Net Promoter Score - Part 2 of 2

I like to look beyond any research based on hypothetical situations: “would you recommend…” and complement it with observation of actual behavior “did that customer actually refer somebody else?”

The advantage of NPS lies on its simplicity. It is a singular question that is easy to understand and connotes action: to recommend the product to friends, while CSat could be interpreted on many ways: satisfaction with the service, with the billing experience, with the way I use the product? But NPS does not replace a good CSat survey, as CSat offers more insight into the drivers affecting the customer experience.

On web 2.0 services we can complement the NPS indicator by observing/measuring if the customers are indeed recommending the service/product to others, by either “instrumenting” properly the tracking mechanisms into any “refer-a-friend” program or thru more sophisticated features that are viral in nature and encourage networking effects alas Facebook or LinkedIn. For those services one can argue that there is no need for a NPS score because the actual act of referral and repeated usage is what keeps the property working, hence measuring usage and referrals could be enough. The challenge is that in some innovative and leading edge products, customers might not have a choice, hence “usage” and “referrals” are high, but one has “hostages” instead of loyal customers and they will defect when the opportunity arises.

In web2.0 companies, the R.U.N.™ triangle: Referrals-Usage-NPS adds a more comprehensive view to product performance and acceptance. For example if one finds a lack of direct correlation between referrals and NPS (high NPS, low actual referrals), it could point to an opportunity to create viral mechanisms or refer-a-friend features that are easier to use. High usage and low NPS could signal a “hostages” situation, etc.

Web 2.0 ignites WOM at a faster speed, research by Bain & Co group indicates that 70% of recommendations are based on a personal experience that beats expectations, and while 80% of the surveyed CEOs in the USA think their brands offer a superior experience, only 5-10% of their customers agree and in these days where everybody is connected, those 85% customers that are not pleased will disseminate their message fast. Web2.0 offers instant gratification (or deception), simplification and a platform for multichannel engagement. This can work both ways for a brand and requires addressing the issues on Customer’s Experience and coordinated digital marketing mechanisms.

As important as having the methodology implemented, is to have the processes and tools to make R.U.N an actionable set of metrics that translate into revenue growth. Without this approach, the NPS becomes just another reason to be worried or happy. We need to make it actionable through good and basic marketing that addresses the needs of the segment by improving the product/service experience.

Implementing a loyalty measurement practice:

1. Align - Get executive buy-in by communicating the benefits and the correlation with growth.
2. Define - Deploy a consistent cross-business unit practice at the company.
3. Measure - Capture VOTC data with quality and with enough level of detail that permits taking action after establishing a baseline. Do competitive benchmark.
4. Take action - Understand the drivers, identify levers, appoint leads.
5. Manage - Manage the organization’s behavior with a well-defined scorecard, compensation tied to results and well structured internal communication plan, and in general making NPS and Customer Experience part of the organization’s culture.

Net Promoter Score - Part 1 of 2

   Many studies have examined the loyalty effect. Results point at a correlation of 2x revenue growth versus competition for companies with higher customer loyalty. The problem is that loyalty is hard to measure and it is often an after-the-fact type of measurement, therefore it is hard to manage. Customer Satisfaction has been always a lead indicator until analysis showed that 60-80% of defectors rated themselves as “satisfied” or highly satisfied” before they defect.

   Research conducted by Bain & Co established one question as a reliable indicator of loyalty as measured by subsequent repurchase behavior and referral rates: “How likely is that you would recommend this company/product/service to a friend or colleague?” On a scale of 0-10 where 9-10 are considered “promoters” and 0-6 are considered “detractors”. This established for benchmarking purposes a formula: NPS=Promoters-Detractors.

   The average NPS in the USA is 5-10%, with notable exceptions like Vonage with 49%, Adobe with 46%, AMEX, Southwest over 50% and Apple and Google above 70%, several points above their closest competitors.

   A study from McKinsey correlated 2/3 of the economy in the USA being influenced by word-of-mouth (WOM), hence no surprise all the attention given to NPS as this metric measures the hypothetical action of a customer /user.

   Research by Satmetrix shows that a 12% increase in NPS correlates to 2x growth in the USA market. My experience over the past four years would show a slightly different picture and I rather look at the link between loyalty-usage-repurchase-referrals.

   Your Customer would not recommend you, now what?: A study published by Neil Morgan and Leotto Rego in Marketing Science compared NPS to other metrics and found no advantage for NPS. Timothy Keiningham and his colleagues followed up with a multi-industry test published in the Journal of Marketing and found that indeed NPS was not better than Customer Satisfaction (CS) in predicting growth. I personally experienced this over the last 3-4 years measuring both NPS and CS for the same set of products and services and finding that if instrumented properly, both figures are equally relevant and there is no advantage of one over the other.

Rather than a perfect way to measure loyalty, I see NPS as a catalyst at implementing a Customer Loyalty driven culture at companies and a standard to use for benchmarking and compensation purposes, especially at the C level suite, because when implemented properly it provides companies with actionable data.

   The value of NPS or CSat is on establishing a common baseline to measure progress on improving the Customer Experience, and measuring performance against competition. NPS or CSat as isolated indicators, tell us very little, but when combined with “Usage” and “Referrals” metrics, and when the data is aggregated with other customer-voice data points, it provides a comprehensive view and helps to overcome one of the challenges of the NPS, which is moving beyond implementing the measurement system into taking action to improve the Customer Experience.

   The first reaction I have seen from executives and teams after deploying a NPS practice is “Ok, customers do not like us, now what?” It takes a fair amount of commitment and resources to move from the “Discovery” phase into “Taking action” and this requires organizational alignment as well as changes on systems and processes that start with having the customer experience at the center.  Particularly in web2.0 properties there is an excellent opportunity to establish a NPS practice that goes beyond measuring hypothetical situations and into “observing” actual behavior. It is also important to understand that establishing a NPS offers us “directional” information, but it cannot be approached as a CRM practice where we address customers concerns on a one by one base, which is also a fairly common mistake when discussing the value of the NPS practice in a company… 

   I elaborate more on this area as well as on five critical steps to implement a NPS practice on the second part of this post.