Some people think it is.
NPS is a good indicator of future business growth however, we think you need more than just one measure to be able to develop accurate, fact-based customer driven strategies to improve customer perception and future business growth.
NPS (Net Promoter Score for those who don’t know) is a customer research measure that major organisations around the world have embraced to understand the likelihood of customers to recommend their business. However, is it really the utopia of measures and the only measure needed to understand business performance and future growth and does it in fact make it easier or harder for managers to develop accurate improvement strategies business to increase customer satisfaction and customer loyalty?
There is no doubt that there is a definite link between the ‘likelihood to recommend a company or service’ and future customer loyalty and it’s quite logical, although the extent of its relationship with business growth can vary anywhere from 10% to 70%.
At TLF Research we have been using ‘The likelihood to recommend’ as a key measure of loyalty in our customer experience surveys since we began in 1996 so yes, we believe in it as a great measure and a good indicator of customer loyalty. I believe however that it’s not the only measure you should be using as it’s much more important to understand what is driving your NPS score as there are so many factors that do impact on the NPS and they vary by industry and business.
So, is using NPS as the only measure just an easy and inexpensive way out for customer research? Yes, it’s an inexpensive research measure, it’s easy to understand and easy to benchmark. However, NPS does not tell you how to increase customer satisfaction. It will alert to you to changes in satisfaction, but will not help you understand what is causing them.
The really smart organisations measure a range of factors that are most important to their customers for both importance and satisfaction (usually 15 to 20 measures) in either an annual, bi-annual or even a tracking study however, they may even use just the NPS measure throughout the year and follow it up with a main survey.
If you only measure NPS and the one open ended question (various versions), the poor department managers will typically walk away with the one open ended question that has been coded and they have to then try and understand the main priorities to improve performance that will increase the NPS. They have no measures across what matters most to customers and customers’ relative satisfaction against those measures and so where do they start? Competitive price tends to be high in the priorities in coding. So let’s drop the price? I think not.
In my seminars about customer relationships and customer satisfaction I suggest for any business it’s like a marriage. You are in a relationship and the closer the relationship the better the likelihood of long term loyalty, as those customers’ and organisations who value the relationship are less likely to be promiscuous and shop around. However, for some large businesses it can be difficult to establish a relationship, as many customers may have rare personal interactions and are likely to be more promiscuous, they feel trapped or they are ambivalent.
There is no doubt NPS is a good measure and we at TLF have used it since 1996 in customer satisfaction research (recommendation score) coupled with ‘Attractiveness of alternatives’, ‘Likelihood to still be buying the same or more in the next 12 months’ and a ‘Comparison score’ along with the perceived ‘Ease of doing business’, which I think is equally an important measure.
My premise is that there are many factors that determine loyalty to a service or product:
- The likelihood of recommendation (NPS) is a key metric (if you wouldn’t recommend you are likely not overly pleased, but then again, some people just refuse to recommend no matter how satisfied they are)
- Attractiveness of alternatives (how easy or difficult is it to change suppliers – that’s a key question as if the alternatives are not attractive or you perceive it to be difficult or costly to change, how likely are you to change?)
- The likelihood to still be buying the same or more (some people change, circumstances may change, they may choose a different direction, they may have a new purchasing policy. There is a raft of things that can influence this)
- Comparison score (how does your business compare to other suppliers the customer uses. If they perceive you are the best of the bunch, you are most likely to retain their loyalty but if not, you could lose them)
There are a number of metrics to try and understand consumer behaviour and NPS is just one. It’s a good measure but it’s not the only measure and probably accounts for 10% to 70% of consumer behaviour, varying across business types. Given that historically businesses have to allow for up to 30% attrition rate of customers, businesses need to have a deeper understanding of customer sentiment so they can develop accurate improvement strategies.
The last thing a business wants to be doing is investing money in the wrong strategies.
Benchmark your performance against other similar organisations by asking customers how you compare to other similar organisations they deal with and identify who of the organisations they deal with is the best and what they do to make them the best. This will also help you understand what drives your customers’ satisfaction or ‘what rings their bells’.
Identify what you do well as a business by identifying the most important requirements and measure customer perception against these factors (promote these features) and identify if you are ‘doing best what matters to customers most’ to clarify where you need to improve. Use all the metrics of loyalty to try understand your customers’ future behaviour and which customers’ are most at risk and why they are at risk.
Above all, yes, measure NPS however, I suggest that you do not let it be your only measure of customer satisfaction/experience as the more you know, the better you are equipped to develop accurate, fact-based, customer driven strategies to improve business performance and profitability.