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A new goal



Most companies have already made inspiring mission statements and shown good intentions. But a mission without the possibility to measure results usually just remains hot air.

Net Promoter Score®

It is important to implement methodology that ensures good intentions can be measured, providing you with an ongoing gauge of where you’re at. In this way, you can make course corrections in the case of less-than-satisfactory results. It is not a coincidence that some of the world’s most successful companies, such as Apple, for example, use systematic customer measurement principles. And they don’t use just any system. They use the Net Promoter Score® (NPS)*. This is the methodology we recommend too. We are not getting anything from recommending it; we are doing it for the very simplest of reasons – that it is the best system. Extremely simple to implement, analyse and act upon, NPS® provides you with a score that is directly comparable to benchmark, both internally between different departments and employees, but also externally against competitors and other sectors.

It all started back in 2003, when Fred Reichheld (who was also employed by Harvard) established a research study under which he conducted extensive research to discover what would be the best question to ask customers, in order to get an indication and a direct correlation to company growth. They researched a myriad of different questions, and the “recommended” question proved to be the one with the strongest correlation with a company’s profit margins – and in particular the link between increased purchasing behaviour and the willingness to recommend the brand to others. The more willing a customer was to recommend the brand, the more willing he/she would be to purchase the product him/herself.

The other strong correlation was “word of mouth”. Not surprisingly, it was the “word of mouth” recommendations to friends and colleagues that resulted in increased sales.

In 2006, Fred Reichheld published his book, The Ulti mate Question, which today is widely regarded as the bible of the NPS®.

The implementation of NPS® has been extensive throughout the USA and relatively so in the UK.

A KPI that can predict the future

The NPS® can do something no other methodology can. Imagine that you have a KPI that showed what would happen in the future. You have plenty of KPIs indicating what the current or past situation is, but it is uncommon for companies to have a KPI that predicts how their customers will behave in the future. This is the fantastic thing about the NPS® as it manages to do just this.

What about the classic satisfaction scores? When you ask a customer to tell you about his/her customer experience or satisfaction, what you are actually asking them to do is tell you about the past. But you don’t ask them to tell you whether they’ll come again, and certainly not whether they’re so happy about the product or service that they’d actually tell other people about it.

The research that inspired the methodology showed that the question that best reflected customer loyalty and future behaviour was:

How likely are you to recommend us to others?

The customer is requested to answer this question on a scale going from 0 (Not likely at all) to 10 (extremely likely).

The customer is then asked to leave a few comments:

What could we improve?

This question is added because it is also important to understand the reason for dissatisfaction and what could be improved. What are the factors that are driving customer loyalty and the promoters?

If in the first question the customer answers 9-10, then they are genuinely loyal customers, and we call them promoters.

Scores of 7-8 in classic customer satisfaction analysis would be considered a satisfied customer, but in this system they are rated as passive satisfied. They are not yet at a level where they have a strong enough connection that they would be prepared to proactively recommend you. A customer who gives you a score of 7-8 could therefore choose a competitor next time round, if they feel they have good reason (for example, a good special offer or great word of mouth from your competitors’ promoters).

If a customer scores you from 0-6, then they are certainly not loyal to your brand and are therefore considered to be detractors. These customers may choose to leave at any time. Furthermore, if they score you from 0-4, there is a considerable risk that they will spread negative word of mouth about your business.

The NPS® can be found by subtracting the detractors (0-6) from the promoters (9-19); for example, a business might have the following results:

Promoters 55 percent

Passives 25 percent

Detractors 20 percent

This will result in an NPS ® score of 35 (55-20).

An example of a company that has a very impressive NPS® is Apple, which has a stable score of approximately seventy-two percent. If your company can achieve any- where near this score, then the future looks very bright. Although it may sound absurd to compare your company to Apple, you have to remember that with the techniques described in this book, it is certainly not unrealistic to reach a comparable level in terms of customer loyalty.

Overall, NPS® is split into three categories:

(-100) – 0: Bad

0 – 50: Good

50-100: Exceptionally good

There has been much debate about whether it is more effective to measure the results of customer research on a 5- or 10-point scale. We would strongly recommend the 10-point scale. It is the easiest for customers to relate to and provides a more nuanced picture of the results. And, most importantly, it is the 10-point scale that NPS® builds upon, so you won’t have to perform recalculations that will make comparisons with other NPS® companies less valid.

Measure it on the bottom line

It goes without saying that when measurements are being taken, we should also measure results on the bottom line.

Let us make a simple calculation that illustrates the life- time value of a customer: At Relationwise, we have had countless meetings with sales and marketing directors who had not yet done the very important calculation that shows what they stand to lose in terms of pounds and pennies if customer retention is low. In the event that you have not done the math, the following is a quick guide.

Of course, for some companies it is going to be challenging to make an exact calculation because it is often difficult to measure exactly how many customers come and go, which are regular customers and which buy in what quantity. Nevertheless, it is always preferable to have an estimated calculation rather than nothing at all.

Here is an example of the calculation in its simplest form: On average, ten percent of company ABC’s customers do not recommit after the first year’s purchase. On average, every purchase is worth ten euros. If ABC has 500 customers, this means that fifty of their customers will not give the potential income of ten thousand each the next year. This gives an accumulated loss of five hundred thousand euros on potential income.

But that’s just the first year. Over five years, those five hundred thousand euros have become two point five million euros, and after ten years they become five mil- lion euros. If ABC had managed to retain just a fraction of the lost customers, they would be at least hundreds of thousands of euros richer.

While it is true that ABC loses ten percent of their cus- tomers each year, they also gain ten percent more new customers. The company therefore manages just fine and is not overly concerned by the lost customers. But just because you gain new customers, it doesn’t justify losing customers at the other end. If ABC halved its defections, it would achieve a five percent growth rate instead of being stuck in the status quo as competitors jump ahead. And we shouldn’t forget the expenses associated with winning the ten percent more new customers.

You could also dig even deeper and link the loyalty score with other numbers that can be found in your CRM (Customer Relationship Management) and commerce systems. There are huge opportunities in this data that companies rarely tap into. Suddenly, you have answers to these kinds of questions:

  • . What economic influence does a detractor and a promoter have?
  • . How long, on average, do detractors and promoters remain customers?
  • . What is the life value of detractors (even negative value) and promoters respectively?
  • What will it mean (economically) to strive to convert a share of your detractors to promoters?

If you can create change based on the facts listed above, what financial gain could you achieve?

Customer loyalty also affects the bottom line in a way that is often overlooked.

The US office of Consumer Affairs has for years highlighted the correlation between the way a complaint is managed by a company and the subsequent decision of the dissatisfied customer as to whether or not to purchase from that company again. it has been proven that seventy-five to ninety-five percent of dissatisfied customers never complain!

It has also been proven that the time between the complaints to the time that the company either reacts or solves the problem has a direct influence on the probability that the customer will choose to stay with the company.

The percentage of customers with “big complaints” that remain customers rises from nine to nineteen percent simply because they have submitted their complaint even if the complaint has not yet been solved. if the company solves the problem, then customer retention rises to fifty-four percent – and if the problem is solved speedily, then it rises to a whopping eighty-two percent! in other words, change your “win-back” from nine percent to eighty-two percent.

What financial impact would this have on your company?

Promoters and the effect they have on your business

Even with conservative estimates, you will probably discover that there are big gains to be made, directly affecting the bottom line, by working with customer loyalty.

So listen to your customers and find out what it takes to convert them into promoters. According to Tomas Lykke Nielsen, the author behind the critically acclaimed Take Responsibility for the Customer, there are some commonalities. He says:

“There is a phenomenon that is particularly clear. Companies that have many promoters have a high frequency of communication with their customers. They inform their customers when there is something relevant for the customer to know. They proactively suggest improve- ments to the customers’ products, they inform customers when they’ve made an error, and they keep customers constantly up to date when the customers are involved in processes (what’s happening now, how far are we, etc.). We propose that one of the fastest ways to get more pro- moters is to step up the customer communication – as long as it’s relevant, because it strengthens and maintains the relationship with the customer.”

How many of your customers currently purchase from you based on a recommendation from another customer? The number of customers generated from a recommendation will be different depending on the market segment. Peter Winther from Winholistic established an estimate after researching a series of Danish companies. His research shows that, depending on the market, if a single promoter recommends a company to just four other people, that there will be a high probability that one of them ends up becoming a customer.

According to the “formula” above then you need forty recommendations to obtain approximately ten new customers.

Of course we need to make the distinction between a Facebook like and a real recommendation to someone we know well. How many new customers can be accredited to promoter recommendations depends on how good we are at activating our promoters to recommend our company.

All this is supported by the fact that we are much more inclined to trust a recommendation from our friends and acquaintances than we are to believe in corporate promises or expert advice.

If you could double the amount of your promoters, those that rated you 9 or 10, how many customers would you be able to get?

Summary

  • Find out how much money your company is losing as a result of lost “lifetime” customers.
  • Find out how many of your customers are truly loyal and would be prepared to recommend you to others. – Find those customers who are potentially less likely to be loyal and enter into dialogue with them.