Having customers is one thing, but knowing their true value is quite another. Of course, it is entirely possible to run a business on a diet of ‘one-hit wonder’ customers, but it’s a wasteful, time-consuming and expensive way of generating business. It’s much better to win and keep customers by understanding their lifetime value through studying their loyalty to the practice. One way of doing this is to generate what is termed a ‘Net Promoter Score’.
The Net Promoter Score
Quite simply, a Net Promoter Score (NPS) is a loyalty tool developed by Fred Reichheld of Bain & Company, and Satmetrix, that was introduced in 2003. It’s used to monitor and gauge the loyalty of a business relationship, irrespective of whether it’s business to consumer or business to business. The key benefit of NPS is that it gives insights into elements of a relationship such as customer satisfaction, effectiveness of communications and how well customer service is judged.
Ian Cass, managing director of the Forum of Private Business (FPB), believes it to be a very effective way of measuring customer experiences as “you can see if the customer would recommend you to others, with answers based on a zero to 10 scoring method”. Cass says that the size or sector of the business concerned does not matter because it’s the understanding of the customer experience that is important, as “it allows the business to keep improving”. He adds: “It is a great tool for driving a strategy for business performance; it can also improve a business model as it provides a metric measurement which is important, especially from a purchaser’s point of view.”
From a business perspective, understanding how the scoring is calculated is essential as this drives communication with those individuals that form the customer base. Essentially NPS asks a series of ‘why’ and ‘would’ questions which return scores of between zero to 10.
Cass illustrates how the process has worked for the FPB. “From our perspective, we’ve asked many members for their opinions over the years, from looking at changes to government policy to business rates and budgets. And because we often have lots of questions that we want to ask our members we look to condense what we ask into a 20 to 30-second questionnaire which is great for our members to answer quickly.” Cass says that NPS has led to a greater level of response from members and as a result, has helps put research reporting together that in turn has been fed back to government.
So, under an NPS scoring regime a standard has been established. If a response scores:
The problem for businesses faced with detractors is that the web feeds the subconscious. As Cass remarks: “Consumers today will look at comments made about the products and services of a business and this can have a negative or positive effect and may well influence their own buying decisions.”
Using NPS to best effect
It should go without saying that NPS needs to be used properly if the right result is truly wanted. For Cass, NPS should be important to any business wanting to know how well it is doing while helping to measure the customer experience of those that deal with it. He says: “Having a scoring for a product or service will give you the insight of a job well done or not. If the scoring is poor, a business can see the areas that need work and take proactive action to improve them. We believe that if a business is not asking for this kind of information, then how do they know if they are doing a good or bad job?” Having positive reactions from customers and suppliers is the bedrock of success – it will help a business gain new customers while helping them grow as poor feedback should lead to work on areas of weakness.
NPS can be used generally or specifically, depending on the strategy being deployed. For example, after a customer has visited a practice, a simple automated email can be sent to the customer asking for feedback. But Cass offers a note of caution here. He says that for NPS campaigns to work, a business-wide strategy needs to be implemented and it needs to take into consideration factors such as making all staff aware of what NPS is, how the measurements work and what they mean; not ignoring or failing to respond to negative comments; and actively seeking to engage with those classified as promoters.
Says Cass: “Think about how you will communicate further with promoters. They have given you a good score but how will you continue to communicate positively with them now that you have their goodwill?” He says negative scorings should also create the same thought process and asks: “How will you work with the customers that give you a low scoring? Everyone needs to communicate effectively to customers and the key is to keep monitoring the scoring results and act upon them.”
NPS as a predictor of growth
It’s not hard to see, then, that if NPS scores are high, it’s fair to hope this would be reflected with a healthy business that is growing. Conversely, if the scores are low it can be expected that the rate of growth for the business will be poorer. But Cass says that this may not always be the case, and he cites an example well known to economists: “If your product is one that is in very high demand – say it’s the trendy thing to have at the moment – then it may well sell despite poor customer service and low NPS scores.” But clearly a business in this situation is not going to have a long life.
Getting an NPS
The actual calculation when measuring NPS is a function of the total number of respondents who replied, the total number of promoters and the total number of detractors; the percentage of detractors need to be subtracted from the percentage of promoters. The closer the result to 100, the better it is and anything with a negative should be dealt with quickly.
It’s important to remember that NPS is not the be-all and end-all of customer satisfaction. Any business owner or manager worth their salt should have an ear to the ground for customer feeling. It’s also fair to say that NPS is just one tool for honing the detail.
Sources of information