|
More Hot Topics
The Net Promoter Score (NPS) is a popular performance metric based on a single measure: willingness to recommend. Decisions are made and bonuses awarded based on the difference between "Promoters," who are likely to recommend a company, and "Detractors," who are unlikely to recommend. Does the NPS tell the full story? When relying on one question to judge the health of customer relationships, important insights may be overlooked. Imagine a company that surveys its customers and asks their willingness to recommend it but nothing else. Some important aspects of a relationship could be lost, including the following:
- Disappointed Customers may recommend a company and plan to buy from it in the future. However, they are less than satisfied with their last encounter, which places the relationship at risk. As loyal customers, they will support a company they have had a positive experience with in the past, but the company is now on probation.
- Separated Customers sound very positive because they will recommend a company and indicate they are satisfied with it. The problem is that they are unlikely to do business with the company in the future. These customers will tell you there is no problem, saying "you're a great company and I would recommend you without reservations, but..." In this case, the company has lost relevance and failed to provide value, so the willingness of the customer to be an advocate should not be counted as a success.
- Contented customers will not recommend a company, even though they are satisfied with the relationship and plan to continue it in the future. The customer may prefer to avoid recommendations, perhaps out of fear of being held responsible if the recommendation does not work out. If the survey process that collects the recommendation measure is not "anonymous," the customer may also be concerned they will be asked to recommend the company. The unwillingness of a Contented customer to be an advocate is not a failure, and aside from their unwillingness to be a "Promoter," they may be one of the company's best customers.
What do these divergences from a Net Promoter view mean for how to understand and manage customer loyalty? The first priority is to ask customers more than just willingness to recommend. Net Promoter advocates call the recommendation measure the "ultimate question," but independent research has shown that other questions are equal or superior in predicting company performance (see our white paper "The Path to Excellence"). Further, multiple measures used together ensure greater stability in tracking customer loyalty. Among the many questions that could be asked besides "willingness to recommend," two are especially important:
- How satisfied are you with your most recent product or service experience?
- How likely are you to purchase from this company again in the future? (Variation: how likely are you to continue the relationship?
Using these two additional questions in conjunction with willingness to recommend, certain customers should be placed in different categories than the traditional Net Promoter categories of "Promoter" (likely to recommend), "Passive" (marginally willing to recommend) and "Detractor" (not likely to recommend) to more accurately describe their relationship. These are as follows:
- Customers who rate a company low in satisfaction should be classified as "disappointed," even if they are Promoters willing to recommend the company. The presence of these customers indicates a failure to deliver a quality product or service experience. Disappointed Customers require special treatment, and if they are prevalent or growing in numbers, attention must be paid to quality, consistency and reliability.
- Customers who are unlikely to buy again or continue a relationship should be classified as "separated" even though they are satisfied and willing to recommend. Their prevalence indicates a potential failure in the value proposition and a need to review products, pricing and channels. For example, customers may be tiring of a brand, moving to a different life-stage, finding better value from competitors, or buying in a different fashion.
- Customers who are satisfied and likely to continue buying, but not recommend, should be classified as "contented" even though they are satisfied and willing to recommend. Their strong relationship is an indication of success. For some of our clients, these customers prove to be the best customers in terms of dollars spent. The unwillingness to promote should not trigger any special action.
 A re-classification will result in six categories in a Net Promoter framework, the three traditional groups, Promoters, Passives and Detractors, and the three new groups described here and shown in the table above. These categories provide a more complete picture of customer loyalty, and do a much better job predicting customer behavior (based on validation studies we have conducted at Rockbridge).
When computing a Net Promoter Score, the new categories can be used to adjust for a more complete understanding of loyalty dynamics. Contented customers should be included in the Promoter column. On the other hand, Disappointed and Separated customers should be included in the Detractor column. In one study, these adjustments brought the index down by 14 points because many Promoters and Passives had negative experiences or had separated from the company.
Where do you go from here?. The single most important lesson is that three questions, not a single one limited to recommendation, will provide the most complete understanding of customer loyalty and how to improve it. With these expanded questions, a company can reclassify customers into more than three simple categories. Or, as Rockbridge does for most of its clients, the three questions can be combined into a single Loyalty Index that is more stable and predictive than just one question. The key to building customer loyalty is to develop a deeper understanding of relationships that goes beyond advocacy.
For more information about the Net Promoter Score, contactGina Woodall, SVP at 703-757-5213 ext. 11 or gwoodall@rockresearch.com, or Charles Colby, President, at 703.757.5213 ext. 12 or ccolby@rockresearch.com.
More Hot Topics
More Rockbridge Articles
| |
|
