asset, we covered the impact of neglecting customer
Negative customer perception
Costs related to sending duplicate materials to the
same entity and returned mail
Inability to get an accurate count of the customer
base and perform analysis regarding customer acquisition, retention
and risk without investing significant time to massage the data
Many organizations can attest to the fact that the above items are all
too real for them. So, how do you remedy the situation? Make it
painfully obvious to senior management that something must be done (NOW)
or remain hamstrung in your ability to achieve corporate objectives.
How do you make it painfully obvious to senior management? Quantify the
impact. Try the following steps:
Interview and/or observe your customer-facing
personnel as they perform routine transactions (customer inquiries,
order processing, etc.) and obtain their input on:
How much time
they spend / difficulty they experience trying to identify the
appropriate customer record.
of frustration (even embarrassment) while they have the customer
on the phone and they are trying to pull up the customer's
correct and complete profile.
To get a more factual representation of the above,
dump a list of your customer file into Excel, sort it by customer
name with a count of occurrences of each customer name. This will be
truly eye-opening as you quantify the number of duplicate,
extraneous and/or erroneous customer records that exist.
Speak with your marketing and collections departments
about the amount of returned mail they get from marketing programs,
invoices and dunning letters.
Ask a few simple questions to your Marketing, Sales,
Service and IS departments and see if you get "anywhere near" the
customers do we have?
How many new
customers did we create last month?
customers stopped ordering last month, quarter or year (whatever
is the appropriate frequency for your firm)?
Who are the
top 10 revenue generating customers?
Once you've done the above, prepare a hard-hitting executive briefing
package that includes your strategy to respond to the situation, and "let'em
have it." Be sure to include numbers (hours wasted, pieces of mail
returned and the cost, count of duplicates, exhibit the inaccuracies in
customer counts, etc.).
Now, your next question might be "What IS my strategy to respond to the
situation?" Well, to find that out; you'll want to stay tuned for our
next newsletter article, or simply give us a call.
In future editions of this series we will cover the following topics:
Stopping the bleeding
Remember this. You will want to consider pragmatic goals and realize
that it is a continuous journey.
In closing, increasing the integrity of customer data will improve the
customer experience, internal efficiencies and the ability to leverage
this information to achieve business objectives. An easy ROI indeed!
Net Promoter for the Rest of Us
+ Customer Data - Promoting Awareness of the Problem
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For a related article
about a simple approach to measuring customer loyalty and using the
results to grow business, check out Harvard Business Review
The One Number You Need to Grow by Frederick F. Reichheld. Note that
to see the full article, you will need to subscribe to HBR.
SPECIAL DEAL: Questback has purchased a limited number
of authorized reprints of this HBR article and will send one to the
first 10 people who contact Cedric Nash at
About Customer Centricity, Inc.
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