Five common mistakes companies make with their NPS

More than two thirds of the 2000 biggest companies in the world use NPS to measure their customers’ satisfaction and loyalty. This share is increasing and millions of other companies are already using NPS, or will soon do so.

 

Therefore, the method of measurement has for quite some time now been the de facto standard, and this has created a virtuous circle. As more companies are using this method, it becomes possible to benchmark between more companies. This makes NPS even more attractive.

 

However, as with other management concepts, it is important to use it correctly, as otherwise it will do more harm than good. Fred Reichheld himself, the inventor of NPS, has expressed the view that only 5% of the companies using NPS get the full benefit from it. 

In my experience, companies that wish to implement NPS typically make the following mistakes:

1. Measuring or benchmarking NPS incorrectly.
2. Using NPS for measurements only.
3. Do not have a clear process for NPS.
4. Do not make the results relevant for all the employees.
5. The CEOs do not act as NPS ambassadors.

1. Measuring or benchmarking NPS incorrectly

If you measure and compare NPS incorrectly, you will not get an accurate picture of the expected future profitability and growth of the company, and you will not know what to do to improve customer loyalty. It is a small minority of companies that have a substandard relationship with their financial KPIs – so it is likely that they will have an equally poor record with a KPI such as NPS, which predicts future financial results.  

To benchmark NPS correctly, you will obviously have to use the same response scale and formulation of questions as the companies with whom you are comparing your NPS. The scale must range from zero to ten, not from one to seven or one to ten, which some companies use. Luckily, only a few companies make this mistake, and even fewer diverge too much from the official standard NPS questions: ‘On a scale from zero to ten, how likely is it that you will recommend company xyz to your friends or colleagues?’.

2. Use NPS for measurements only 

NPS measurements without improving actions are, at best, a waste of the resources of the company; at worst, the measurements do more harm than good, as they make the customers expect the company to actually use their feedback to improve the customer experiences.

At the very least you will have to follow up on all of the detractors (those who are answering 0-6 on the scale) within 24 hours or 48 hours max. By doing this, your company demonstrates a strong responsiveness and a will to solve the respondents’ problems. This results in a significant improvement in the individual respondent’s perception of the company. A number of companies have even experienced that more than 50% of the detractors who receive a professional and immediate follow-up, quickly change into passives or promoters, who are willing to buy more from the company.

It is also important to elaborate on the answers from the NPS follow-up question: ‘What is the primary reason for you giving us this score?’ Categorise the customers’ supplementary explanations to identify the most important drivers for a high NPS score.

NPS is most effective when the measurement is combined with other customer data such as preference, behaviour, and background variables.

You can do this both manually and by using advanced software for semantic text analytics. This will help to make a fact-based decision on which tactical improvements to initiate that will help drive customer loyalty, profits, and growth.

You can enhance this insight further by combining the traditional periodic relation measurements with the transactional measurements of the most important customer touchpoints. This will typically give you even more specific input into which improvement projects you should implement.

Use furthermore NPS benchmarking across individuals, teams, departments, and branches to identify and learn from best practises. In an NPS measurement at a big B2B company, we experienced that the difference between the average NPS was more than 100 points. That is a big difference, considering that the scale ranges from -100 to +100. The customers of the best account manager gave an average NPS of +62, while the poorest average was -40. The solution was to replicate the most skilled account managers’ knowledge, attitudes, competencies, and behaviour to the other 45 account managers in the concerned country.

A regular NPS measurement gives you valuable information about the relevance and efficiency of a strategic initiative, but it is most effective when the measurement is combined with other customer data such as preference, behaviour, and traditional demographic or firmographic background variables.

It gives you a deeper and more exact insight into the customer base, e.g. which customers and customer segments are both loyal and profitable? Why are they so? And what parameters in the joined customer experience should you improve to make all customers more profitable and loyal?

3. Do not have a clear process for NPS

If everybody is responsible for an initiative, it ends with no one being responsible. Imagine a company with no clear process, organisation, and governance for the financial management. In a scenario like this, most shareholders would probably leave the company quite fast.

It is the exact same when it comes to measurement and development of customer loyalty. In this case, at best, you will just risk that the activities will gradually disappear. Hence, the initial investment will not create a positive ROI. At worst, you will risk that the company creates the expectation among the customers, employees, and shareholders, that it will start to measure and develop customer loyalty in a systematic way. 

If the NPS process is not done properly, the initiative will risk ending up doing more harm than good.

If the NPS process is not done properly, the initiative will risk ending up doing more harm than good. This is because the impact might be reduced customer loyalty and employee engagement, and/or a drop in the shareholders’ trust in the management.

Instead, you should embed the customer experience and the loyalty in a central team, where you can measure and develop the customer loyalty in many different ways. Here you must consider the processes, the organisation, and the governance model. For example, where the company should be rooted, whom it should report to, and if the unit should be responsible for all activities within measurement, or whether it should be a coordinating unit.

4. Do not make the results relevant for all the employees

Do you only present the results of your NPS surveys on an aggregate level as a high level KPI without any granular scores for sub-segments or root-cause analyses of the drivers of the NPS score? If so, then you will risk that you do not inspire the individual employees to improve their knowledge, attitudes, competencies, and behaviour in a way that creates better experiences and more value for the customers.

The individual customer replies are, for example, very relevant to the front-line employees particularly, who follow up on each of the respondents. Also, other frontline employees can use the results of the measurements. Especially if you introduce them to the customer segments or the customer touch points that are relevant to them and help them create the agreed improvements.

In the very successful Danish chain of supermarkets called Irma, they involve the employees in choosing the three most important performance improvement projects for their particular store, allowing for maximum ownership of these initiatives. The initiatives are also written on a poster that is visible to the customers.

Bringing in a competitive element can be benfifical in encouraging branches to compete against eachother for the greater NPS.

This involves the employees and customers in the process, and shows the customers that each specific store actually reacts to their feedback. This creates a positive pressure of expectation on the managers and employees in the specific store.

At AL-Bank – a company with more of a ’soft’ culture – it settles for benchmarking the branches; however, as the benchmarking is shown in real time on big screens in the canteen of the branch, it is capable of creating and maintaining great commitment. Although it may not be as exciting as watching the final of a major sporting event, it still becomes a contest, and you will constantly have to fight against the competing branches that have a great importance in maintaining the interest in the long run.

5. The CEOs do not act as an NPS ambassadors

It is with employees as with our children: they do not do what we tell them to, they are more or less copying what we do ourselves. If you, as an executive, believe that you can just delegate the work of creating loyal customers and committed employees to a dedicated department, then you are definitely wrong. All change starts from the top when it comes to both a large, global, hierarchical organisation and to a start-up company with only a few employees.

Most newly started companies are by default very customer oriented – at least those that survive the first difficult years. In medium-sized companies, the top management can do what companies like LEGO, Apple, and DSV have done, and start all their meetings by looking at their lead indicators like NPS and eNPS (measurement of employee commitment).

Furthermore, the CEOs can show that they are interested in the customer feedback by executing customer interviews or at least participating in the meetings with the customers.

As the last, but probably the most important instrument, the top management could let their bonus depend on, not only financial results, but also NPS, customer retention, or an issue that is relevant to the individual companies. This makes it easier to set the goals and incentives for the rest of the organisation.

If you do your NPS work in a systematic and coordinated fashion, without ‘putting your foot in it’ on the five pitfalls, you will benefit more from your NPS activities. In most industries, it has been essential to the survival, profitability, and growth of the company. 

This article was adapted from a piece that was first published on Borsen.dk.