According to the latest research from the Corporate Executive Board, customer loyalty is the best indicator of future customer economic behavior and business profitability. It is completely logical that an investment analyst would take Net Promoter Score into consideration when conducting due diligence and generating projections relating to a company’s profitability.
The comment about the metric serving merely as the starting point is spot on. With the metric, a company can measure its success (or lack thereof) in improving the customer loyalty of its customer base. We know through extensive work with companies, both in the U.S. and abroad, that NPS is an emotional score. Whether or not a person recommends a product, service, company or brand to his family or friends is an emotional decision. The choice to become and stay loyal to a business is based on how doing business with that company made or makes them feel.
We also know that when it comes to service, customers want three things. First, and most obviously, they want their practical product-related need met. Second, and not as obviously, they want their emotional need tied to that practical need met. All customers have an emotional need because they’re human and they feel something about the product, the company or the service. Finally, they want a low-effort experience – they want companies to be easy to do business with.
Companies that get these three things right are rewarded with higher Net Promoter Score results. We have proved this with a global 500 company. And it all started with Net Promoter Score, which allowed us to measure our success!
Original Blog Post Below:
The New Promoter Score Interview – Is there Just One Question?
In the final part of our Three Part interview series with Rob Markey, Bain & Company, we share insights from Mr. Markey on how to better execute surveys, whether to introduce incentives to improve survey responses, and get his opinions on whether NPS or other metrics will eventually influence share prices on public exchanges.
Oh yes, we’ll also get to the bottom of whether there really is “just one question”to get a grip on customer loyalty.
Many firms have response rates to surveys in the single digit range. Some respond by offering incentives to drive up response to their NPS surveys. Mr. Markey stated that “at Bain, this is evidence that you are not earning your customer’s feedback”, adding that “offering incentives is almost always a sign that a flaw exists in the customer feedback process”.
Listening to the results that do come in and making change on the front lines will earn your way to 30-40% response rates over time. Rackspace, one of the examples cited in The Ultimate Question 2.0 gets above 60% response rates to its surveys. “Here’s why” stated Markey “Rackspace earned participation in its surveys because they aremeaningful to the customer”.
According to Markey, being satisfied with a 5 – 15% response rate is dangerous. Business should seek the root cause for low response rates and test surveys across groups that are weighted to promoters, passives and detractors. “Detractors are less likely to respond to a survey than prompters” said Mr. Markey, and “bias needs to be rationalized through testing”.
When I asked Mr. Markey if measures of customer value predicted by NPS or other scores would one day influence share price and market capitalization, he said that “it was already happening.” Though he cited confidentiality, Markey stated that “an average category leader in NPS scores grows at least 2X competitive growth rates”, adding that “several nationally recognized investment firms pay attention to NPS as an indicator of companies they would invest in”.
I couldn’t let my time with Rob Markey end without asking one big question: Is there just one question that companies can use to predict and / or measure customer loyalty? Markey explained that “when done on an apples-to-apples basis, NPS correlates closely with other measures such as satisfaction, but that “if the goal is to find the best statistical predictor of individual customer behaviour, most likely a multi-variable index will be superior to any single metric index”.
For example, the investment firms cited earlier use NPS as a predictor of value, though it’s not the only metric considered. Having said that, Markey added that “in many instances, NPS will replace traditional customer satisfaction metrics, mostly for the practical superiority of the NPS system”. “Not a single loyalty leader measured their way to success” said Markey, adding that “it’s hard to get employees fired up about some metric”.
For Markey and Reichheld, the metric is the starting point. It is the metric that provides the compass to navigate the path forward, but it is the system that is the path itself. The victory in where they have arrived with “The Ultimate Question 2.0” is that the system has been created and business now has a reliable option to predict customer loyalty and to help bring continuous improvement to the enterprise.