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The numbers game: Is there any customer value in using Net Promoter Score?

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5th May 2009
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Author Laura Brooks claims that Net Promoter gets to the 'hearts, minds and passion' inside an organisation, yet firms are still split over its effectiveness. Is it just another metric or are we missing a trick when it comes to truly understanding customer loyalty?

By Louise Druce, editor

The list of Net Promoter score advocates reads like a who’s who in big business, with the likes of Adobe, Amazon, eBay, Google, Lego, Orange, PricewaterhouseCoopers and Virgin Media all using it as a customer loyalty metric, to name but a few. However, while NPS has been around for a while, opinion has often been divided on its merits over other measurements. So, where is the value for the customer?

For those unfamiliar with Net Promoter, it was developed by software firm Satmetrix, management consulting firm Bain & Company and loyalty business model expert Frederick Reichheld as both a loyalty metric and a discipline for using customer feedback to fuel profitable growth in a business. It was popularised through Reichheld's book 'The Ultimate Question'.

The Net Promoter Score (NPS), is a metric that holds companies and employees at all levels of the company accountable for how they treat customers. The customers are divided into three categories: promoters, passives and detractors. By asking 'how likely is it that you would you recommend company X to a friend or colleague?', firms can track these groups and get a clear measure of the company's performance through its customers' eyes. Customers respond on a 0-10 point rating scale, categorised as follows:

  • Promoters (score 9-10) are loyal enthusiasts who will keep buying and refer others, fuelling growth.
  • Passives (score 7-8) are satisfied but unenthusiastic customers who are vulnerable to competitive offerings.
  • Detractors (score 0-6) are unhappy customers who can damage your brand and impede growth through negative word-of-mouth.
  • To calculate your company's NPS, firms need to take the percentage of customers who are promoters and subtract the percentage who are detractors. According to the 2009 Annual Net Promoter Loyalty Benchmark Reports for Customer Loyalty, Apple currently scores the highest NPS at 77%.

    Changing attitudes?

    But back in 2007, Timothy Keiningham, senior vice president and head of consulting at IPSOS Loyalty, and a team of loyalty experts re-examined Reichheld’s research and findings on NPS and concluded that Net Promoter had no clear superiority to other customer satisfaction measures. "It is fairly simple to see whether it really works or not," said Keiningham. "There have been magazine articles that have shown Net Promoter Scores changing in some ridiculous fashion for companies like Microsoft. You are supposed to double in growth rate every 12 or 13 point increase in Net Promoter. Did Microsoft’s fortunes really change that dramatically? It doesn’t take a rocket scientist to see where the failings are."

    "Despite the mistakes and drawbacks of NPS, it has been enormously successful at catalysing the attention of senior executives on the issue of customer experience; it's made customer experience relevant to the executive suite."

    Bruce Temkin, Forrester Research

    He also claimed there may have been other reasons why Net Promoter was so readily embraced. "CEOs hunger for something that will help them guide their businesses. But the management sciences have made loyalty too complex to actually be explained. Managers were tired of having complex metrics that they didn’t understand and didn’t help them predict. Net Promoter was intuitive and seemed to be vetted."

    Fast forward to 2009 and there is still some debate about how NPS should be used but it seems it seems companies have a better understanding of how it should be seen as a catalyst for change rather than being seen as a magic number, which may go someway to accounting for its continuing popularity. In his blog, Bruce Temkin, vice president and principle analyst at Forrester Research, argues that NPS is still entering early adolescence. "The excitement and exuberance of a single measure for customer loyalty is giving way to some second guessing and rethinking," he says. "Companies are learning that it’s not as easy as just using NPS, it takes hard work to figure out how to best use NPS to improve customer experience."

    He believes the biggest problem is its marketing as 'the' single metric, which has lead to misunderstandings. "The key value of NPS is not as a metric but as part of an approach for improving customer loyalty," he explains. "NPS’ role is to segment good outcomes (promoters) from bad outcomes (detractors) so that the company can diagnose the drivers for each of those situations. This only becomes valuable when the company uses this insight to change what they do so as to create more good outcomes in the future."

    Temkin also admits that other questions could work as a diagnostic and there are some instances where the Net Promoter isn’t appropriate. "I always discuss voice of the customer efforts (of which NPS is a part) in the context of five levels of insight: relationship tracking, interaction monitoring, consinuous listening, project infusion, and periodic immersion. NPS fits nicely in the relationship-tracking bucket, but is not a good fit for the other levels of insight. Satisfaction questions actually work much better for interaction monitoring," he says.

    But is Net Promter valuable? "Absolutely!" says Temkin. "Despite the mistakes and drawbacks of NPS, it has been enormously successful at catalysing the attention of senior executives on the issue of customer experience; it's made customer experience relevant to the executive suite. And one of the best things about NPS, which doesn't get enough attention, is that it has introduced a common language around customer segments: promoters, passives and detractors. The use of common vernacular is a very powerful tool for aligning organisations."

    Answering the ultimate question

    Dr Laura Brooks, vice president, research and business consulting at Satmetrix and co-author of 'Answering the Ultimate Question' agrees that attitudes have changed. "Just like CRM, it's not enough to run a process. You really have to get the whole organisation behind this effort and this is the point lots of people missed in the early days," she says. "Net Promoter gets to the hearts, minds and the passion inside an organisation because it speaks to the frontline employees. Almost all employees can get the concept that you should have more promoters for your business than detractors. That simple message is powerful.

    "In the past, initiatives weren't really focused on the frontline, they were focused more on what I would call a research exercise – collecting the information and reporting back a score. These are not KPIs the customer generated, they are what the business generates and don't always line up."

    So is there still a danger that firms will still concentrate too much on pursuing a better score? This was something Brooks looked to address in 'Answering the Ultimate Question'. "One of the foundational elements that have to be in place is strong leadership with a belief that customer-centricity is critical for long-term sustainability and growth," she says. "If you don't have that belief and the executive level hasn't truly invested in people, time and resources etc to this cause, it won't work.

    "If you ask executives if they have a highly-focused customer culture, 68% will say yes but if you actually look at whether they are practising the key behaviours that create this customer-centric culture, only 15% actually have that. Companies have to try to close that gap."

    Lip service

    Trust is a critical factor as well, not just with customers but also with employees. "How you treat people within an organisation is expressed in terms of how they deal with customers. The trust has to come from the inside out," Brooks adds. "You have to create a culture where you are not trying to take advantage of employees or customers and where your policies and practices are in alignment with that trust-based philosophy. If you treat people well, they will want to align those beliefs with the customer."

    "In the past, initiatives weren't really focused on the frontline, they were focused more on a research exercise. These are not KPIs the customer generated, they are what the business generates and don't always line up."

    Dr Laura Brooks, Satmetrix

    And in these tough economic times, Brooks agrees that it is important that firms not just pay lip service to committing to focusing on the customer in favour of simply cost-cutting. For example, she says there are initiatives that exist in companies that are not showing any returns or outcomes that are measurable that can be reallocated to the kinds of initiatives that are more customer-focused and have the highest impact, such as interactions with call centre agents.

    "All customers are not created equal," Brooks concludes. "They have different needs and expectations so understanding these requires businesses to understand their customers at a level of depth perhaps they are not used to and customising options for customers that meets those needs. This means [undertaking] customer segmentation and identifying key drivers of Net Promoter and loyalty, and not getting so immersed in the number of loyalty programmes they have. Instead of trying to fix 10 things, you have to fix one or two things that will have the biggest impact.

    "Businesses are not going to start out as loyalty leaders and have automatic success," she adds. "They have to show not only improvement but learning along the way. We can say all we want about Net Promoter as the inventors, but at the core is whether companies have these customer loyalty proof points – to me, that is what is valuable."

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    Net Promoter: can a magic number really guide your business?

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    By Gary Schwartz
    26th May 2009 17:12

    Your article ‘The numbers game: Is there any customer value in using Net Promoter Score?’ raised some interesting issues.

    It quite right to say that the NPS has brought the importance of customer experience to the boardroom but whilst it was originally promoted as ‘the one number you need’ or The Ultimate Question, we firmly believe that it is the Penultimate Question.

    Identifying ‘Promoters, Passives and Detractors’ is one thing, but to get a real insight into customer loyalty, businesses must ask customers what they think on a continuous basis, as part of an ongoing business improvement program.

    Customers should be asked whether they are satisfied as soon as possible after each encounter with the business. Only then can you measure forward looking data such as Key Attitudinal Indicators (KAIs) that might provide a more effective prediction about customer buying patterns and future growth. Or identify a bad experience so that the business can do something about it. Customers will only remain loyal to a company and act as an advocate for it if they feel that their views are being taken seriously and if complaints are handled efficiently.

    Why are people advocates? Why would they refuse? Are there any trends or correlations of the answer to certain questions among specific customer segments that would allow the business to improve service delivery or adapt other areas of the business in order to enhance customer experience?

    Capturing customer feedback about what they consider to be important – not preconceived measurement criteria set down by the business – provides the actionable insight that those in the boardroom are increasingly looking for. Delivering alerts to those in the business who have the power to fix things, as well as dashboard reports for those that require the bigger picture, is more important than playing the numbers game.

    Your sincerely,
    Gary Schwartz,
    Senior Vice President
    Confirmit
    www.confirmit.com

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