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10 lessons learned from 10 years of Net Promoter

18th Jan 2010
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MyCustomer.com

Customer loyalty metric Net Promoter is 10 years old, its popularity enduring despite being the target of criticism from some quarters. Here, Richard Owen highlights the 10 most important lessons that have been learned about Net Promoter over the past decade.

Psychologists say that top 10 lists stick in the memory, or perhaps we just like the association with Net Promoter (although logically that would suggest a top 11 list). Regardless, it seemed like a good way to reflect on a decade of Net Promoter research to build our own top 10 list.
So is this list of top 10 rules for Net Promoter? That might be overstating the case. Think about them more as can observations; like the weather in London, if there is one you don’t like, wait a minute and the theme will change anyway…
Number 1: We keep finding new reasons it’s good to be the Net Promoter leader
I’m sure you are familiar with the basics of the Net Promoter research, suggesting that companies with low relative competitive Net Promoter Scores would have to defy 10 years of statistics in order to outgrow their competition. But it gets better for the leaders, we keep finding new benefits for them. It turns out that companies with a high NPS enjoy customer relationships that are remarkably forgiving of failure. When your customers are loyal they tend to regard service or product failures as an aberration; an unusual event that befell them simply because they were unlucky. The halo effect of a consistently high Net Promoter Score provides a shock absorber for companies who enjoy a reputation for excellence. Of course, the reverse is also true. A company with significant detractors finds that even when they excel, customers may regard their success as a fluke and not become promoters - in other words your reputation precedes you.
We also know that not everybody who is willing to recommend will actually recommend. Evidence points to the fact that companies with very high nominal Net Promoter Scores benefit from a higher propensity to actually recommend. People like to be in good company. If you believe yourself to be the only recommender of a product or service, it’s hard to take the courageous step of actually making a recommendation – you are immobilised by lack of group support. To the contrary, if you believe many others share your view you may enjoy social utility from sharing your own perspective, even if it only reinforces the views of the crowd. This is 'group think for Net Promoter high scorers' and another reason it’s good to be the leader.
Number 2: It takes a disruptive shift to change direction
In the US, instructors for private pilot training debate the merits of testing pilots on their ability to recover from 'unusual attitudes'. Now I know what you are thinking; 'unusual attitudes' these days in the airline industry could be a cabin staff who actually enjoys working for their airline. But bear with me, we are talking about FAA technical terms here.
An unusual attitude is when a pilot finds his or her airplane pointing, and moving, in a direction that is highly suboptimal. All of this falls into the usual FAA lexicon of euphemisms which include remarks like 'controlled flight into terrain' - otherwise commonly referred to as a crash. If the plane is pointing down, up, left or right to a considerable degree more than is 'normal', it's considered to be an unusual attitude (you can think of normal as being simply defined as a condition where the pilot doesn't need to do anything radical to avoid executing a 'controlled flight into terrain').
At first glance, you might think the idea of training pilots to recover from this condition lacks controversy, but you would be wrong. The issue is that if you lack sufficient skills to avoid this situation in the first place, which are relatively easy to develop, you certainly won’t have the more challenging skills to recover the situation. Therefore, the logic goes, examiners and trainers would be better off investing the time spent training recovery in avoiding the unusual attitude in the first place.
Data would suggest that many companies, indeed some industries, find themselves in the business equivalent of an unusual attitude, perhaps even a tailspin. A significant Net Promoter gap between you and your competition could be the equivalent of the flashing light in the cockpit warning 'eject! eject!' - although a more accurate analogy might be the cabin staff reporting that the majority of passengers – and flight attendants - have already grabbed parachutes and left via the rear exits.
The problem, from a change management perspective, is this: can any management process whose approach and skill level is such that it has put the business in such an attitude, be capable of saving the business before it executes the economic equivalent of a plane crash?  
Successful programmes start from a perspective of change management. Leaders recognised that the behaviour that put the company in their current situation would have to change significantly in order to facilitate a recovery. Sometimes, this change of heart is a result of a crisis in their business; in other circumstances it is a consequence of new management arriving. Interestingly, these two represent the most frequent circumstances under which the Net Promoter programme is initiated in a manner that links to longer term success. Rarely, an existing management team in smooth and level flight, seems to have the foresight to create a disruptive programme in anticipation of challenges ahead.
Number 3: Relative performance determines most outcomes
Companies seem fascinated with absolute performance. You often hear claims of 70% or 80% Net Promoter Score. Now, I would make the case that many of these claims seem unlikely, or are probably the product of misapplied methodology, but our lesson here is a different point: who cares?
The most important measures are those relative to your competition. Your customers face a finite range of choices, so a non-competitor with a 50% score doesn’t really impact your business if the best choice for your customer is a competitor who is -10%. The important thing is to be in a leadership position in your business and to understand what level of Net Promoter is required to achieve that leadership position. The winner takes it all, but what it takes to win depends on your industry and competition.
Having said this, a few words of caution… A classic strategic pitfall is to fail to understand what business you are really in. Your competition is anybody who your customer compares you to; industries with very low Net Promoter Scores are often disrupted by new entrants who redefine what a winning score needs to be. Being the leader with a score of 5 does not seem like a long term sustainable proposition. And, as we shall discuss later, absolute high numbers of promoters do create a capacity for word of mouth economics that can’t exist when you win your battle with a low score.
Number 4: Pick your battles
Each time we witness a great example of New Promoter success we are struck by the fact that loyalty leaders are not, in fact, leaders in all aspects of customer loyalty. What they seem to do exceptionally well is find the one aspect of their business that will truly swing the competitive equation in their favour, and then align their customer strategy around it to differentiate themselves.
For example, Amazon.com creates a differentiated customer experience through its core competence in logistics. Lego has developed a capability to co-create product lines with the help of its most loyal customers and has a sophisticated segmentation model to support their choice of input. The American online shoe retailer, Zappos, sees Contact Centre excellence as a differentiator - which is a remarkable insight for an online store - and has resulted in extraordinary growth for them.
No one company is outstanding at all aspects of the customer equation. However loyalty leaders have identified one or two critical levers for success, customised around their culture and industry, and have built focused customer experience excellence. Their choice of battleground has often reshaped the competitive framework for their industry.
Lesson 5: Create the experience on the front line
Brilliant insights into the underlying causes of good or bad customer loyalty can often be relied upon to swing the decisions of a small group of senior leaders. However, leaders recognise that the bigger challenge is persuading thousands of employees, whose every day execution really drives the customer experience, to change their behaviour in favour of the ideal customer culture.
Generally companies running Net Promoter programmes fall into three camps. The first group sees Net Promoter as just a different type of research, and focuses entirely on the issue of generating superior loyalty insights without concerning themselves with the issue of front-line employee engagement. These programmes tend to disappoint; even if you derive some new insights from your Net Promoter analysis it rarely proves sufficient to create a real transformation in the business.
The second group of companies set out with the admirable goal of creating cultural change for all employees, but fall short of accomplishing the mission. Reasons for failure vary, but often start with underestimating the magnitude of the effort required to create longer-term organisational change.
The successful group somehow harnesses the mind share of their employees to affect significant change in the way they manage their customers. Those organisations tend to start their efforts with a keen understanding of the definition of success (frontline engagement) and magnitude of challenge (significant). Their tools of success differ from firm to firm; for some, it’s incentives, for others better data and process, but they all avoid falling at the first fence by understanding where the real battleground for success will be.
Number 6: It’s how your customers see you
Companies don’t organise around the customer, they organise functionally. The notion of functional productivity dates back to the start of the modern industrial era and is based on the simple premise that repetition creates productivity - which it does – and that the principle purpose of organisational design is efficiency and basic skill development. This system was never based on the notion of the customer-facing organisation, never mind the 21st century concept of web sites shining a light into the internal operations of the organisation.
Yet voice of the customer programmes are often organised around the internal structure of the company, rather than around the customer perspective. This is a triumph of internal functional dynamics over design, but highlights a real challenge companies have in being able to build processes across organisational boundaries – which is exactly the way in which the customer perceives the company.
The problem is usually political, but to say that doesn’t diminish the challenge. On one hand, we want accountability within the organisation, and control and accountability are easily associated by management; on the other hand, we want customer-facing design which means departments superseding control in favour of a more integrated solution in the eyes of the customer. Our perspective: the only logically sustainable solution is one that aligns around the customer perspective, not the organisational structure. This makes the case for some kind of centralised design being established within which departments can optimise. While accountability benefits from decentralisation, the programme needs a grand design to stay aligned with the customer.
Number 7: Word of mouth economics trump advertising
Now don’t get me wrong, I have nothing against advertising, and in some industries there are some pretty strong correlations between well crafted advertising investments and growth. But consider for a second that the natural, and most efficient mechanism for growth of a business is word of mouth, and that advertising expense could be seen as a cost associated with your inability to generate such a dynamic.
Word of mouth has come of age through the internet, the power of personal recommendation being multiplied by two factors. First, the internet has provided a platform for promoter and detractor advocacy; what used to be the complaining letter to the CEO is now the public blog posting, or worse the viral homemade video that is both damning and entertaining at once. Customer recommendations are often our first, and decisive, tool for determining which product to buy on an online shopping site.
But the growth of available customer opinion has coincided with a continued increase in the number of commercial messages we are bombarded with. From TV, print advertising, online ads and paid search we are saturated with commercial message and over supply is resulting in reduced value for the message. Word of mouth impacts up; advertising impacts down. An already appealing tradeoff becomes even more so.
You can think of your Net Promoter Score as an indication of word of mouth capacity. Low numbers of promoters – even if it’s an industry leading score – would suggest that you have very few customers out there who would recommend you even if they could. Most companies would be advised to build that capacity as a starting point to driving word of mouth. For others, the challenge is mobilising promoters, getting them to actively promote the brand they love. For that, companies are launching referral programmes, online communities and tools to get their customers to 'go active' in their word of mouth efforts. However, as Lego learnt when thousands of their customers made videos to promote the brand, enough promoters will find a way to make their voice heard on the internet, if not in the coffee shops or meeting rooms.
Number 8: Follow the money
James Carville famously quipped "it’s the economy, stupid". Well, in our world it’s Net Promoter economics that trump just about everything. If you don’t understand the economics, don’t expect the economics to improve, and if the economics don’t improve, don’t expect the programme to last.
Successful companies apply numerous techniques to understanding the economic outcomes of their Net Promoter efforts. Linkage to financial outcomes or key performance indicators tells them what return they can expect on the creation of promoters or the elimination of detractors. Others calculate the differential lifetime economic values of promoters and detractors and apply these techniques to customer selection.
Regardless of your weapon of choice, it’s all about economic outcomes on the P&L and your ability to connect the Net Promoter outcomes to those economic results. Don’t delay building the economic model just because initial programme enthusiasm persuaded you that you could drive the programme off raw leadership and alignment with principles; sooner or later money determines the outcome and you don’t want to be caught unable to defend the economic case for your efforts.
One tip, successful programmes define success in terms of an economic outcome, such as 'reduced churn', rather than simply measuring Net Promoter Score improvement.
Number 9: Be like finance
Successful organisational solutions around Net Promoter look more like finance than marketing in their approach to management; disciplined, organised, standardised and process-driven. If NPS is overcome by the natural tendency of the organisation to chase short-term financial results, potentially at the expense of long-term customer economics, it needs to fight fire with fire. The language of discussion needs to be economics, the financial repercussions of customer decisions expressed in the same framework that short-term P&L decisions get made.
Organisations that want to hold themselves accountable for a critical metric trust their financial departments to create, publish and police their Net Promoter data. They would never allow a business unit to self-define, measure and report its own financial metrics without auditable processes and governance, especially a metric that is so open to interpretation. Of course, this doesn’t take away from the organisation the responsibility to create improvements in the score, or innovate around the customer. It just separates the poachers and gamekeepers, those who act as scorekeeper from those trying to move the dial.
Number 10: Don’t confuse simple with easy
Perhaps it’s a fitting conclusion to the lessons we have drawn about Net Promoter; while the concept is simple, the execution of the concept is not necessarily easy.
This shouldn’t surprise us in the least. Any source of competitive advantage rests on the company’s choice, and execution of that choice to a higher degree than their competition. Organisational transformation is hardly a topic to be taken lightly, so why would we expect companies to believe that a major shift in business using Net Promoter would be easy? The most successful companies make Net Promoter look easy, but their efforts, determination and business intelligence are what make the difference.
And yet, significant numbers of organisations embark on their Net Promoter journey with the idea that it will be a trivial exercise for them. Just a small change in a metric, no need to make a big deal out of a simple concept, right? Poor planning, low levels of human and financial resource commitment and poor alignment of executives characterise many programmes that will end up as efforts in futility rather than competitive advantage.
Ultimately, the biggest separation between success and failure proves to be that understanding of what it really takes to be exceptional, and being exceptional is never easy.

Richard Owen is CEO of Satmetrix.

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