Why NPS should be your #1 customer loyalty metric

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How the ultimate question could transform your business

In 2006, Fred Reichheld released a book called The Ultimate Question. That book would go on not only to be a business best-seller, but to change the way some of the best companies in the world conduct their customer loyalty programs.

Asking one simple question – “How likely is it that you would recommend this company to a friend or colleague?" – delivers a faster and more accurate method to measure customer loyalty, and a quantitative measure known as the Net Promoter Score (NPS).

The co-developers of the methodology, Richard Owen and Laura Brooks, are credited with identifying the close links between NPS and long-term business growth and profitability. As testament to its success, marketing giants Apple and GE are two of its biggest advocates.

But you don’t have to be a Fortune 500 company or in the Top 100 on the ASX to take advantage of NPS. You can utilise the ultimate question posed by NPS to focus on your customers and understand what’s necessary for them to promote your brand.

How does the Net Promoter Score work?

You can obtain a Net Promoter Score by asking customers a single question on a 0 to 10 rating scale. The question goes like this....

On a scale of 0 to 10, where 10 is “extremely likely” and 0 is “not likely at all”, how likely is it that you would recommend Company Z to a friend or colleague?

Based on their responses, customers are split into three groups.

Promoters (9-10) – those loyal enthusiasts who will keep buying and referring others, fuelling growth. They are evangelical about your brand.

Passives (score 7-8) – those satisfied but unenthusiastic customers who are vulnerable to competitive offerings. They have little effect on your future growth.

Detractors (score 0-6) – those unhappy customers who can damage your brand and impede growth through negative word-of-mouth.

To calculate the NPS, subtract the percentage of detractors from the percentage of promoters. Scores range from -100 (everyone is a detractor) to +100 (everyone is a promoter) and a score of +50 is considered excellent.

To create even more value from the metric, ask customers to give a reason for their rating.

This method can be a great way to get qualitative data with minimal effort.

For a complete overview of how NPS works, visit the official Net Promoter website.

Why NPS is a superior loyalty metric

1. It’s simple – getting insights about your company could not be easier. Because you are only asking one question (or two, if asking for reasons), customers are more willing to engage in your loyalty survey programs. You can customise further questions to gain even more insights about how your business is viewed by customers.
2. It’s quantifiable – NPS can be used as a baseline to measure ongoing business performance, compared across different business units and even across industry groups.
3. It’s actionable – implementing NPS delivers more than just insights on customer data. It’s action-orientated and encourages a business to be most customer-centric. By feeding customer insights back into your organisation, you can generate and boost future customer loyalty.

A real-world case study – How MailGuard uses NPS to take on security giants

In the world of email and web security, customer service and support are hugely influential in driving growth and customer loyalty. After all, if a business has problems with their email system or network, it can impact every aspect of that company’s operation.

By conducting NPS surveys, our technical support desk can feed service suggestions back to development, management and all other business units. Based on this information, we can make informed decisions to invest in product and service advancements that are firmly centred on the customer. Telling our customers how their insights have contributed to our service completes this feedback loop and demonstrates the true value of NPS. It is a well-marked pathway for continued growth in a customer-oriented business.

Positive NPS scores and evangelical customers can be achieved – a goal well worth aiming for.

Topics: CRM

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