The Key Question of Loyalty
Updated: Jun 5, 2020
From a loyalty marketing perspective, few business tools are as useful as NPS – or Net Promoter Score – described by Harvard Business Review as “the one number you need to grow” – and the industry standard since the model was first published more than two decades ago as a way to measurably link your customer’s loyalty to your future profitability.
The ingenuity of the NPS approach lies in the question it uses which reveals customer’s true motivation. Whilst the factors that drive our buying behaviour are complex and varied, the “ultimate question” effectively sidesteps irrelevant influences to get to the true heart of the customer’s mindset by cleverly asking customers whether they would actually recommend the brand to a friend. By putting their own reputation on the line, customers commit what Fred Reichheld (the man behind the model) calls “the ultimate act of loyalty”.
An alumnus of Harvard Business School, and a Fellow and Consultant with Bain and Company for over forty-two years, Reichheld’s work has been embraced by leading global brands such as Apple Retail and American Express, so in this article, I explain both how and why I believe you should implement this simple tool in your business to understand the patterns of behaviour that are driving the profitability and growth potential of your business, starting with a short introduction video from LinkedIn.
Watch this short video for a quick introduction to Net Promoter Score methodology.
Benefits of Net Promoter Score :
Traditional customer research typically consists of lengthy questionnaires which are designed to capture specific insights across multiple issues from customers. But as busy people, we avoid lengthy questionnaires, so one immediate benefit of using NPS is that it asks just one simple question. This ensures higher response rates which are essential to achieve a statistically valid sample of data, while also eliminating the potential for customer frustration. Here is the question that customers are asked:
How likely is it that you would recommend [brand] to a friend or colleague?
Customers choose from 1 to 10 on the scale of their willingness to recommend the brand – 0 to six scores are classified as ‘detractors’, customers scoring seven or eight are ‘passive’ and only those awarding a nine or ten become ‘promoters’. Your overall NPS score as a single number is calculated by subtracting the percentage of detractors from the percentage of promoters.
The Formula to Calculate Your Net Promoter Score
In addition to a definitive measurement of the satisfaction of your customers, the analysis ensures complete visibility of who your top customers are – the ones you never want to lose and on whom the majority of your loyalty efforts and resources should be focused on.
Promoters are known to be less price sensitive, they churn less and actively recommend your brand, while passive customers are more price sensitive and also more vulnerable to competitors. Clearly detractors are a significant cause for concern as they can cause considerable brand damage and indicate more fundamental health issues in your business that need attention.
So what constitutes a good NPS score? This varies hugely by industry however as the range ranges from -100 to +100, anything over 0 is considered a good result and anything over 50 is excellent.
Focus on Promoters to Maximise Profits.
Measuring Your Net Promoter Score
There is no global recommendation how often you should measure your NPS, so the key is to ensure the sample size is valid while ensuring that frequent customers are not targeted excessively. An airline may report to management on a monthly basis, however customer-centric brands like Apple are reported to survey customers ‘every day in every store’ – sending a clear message to customer-facing staff that delighting customers is their top priority in the store’s day to day operations.
Reichheld identified the key principles which are essential for any company implementing NPS to ensure the programme’s success, such as how Apple applied the tool systematically in order to “enrich” the lives of their customers.
Measure feedback consistently – occasional surveys at the point of sale are simply not effective to identify and understand patterns or trends in customer feedback.
Close the Loop: Within Apple retail, the store manager calls every detractor (those customers rating 0 to 6) to understand the problem they experienced, apologise, and put measures in place to address their issue.
Celebrate success: Employees are critical to the success of any retail operation so peer recognition and sharing exceptional results from promoters serves to energise and reward those staff responsible and inspires them to continually deliver at their best. It also helps improve employee loyalty and retain retail staff.
Share Best Practice: A final recommendation is to invite feedback from store staff through to the company headquarters in a clear, consistent and committed process. Customer-facing staff provide a unique window of feedback directly from customers to central operations, capturing ideas and improvements while ensuring positive team dynamics.
With this comprehensive approach, it’s no surprise that Apple Retail’s NPS has reached a world-leading NPS score of 89, with the retail sector overall lagging behind with an average score of 29.
The impact (or potential impact) of measuring your NPS is compelling, with recent research proving that promoters spend 3.5 times more than detractors – a key audience to impress to guarantee your future profitability. Already more than two thirds of Fortune 1000 companies are using the metric, so there’s no doubt that digital solutions (like the loyalty management platform I write about loyalty for) all offer a really simple approach to start by ensuring the survey communication is managed with the appropriate business rules for your stores automatically applied.
More and more brands are implementing the solution, for example in Oslo airport in various restaurants operated by HMS Host, customers are encouraged to scan a barcode on the menu to give feedback. Here is the case study if you’d like to understand their approach in more detail.
And if you’d like to implement net promoter score (or any loyalty strategy) in your business, please contact us.
This article was first published by Customer Network Strategy. Permission to use has been granted by the publisher.