NPS, a very useful tool to analyze your customers loyalty

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20-01-2012

The NPS is an efficient way to categorize your customers, recognize real brand promoters and make the best profit with it.

JulienRio.com: NPS, a ver useful tool to analyze your customers loyalty

The NPS (Net Promoter Score) is a metric introduced by Satmetrix, Bain & Company and Fred Reichheld through Reichheld’s book “The Ultimate Question” published in 2006.

The Net Promoter Score metric enables companies to evaluate in an efficient way their customers’ loyalty and estimate their propensity to promote the brand.

The NPS isn’t a traditional analysis method used by customers satisfaction programs and doesn’t replace it.
The Net Promoter Score simply offers you an alternative, a different perspective to analyze your results and draw conclusions.

I personally found out about the NPS a few months ago when a buyer introduced it to me. As I had never heard of it, I had to go into some research for understanding the concept and I have been totally convinced of the power of this tool when used wisely.

What is the Net Promoter Score

Clearly, the Net Promoter Score is more than just a calculation method: it is a state of mind. Understanding the NPS gives you a different perspective of your company and its customers.

In an earlier article, I presented you the importance of categorizing your customers. (“How to recognize a good customer”) I explained why not all customers were necessarily good customers. The NPS is a perfect tool to evaluate the value of a customer using a different approach.

You might be wondering: “concretely, what is the NPS?

The NPS is a method to calculate the value of your customers and estimate your company’s customer service efficiency. From then, the NPS also gives you angles of optimization.

The ultimate goal of the NPS is to use customers’ feedback and turn it into a growth factor for your company by developing customers’ loyalty.

How to calculate my NPS

JulienRio.com: NPS, a ver useful tool to analyze your customers loyalty

The NPS is a method based on a single and easy question: “How likely would you recommend [your brand] to a friend or colleague?”. The question must be responded on a 0-10 rating scale and enables you to categorize those who answered as following:

0-6: Detractors – Those people are potentially harmful to your company and its image. We will see later why they could damage your reputation on how to deal with such situation.

7-8: Passives – Those people are globally happy but show no enthusiasm for your brand. They would show no loyalty if a better offer shows up.

9-10: Promoters – The real value of your company stands here. Those people represent the real growing potential of your brand.

Indeed, to make sense, this number must reflect a rather large number of people. If you probe 10 people, the result you will get won’t be accurate and won’t reflect your company’s growth potential. Try to get a large sample of your customers answering such question to get a valuable number.

Now, take the percentage or promoters and deduct the percentage of detractors, and you will get your NPS.

NPS = %promoters - %detractors

I have my NPS: what do I do with it?

What does my NPS indicate? What is a good NPS result?

There is no such thing as a “good NPS”.

You can consider that a negative NPS is indeed an indicator of something going wrong: if you have more detractors than promoters, something isn’t working between you and your customers.

Similarly, a NPS above 50 is definitely a good indication for your business growth.

So how to evaluate my NPS?

The NPS can be analyzed in two different dimensions: compared to the rest of your industry or compared in time.

Compared to my competitors:

The reason why there is no “standard” in terms of NPS is simple: each industry has different standards due to different ways to deal with customers.

Ecommerce dealers’ industry has higher average NPS than would mobile phone industry because of their way to deal with customers.

Therefore, the only way to evaluate your NPS in the market is to compare it to the leaders of your market.

Here is an example of the highest NPS by industry that can be found on NetPromoter.com:

NPS Leaders - U.S. 2011

NPS Leaders - UK 2011

Company

NPS

Company

NPS

USAA - Banking

87%

Apple - Computer Hardware

67%

Trader Joe's - Grocery

82%

First Direct - Banking

61%

Wegmans - Grocery

78%

LG - Television

39%

Costco - Dept Store and Wholesale

77%

Samsung - Television

35%

Apple - Computer Hardware

72%

Sony - Computer Hardware

30%

NPS Leaders - Germany 2011

NPS Leaders - France 2011

Company

NPS

Company

NPS

Apple / iPhone

70%

Apple / iPhone

57%

ING-DiBa - Banking

48%

MAIF - Car Insurance

38%

Sony - Television

37%

Panasonic - Television

32%

Panasonic - Television

36%

Sony - Television

28%

Samsung - Television

29%

Samsung - Television

26%

 

Compared in time:

The most efficient way to use the NPS method is to compare you NPS evolution in time.

Calculate your NPS today and try to reproduce the same operation every X months. The graph showing the evolution of your NPS in time is a very good indicator of your company’s health and ability to satisfy and encourage customers.

Such systematic concept enables you to estimate the success of your strategies and their impact on your customers.

The important here is to use such results to fine tune your strategies and plan better for the future.

You might even want to estimate your NPS per segment

Recently, I have run a survey on people buying a product on the market for about a year. I divided participants in “first time user” and “regular user”, then ran three NPS: a global one and one for each category. The result was very informative!

I understood that first time users were not really enthusiastic and most weren’t promoters. On the other hand, people who already used it in the past were almost all promoters. Globally, my NPS was pretty high compared to my industry.

I then concluded that I had a great potential of growth, and if I could focus on convincing people to use it more than once they would see the true value of the product and become promoters also.

I built some strategies to reach first time users and remind them of the product, and in a few month my global NPS started to grow as well as my profit.

Such simple analysis gives you a better understanding of your consumers’ mind and more power on your strategies.

Why are detractors harmful?

As mentioned in my article “How to recognize a good customersome customers are “bad customers”. Even though they generate profit, this profit is what we call “bad profit”.

A bad profit is generated by a customer who isn’t happy with the service provided or with the product itself. Such customer will sooner or later harm your company via negative words of mouth.

If your company considers that any profit is a good profit, please consider the following graph to understand better why bad profit exists.

If you decide to cut your cost and increase your profit by reducing the quality of your service or increasing your prices, your loyal customers may still buy and then increase your profit, but they will most likely change to detractors who will generate bad words of mouth. In the long term, bad profit is never a good solution as it impacts negatively your future profit.

It is usually better for long term strategies to have low good profit than high bad profit. Creating a trust relation with your customers is the first step on the road to success.

What is the difference between NPS and traditional loyalty estimation methods?

The NPS calculates your customers’ propensity to spread your message and recommend your brand.

Traditional methods calculate customers’ global satisfaction and profit.

The problem with the traditional method is that it doesn’t distinguish good profit and bad profit. For accountants and finance specialist, a dollar is a dollar. But from the NPS point of you, if you get a dollar and make a customer happy, this dollar will generate more dollars. On the other hand, if you get a dollar by making a customer unhappy, this gain might cost you a lot in the future.

From this aspect, the NPS approach is much more valuable than any other method.

Moreover, the Net Promoter Score gives you information regarding the potential of a customer to become an ambassador of your brand where most traditional systems will simply indicate whether your customer is satisfied or not: a happy customer isn’t necessarily an ambassador spreading your message. The distinction is essential when it comes to evaluating customers’ worth.

JulienRio.com: NPS, a ver useful tool to analyze your customers loyalty

What is next step?

Once you know your NPS and evaluate it regularly to observe your progress, you must build a long term planning. Such roadmap becomes the backbone of your Customer Service strategy.

  1. Build an efficient and trustworthy database of customers feedback and analyzes that you could reuse from time to time to evaluate your progression
  2. Use different tools to measure your success with your customers. The NPS is only one method and must be couples with some other solution to have a better overview of your results.
  3. Analyze your results, compare it to your specific industry and to your past results, draw conclusions from it and start planning your future strategies to improve it.

 

The Net Promoter Score, one solution within others

Keep in mind that the NPS, as any other loyalty evaluation method, isn’t a scientific calculation. Your customers are influenced by their environment and might answer randomly to your questions.

The ultimate solution and my personal suggestion to you is to use the NPS as a supplementary indicator of your company’s health and not as a unique calculation system.

To find more about the Net Promoter Score I encourage you to visit NetPromoter.com.

You might also want to visit the blog of “Scription” who first introduced the NPS concept to me. His blog is a collage of artistic ideas, philosophic thoughts and efficiency improvement concepts: I encourage you travelling to his world for a while and get back on earth your head full of new ideas.

If you would like to go further with useful marketing concepts, I encourage you to read my article "Marketing concepts for product development: Product Life Cycle, Death Valley Curve, Marginal Utility".

Julien Rio.

 

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