Net Promoter Score – Do You Want Customers to be Satisfied or Loyal?

Net Promoter Score – Do You Want Customers to be Satisfied or Loyal?

It’s an interesting question. I’ll put it another way that may help to clarify your answer:

Do you want your spouse (or significant other) to be satisfied, or loyal?

Now, do you see the difference? Satisfaction is good, but satisfied customers will still leave you if a better offer comes along. Customer satisfaction does not mean customer loyalty.

A few years ago I attended a business growth conference in Las Vegas where one of the speakers was Fred Reichheld from the consulting firm Bain & Co. He shared his research on customer loyalty that went into the development of the Net Promoter Score (NPS) customer loyalty metric.

He claimed that higher NPS scores correlate with higher growth rates relative to other companies in an industry category and that NPS is the preferred loyalty metric of companies like Apple, Harley Davidson, General Electric, Intuit and American Express.

Promoters. Passives. Detractors.

In simple terms, it works like this. You can divide customers into three groups, based on their loyalty scores.

Some customers love your product or service. They’re the ones who give you positive word-of-mouth. Reichheld called them “Promoters.”

Other customers are satisfied. They like what you do just fine, but it doesn’t excite them. They don’t tell others about it. And if another company offered them a better deal, they just might switch. They’re “Passively Satisfied.”

A third group doesn’t really like you. They’re difficult to deal with. They demoralize your employees with frequent complaints and demands. They drive up service costs because you are always having to deal with their problems. They gripe to other customers. They’re “Detractors.”

The Net Promoter Score identifies your “Promoters”, “Passives”, and “Detractors” with a simple survey that includes one important question:

1. On a scale of zero to ten, how likely are you to recommend us to someone else?

That’s the basic question that goes into the NPS calculation. In his book, Reichheld says that you should ask this “Ultimate Question” and very little else. Questions that help you interpret answers to the ultimate question are a good choice. Here are two common ones I recommend:

2. What is the primary reason for the score you gave?

3. What is the most important improvement you’d like to see to make us better in the future?

The zero-to-ten scale is important because it gives you a way to quickly classify the responders. Starting with zero helps prevent the situation where responders mistake “one” for the best. And Reichheld’s research has validated that customers intuitively grade your company in ways that match his definitions.

  • “Promoters” are the people who give you a 9 or a 10 score.
  • “Passives” give you a 7 or an 8.
  • “Detractors” give you a score of 6 or below.

I found it very interesting to learn from Reichheld that someone who gives you a 7 or 8 is someone who is only satisfied, but not loyal. If you are not getting 9 or 10 scores from your customers, that means you are not good enough, and you have more work to do!

Net Promoter Score formula.

NPS% = Percentage of survey total who are Promoters, minus the percentage of survey total who are Detractors

You compute a single number, expressed as a percentage, that measures how you’re doing at building loyalty with your customers. NPS can be as low as -100% (everybody is a detractor) or as high as +100% (everybody is a promoter). An NPS that is positive (i.e., higher than zero) is felt to be good, and an NPS of +50% or higher is considered excellent. Companies with NPS higher than 80% include Harley Davidson and Apple. Both companies are known for their raving fans.

You can read Fred Reichheld’s book, The Ultimate Question, for details of how they developed the NPS measure and why it works.

In terms of NPS survey frequency; for infrequent purchasers, I would suggest you survey them after every purchase interaction. For regular customers, I suggest conducting a monthly survey on a subset (e.g 10%) of your total customer base.

NPS works for employees too.

One of the things I do with clients is flip it around and adapt the methodology to look inwards to measure employee engagement. It may not be as sophisticated or scientific as the models used by other consulting firms, but it’s simple to use and it works.

It’s easy to use. Just ask the people who work for you the following three questions:

1. On a scale of 0-10, how likely are you to recommend our company as a place to work to a friend or family member?

Answers to this question give you an accurate idea of the level of employee engagement.

2. What is the primary reason for the score you just gave?

This helps uncover important issues that need fixing.

3. What is the most important improvement you’d like to see to make us better in the future? 

This gives employees the opportunity to share the good ideas we know they have.

Administer the survey in a way that protects an individual’s identity. Make it anonymous, but do it in a way that lets you segment responses by role, location, or business unit. Surveying employees once per quarter or once every six months seems to work well.

Here are some tips for using the information obtained from your NPS surveys:

  • You are never going to please every customer – and it’s strategically foolish to even try to please everyone (see this article on how to choose the right Value Discipline) – but customers who sit right at the center of your target market customer bulls-eye should definitely be giving you 9 or 10 scores
  • Deal with specific issues that require immediate attention but avoid knee-jerk, wholesale changes to your operations based on a small number of Detractor comments from “fringe” cases, or from customers who are not in your target market bulls-eye.
  • Track NPS scores over time so you can spot changes and trends.
  • Look for recurring themes and clarify the root cause.
  • Capture these in your SWOT analysis for the next quarter.
  • Develop a solution that targets the cause and where appropriate, make that a Strategic Project for the quarter.

It is important to note that the NPS methodology itself has both promoters and detractors. Academics and market research firms prefer more comprehensive survey instruments with greater predictive power. Business leaders like NPS because it is easy to administer, and because it is so common, you can often find data to compare your company’s score to industry benchmarks.

Personally, I like the NPS, but it’s up to you to choose the right survey tool for your needs. Here are some other customer service metrics you may wish to consider.

Close the loop.

People will only participate in surveys if they think it will make a difference to the way your company operates. Surveys are only as good as your willingness to take visible action.

Thus, it is important to provide feedback to let survey responders know that:

  1. you have heard them,
  2. you have identified the common themes for improvement, and
  3. you are taking visible action to make these things better

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Until next time…
Stephen

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