In today’s ultra-competitive business environment, accurately measuring both positive and negative word of mouth is a crucial element in gauging customer loyalty and recommendations. However, in my experience (and that includes us undertaking more than 100 million customer satisfaction surveys), the most popular tool for obtaining this measurement, the Net Promoter Score (NPS), has now outlived its usefulness as a metric.
I talk about the restrictions and limitations of NPS and also the ForeSee Word of Mouth Index (WoMI) a lot in my latest book: “Innovating Analytics”, but importantly the focus is firmly where it should be for all customer-centric organisations – on innovation.
The classic definition of innovation is introducing something new, but from a practical business perspective the word 'innovation' has come to mean something more than that. Innovation is about change that is significant and positive, creating a new dimension of performance.
Innovation can create a competitive advantage and set the target for others to aim at. Most of us, when thinking about innovation, recall ground-breaking products and companies such as Apple, Amazon, and 3M. Much like the innovation that has led to great success for those businesses, companies that innovate in customer experience analytics can also gain a competitive advantage.
When I think about innovation, these are some of the guiding principles I follow:
- Don’t accept the status quo; question it.
- Challenge the assumptions.
- Reward ideas, good or bad.
- Try it and test it . . . and test it . . . and test it some more.
- “If you always do what you always did, you will always get what you always got” (Albert Einstein).
- “You miss 100% of the shots you never take” (Wayne Gretzky).
Customer experience analytics is the new competitive battleground where companies will fight for the loyalty of the consumer. Striving for continuous analytics innovation will allow you to gain and keep that competitive advantage.
For far too long businesses leaders have been settling for the status quo, which is NPS – a word-of-mouth metric that is no longer relevant, reliable or actionable.
While NPS has done a lot for the field of customer experience, it hasn’t evolved since its inception in 2003. It was a metric designed to measure customer loyalty so it falls short by only measuring 'likelihood to recommend'— inaccurately assuming that if someone is not recommending, that they are detracting, but this often isn’t the case. Many so-called 'detractors' are actually neutral toward or even advocates for a brand, so allocating budget to win them over represents wasted spending.
This isn’t just semantics either – our research found that NPS overstates detractors by 270% on average because it doesn’t distinguish between positive and negative word-of-mouth. This overstatement can be a costly and misleading mistake for businesses that are either spending resources pursuing detractors in an attempt to convert them to promoters or compensating their executives based on what can now be seen as a flawed measure.
WoMI however builds on what NPS originally set out to do but in more precise and reliable way. It actually measures both likelihood to recommend and likelihood to detract from a specific brand and delivers on the promise of NPS by creating a more precise, accurate and actionable measurement. This allows organisations to take action to foster more positive word-of-mouth and decrease negative word-of-mouth by increasing customer satisfaction and improving the overall customer experience – taking NPS to the next level of usefulness by providing actionable data.
To summarise, succeeding in today’s ultra-competitive environment, where consumers are in control and switching costs are low, requires serious and focussed customer experience measurement. It is more important than it has ever been and businesses cannot simply stand still with analytics; they must continue to push the envelope and evolve – not only products, services and marketing.
If you haven’t already, do order or pick up a copy of the book to find out the pros and cons of NPS and how it overstates detractors, how WoMI evolves the widely-used word-of-mouth measure, the best customer experience practices, and the future of analytics and the role big data plays in it. It’s written it as a guide to help organisations measure the satisfaction of the customer experience and turn that data into an actionable strategy that benefits their businesses and their customers alike.
One final point - I’m always looking for feedback and value your opinions on customer measurement and analytics, so do get in touch with either comments below, via Twitter (@larryfreed) or my blog: http://foreseeblog.com/author-1/larry-freed/
Now, go forth and satisfy those customers - good luck!
Larry Freed is CEO at ForeSee.