Loyal or disloyal ? The NPS will tell you :
The NPS, or Net Promoter Score, is an indicator that measures customer loyalty. Created in 2003 by Fred Reichheld, consultant at Bain & Company, it is based on an assessment of the customer’s likelihood to recommend, usually accompanied by a question such as “Which elements motivated your rating ?”. The customer is asked to give a score between 0 and 10, according to which he will be classified into one of the 3 following categories : “promoter” if the score is 9 or 10, “passive” if the score is 7 or 8, or “detractor” if it is between 0 and 6.
Promoters are considered to be loyal customers, who will buy and recommend the company’s products. Passives are satisfied with the products but it has been demonstrated that this category cannot be considered to be captive. Finally, detractors are those customers who are disappointed by one or more aspects of a product or because of their experience with the product. It is important to identify the issues as soon as possible.
The NPS is calculated by subtracting the percentage of detractors from the percentage of promoters. It is therefore between -100 (if all the respondents are detractors) and +100 (if they are all promoters). In the 2015 NPS benchmark rankings, Tesla Motors was the leader in the “Consumer Brands Industry” category, with an NPS of 96.6 ! Generally, a good score is considered to be between 45 and 50.
By measuring customer loyalty, the NPS allows the target to be segmented into different categories and the performance versus competitors to be compared. But the score is not limited to just measuring customer loyalty. Many studies, conducted by the Harvard Business Review amongst others, have established that there is a strong correlation between an improvement of the NPS score and an increase of a company’s turnover.
To the question “is the return on an investment in NPS quantifiable ?” TELUS I INTERNATIONAL replied “Yes. A study published by the prestigious London School of Economics, entitled “Advocacy Drives Growth”, shows that an average NPS increase of 7% correlates typically with a 1% growth in revenue.”
Initially, the NPS was considered as a score which ought to be pushed as high as possible. Over the years, the emphasis has evolved towards verbatims, which are prompted by the question “What motivated your rating ?”. This allows improvements to be identified for implementation in the short, medium and long term.
A management tool and a key driver of change !
For an NPS to be efficiently exploited, emphasis is placed on analyzing and classifying the verbatims into different categories corresponding to issues identified by customers. Some issues will be translated into actions and the impact of these actions can be verified by the evolution of the NPS over time. But above all, it will be necessary to get all collaborators “on board” within the strategy of NPS measurement and customer satisfaction. This is the challenge that was taken up by the Allianz Group, which has succeeded in raising its NPS by 35 points.
Allianz is working hard to become one of the top five insurance companies in the UK. Indeed, in the article “Allianz UK, going for the top five”, published by CustomerGauge, it was noted that :
“They have already been growing steadily over the past five years. But with a change of management, they are buckling down to grow even faster and reach their objective. Neil Brettell, the new retail general manager, explains why he is confident about the goal : Customer obsession: Customer engagement is key, especially when you want to achieve a top-five position. Allianz is working very hard to ensure that customer obsession is embedded in the DNA of the company and not just in a few evangelists such as Brettell. Net Promoter Score: A top-five strategy depends strongly on a highly performing distribution channel. To initiate a discussion with broker partners, the NPS is used. This makes it easy to differentiate that which is already excellent and that which needs improvement and change.”
When the teams understand its importance, the NPS is acclaimed by both management and operations staff. At Amazon, the NPS has become a tool for management and motivation, and it is a key driver of change. In an interview with US News, published by CX Network, Jeff Bezos, the Chief Executive Officer of Amazon, explained the importance of “pioneering, not by looking at your competitors, but by focusing on your customers. Being customer-focused allows you to be more pioneering. On the Internet we have found that “me too” strategies do not seem to work very well.”
Another article, from the blog Recently, notes that Amazon has invested a great deal of resources into making its sales, shipping and return processes as simple and reliable as possible :
“Amazon has a NPS of 69, which is more than 30% above the average for its industry. Its ability to retain customers is even more incredible. Programs such as Amazon Prime — a membership-based customer loyalty system — have doted the company with an audience that is incited to be as loyal to the online retailer as possible in exchange for benefits such as free shipping. (…) Amazon, through its online customer service system, has fantastic customer feedback.”
Why is the NPS so important today ?
As mentioned above, the NPS indicates a customer’s likelihood to recommend a product or service. One may wonder why this “intention to recommend” has become such an important criterion, and why almost all companies that embark on a feedback management strategy want to measure their NPS. The answer lies in one word: Internet. In less than 20 years, this channel has become essential, not only for purchasing itself, but also for guiding purchasing decisions, essentially as a result of reviews posted on the web.
A survey conducted by Dan Hinckley (Moz Magazine) asked participants, “When making a major purchase such as an appliance, a smart phone, or even a car, how important are online reviews in your decision-making ?”
“The results revealed that online reviews impact 67.7% of respondents’ purchasing decisions. More than half of those surveyed (54.7%) admitted that online reviews are fairly, very, or decisively important in their decision-making process (…). The data supports the belief that Internet users are generally willing to look at the first and second page of Google search results when searching for details about a product or a company.”
NPS : Promoters and Detractors ?
On closer inspection, the NPS does not have only “promoters”. First and foremost, it is an indicator that is more useful in highly competitive markets, where buyers are more likely to seek advice and opinions before making a purchase. On the other hand, it is difficult to accurately measure the behavior of customers because although they may indicate that they will recommend a company, it is not proven that they actually do so. Another limitation of the NPS is that it only takes account of customers; yet non-customers can also act as detractors.
In France, the main obstacle to exploiting the NPS is above-all cultural. Undeniably, the French are well-known for complaining and being dissatisfied.
Over time, the NPS has found its place among the vast array of indicators available to marketing companies. Nevertheless, considering the indicator’s lack of promotion and popularity with French companies, we have reasons to believe that the “French exception” should be borne in mind.
Thus, even though the NPS is a very popular tool in English-speaking countries, it seems to be less valuable in France. However, the French anomaly does not call into question the notion that it is a useful and powerful indicator for measuring customer satisfaction – when the results are fairly analyzed and used to their full advantage for marketing in targeted countries.
For a company, the use of the NPS, the collection of statistical data, as well as the analysis of verbatims, is only a starting point. The challenge – and this is a major challenge – is to determine the actions to be prioritized in order to improve customer satisfaction, and at the same time to get all employees “onboard” in support of this strategy.
“Net Promoter”, “Net Promoter Score” and “NPS” are registered trademarks of Bain & Company, Inc., Satmetrix Systems, Inc., and Fred Reichheld.
To sum up
The NPS, an indicator measuring customer loyalty, has a strong influence on the growth of companies. To increase loyalty, and hence the NPS score, two things are necessary : the definition and implementation of an action plan linked to the NPS results, and the mobilization of all teams in support of the strategy of improving customer service. Although the implementation of NPS measurements may encounter certain obstacles within a company, particularly in France for cultural reasons, it is generally an indicator that is favored by both management and operational teams, and it is a real tool for managing a company.