Measuring customer love
It seems appropriate to be writing about customer love on Valentine’s Day. I am sure that nearly everybody reading this post is familiar with the Net Promoter Score. This invention by Fred Reichheld has become a universal metric for measuring customer love. Instead of simply asking people how satisfied people are on a scale from 0 to 10, the NPS takes those that give a score of 9 or 10 out of 10 (he calls these promoters), subtracts those that give a score of 6 or below (and calls these detractors) so what is left are the net number of promoters. It is this easily understood mathematical formula that gives the NPS more kudos than a simple mean customer satisfaction score.
The NPS has been criticised because in small samples, a significant number of people may give a score of 7 or 8 out of 10 (called passives) indicating moderate levels of satisfaction. This group is ignored in the NPS calculation which means that the score is calculated only from those at the extremes – the 9 and 10 out of 10 and the 6 and below. If the customer sample comprises only 100 people, as is often the case in business to business surveys, the elimination of the passives may well result in the NPS calculation being based on less than 50 respondents. Future surveys that track the NPS number will fly all over the place if there are small changes in the detractor and promoter scores.
The NPS may tell you how satisfied someone is with the company but it doesn't mean to say that a customer will endure, nor does it guarantee that recommendations will be made. When you deal with a car salesman it is not unusual for them to put you under the cosh, asking you to grant a maximum score on the recommendation scale because it affects their bonus.
We can live with these inadequacies of the Net Promoter Score because its universal appeal means that there are benchmarks with companies around the globe. The NPS is going to be with us for a long time to come. This said, Fred Reichheld has had his thinking cap on and come up with Net Promoter Score 3.0. He still endorses the old NPS but thinks that there is an even better measure that can be used to determine the future success of a company. He calls this the "earned growth rate".
He distinguishes between customers who have been bought and those who are earned. A bought customer is one that has arrived as a result of a promotion, a price deal, or persuasion by a salesperson. The suggestion that they have been bought is because a significant cost will have been incurred in bringing these customers on-board. An earned customer is one that comes to the company because of a recommendation. Where this gets fuzzy is if a customer says that they have come to the company because they believe it to be trustworthy. This image of trustworthiness may be the result of a costly brand advertising campaign which has created subliminal confidence in the company.
Reichheld believes that new customers should be interviewed to find out why they have chosen to do business with a company and be presented with some options such as "trustworthy reputation", "recommendation from friends", "seen an advert", "helpful salesperson", "good price deal". The first two of these options puts the customer in the "earned" bracket while the others suggest that it has been "bought". I’m not sure about these boxed answers. It may be better to simply ask “What is the primary reason that you have started doing business with the company?”. Open-ended questions are usually very revealing but we also know that the real response may need to be teased out. It is easy for a respondent to say that the reason was a good price when in fact the real reason may be much more subtle.
The study of love has never been easy. Have a great Valentine’s Day.
Reference: Fred Reichheld, Darci Darnell, Maureen Burns (2021) Winning on Purpose: The Unbeatable Strategy of Loving Customers - Harvard Business Review Press