What does Web 2.0 mean for Net Promoter score and customer loyalty?

Since the release of Fred Reichheld’s The Ultimate Question in 2006, Net Promoter Score (NPS) has become a worldwide movement and been adopted by thousands of companies including Zappos, eBay, Facebook and Southwest Airlines.

 

A loyalty metric derived via the aforementioned ‘ultimate question’ – How likely is it that you would recommend our company to a friend or colleague? – NPS is used as a feedback and management tool to motivate an organisation to become more focused on improving products and services for customers.

 

But five years is a long time in business. And since Reichheld’s first book on NPS, we’ve had the credit crunch, the global economic downturn and the social media revolution to contend with.

 

So when an updated and expanded edition was launched a few weeks ago, co-authored by Rob Markey, a partner at Bain & Company and leader of the firm's global customer strategy & marketing practice, it was no surprise to see that it reflected the new business landscape.

 

Even the title for instance, The Ultimate Question 2.0: How Net Promoter Companies Thrive in a Customer-Driven World, pays lip service to the power of Web 2.0. But then social media has had major implications for two of the key stakeholders in the NPS framework – brand advocates and brand detractors.

 

“In the pre-internet days, you would buy a new product because it came from a company you trusted, based on your past experience. But the accelerated flow of information about products online, including online reviews, has made it easier for consumers to learn about the pros and cons of a new product directly from other consumers who have actually tried it,” says Markey.

 

He continues: “It’s a fascinating topic. Social media makes both promoters and detractors immensely influential, and leading companies have engagement plans that explicitly target them. They’re quick to engage detractors on a real-time basis in an effort to diffuse heated commentary - or even convert them to promoters.

 

“And social media also offers fantastic opportunities to wow important customer segments. It’s also worth their time: our most recent research found that customers who engage with companies over social media are more loyal to those companies and spend 20% to 40% more money with those companies than other customers.”

 

 

NPS and The Ultimate Question is about more than just a number, it is about developing a discipline for using customer feedback to understand what turns off detractors and what makes promoters rave about you so that you can fuel business growth. But while social media has created ‘customer feedback on steroids’ since the first edition of The Ultimate Question, it has also presented challenges, not least that it is an entirely new channel with new rules of engagement, and that it is subjecting firms that are already wrestling with vast amounts of customer data to an even greater volume of feedback. As a result of this, organisations are still learning the ropes and continue to lean heavily on more traditional feedback systems – though Markey is unimpressed with many of these.

 

“Most customer feedback programmes are really just market research,” he explains. ”They are designed by statisticians or marketers - in other words, people who don’t have daily contact with customers or with the people on the front lines who devote their work lives to helping customers.

 

“The objectives of these feedback programs are usually a real muddle. In some cases, they try to answer every question someone might have about the customer’s experience with a product or service, from how they first heard about it, to why they bought it, to the minutest detail about some feature the customer may or may not have even noticed. These surveys tend to be very long and consist of long strings of multiple choice answers.

 

“In other cases, they are narrowly focused on evaluating a particular employee’s performance, or pinpointing potential failure points of service. Think about the traditional hotel survey that asks you to think about your most recent stay, then runs you through a long battery of questions about every element of the experience, from making the reservation through ordering room service, using the restaurant, the workout room, the conference facilities, and so on.”

 

These approaches, Markey says, tend to aggregate lots of responses into ‘statistically valid samples’ and create ‘statistically valid scores’ that they can deliver to the organisation in the form of a long report, perhaps with an overall score. But it’s presented along with reams of additional data analysis in tabular form.

 

Markey continues: “Market research has its place, but these reports rip the heart and soul out of the customers’ feedback. The surveys are so long that the burden the customers and generate mindless responses. And because the customers don’t get any follow-up, they quickly learn not to respond. You really have to wonder why anyone does respond, and how valid those responses truly are.”

 

Markey sees three ways that organisations could improve their feedback systems. “First, find or create a simple metric,” he explains. “Something everyone in the organisation can understand, and that is a reliable indicator of customer behaviors and business outcomes (like revenue, or profit). We think Net Promoter score is a great example of this. Everyone understands that it’s good to earn the enthusiastic recommendation of a customer, to create a promoter. And it’s bad to turn someone into an angry antagonist, a detractor.”

 

The second step, he suggests, is to create a robust, fast-cycle closed-loop feedback, learning and action support to get the customer’s feedback quickly and directly to the employees most responsible for creating that customer’s experience, whether through service, sales, product management, operations, or wherever.

 

Markey says: “Give them the customer’s own words. Support them with access to other data about the interactions and relationship. And follow up directly with customers who have identified problems that still need to be resolved or have given you highly constructive feedback that demands a response.”

 

Finally, he says, make it a real priority to take action on the feedback. “Make it a top priority, from the CEO down to the front line, to earn the enthusiastic recommendations of your customers. Put your best people into roles where they can do this. Make policy decisions that support this. Make investment decisions that will result in earning loyalty. Demonstrate, every day, how important it is to earn your customers’ loyalty.”

 

But despite being unimpressed with many feedback programmes, Markey does express his enthusiasm for the rising number of co-creation programmes, such as Dell’s IdeaStorm initiative, that serve to simultaneously build loyalty and improve customer dialogue.

 

“We love these co-creation programmes,” he says. “They provide an outstanding example of the way that promoters help grow your business. They willingly help you improve your business. Partly they do it because they have developed affection for your company. But partly they do it because they are now committed to your success, and because improvements in service or products you provide them will directly benefit them.”

 

 

But not everything has changed beyond recognition over the last five years. And despite the doom mongers insisting that brand loyalty is a thing of the past, Markey still believes that customers are just as loyal as they ever were – it’s just that they now have greater access to information than ever before.

 

“Consumers don’t have to rely only on brand reputation as the basis for their purchase decisions. So in that way, the importance of brands has diminished. You don’t have to rely only on brand names to communicate value and trust. Now you tap your online communities of friends and other users of the products,” he explains.

 

“Similarly, in the old days – pre-internet – shopping was mostly about buying from physical locations. Consumers bore the cost of discovering lower-priced options. Today, customers can discover alternative products and retailers or vendors by going online – the cost of shopping for price has declined.

 

“Nevertheless, if it were really true that brands have declined in value, then Apple would not be the juggernaut it has become. People are still brand loyal. They just have more information on which to base their purchasing decisions. Recommendations from friends, trusted journalists and online reviews are now so much more readily available that brand value shifts faster. But brand value is still based on real reactions to products, services and experiences.”

 

So what does the advent of social media mean for Net Promoter score itself? With the emergence of social media monitoring tools it is after all now easier than ever to identify promoters and detractors, and collect their feedback data.

 

“The advent of social media hasn’t really changed the basic principles of Net Promoter. Instead, it has validated them,” Markey insists. “Loyalty - true customer loyalty - is more important in a social media environment where customers can simply bypass carefully crafted advertising and marketing messages.”

 

To emphasise this point, Markey outlines five key principles that Bain has identified around social media that tie to Net Promoter strategies, and that will help businesses increase their likelihood of capturing value from social media.

 

“First, we believe first that social media is more than a mere marketing or PR channel; it is a real opportunity to engage with customers. That means social media efforts should be based on concrete business goals. Second, winning companies have learned to focus their social media efforts on key customers. Our research shows that the average Facebook user will ‘like’ no more than seven companies or brands, so knowing your target audience is essential.

 

“Third, companies need to build a social media organisation that can deliver results. We’ve identified several different models, ranging from the decentralised models at Zappos and Best Buy, where employees engage individually with customers, to Starbucks, which has a single central social media organisation.

 

“The fourth step is to monitor and measure the results. That’s still a challenge today, but the metrics are improving rapidly, as is the ability to measure the financial impact of social media efforts. Our last principle is to be flexible and adaptive. It’s still early days for social media, and today’s winners won’t necessarily be tomorrow’s. But we think companies that adopt these five principles will significantly increase their odds of capturing real value from social media.”