April 18, 2014

Measure Customer Loyalty (part 1)


Today's guest blogger is NAHB's Brace Ford bringing us the first part of a two-part blog post about Net Promoter Score.Brace is the Director of Membership Services for NAHB.  She works with local and state HBA leadership to develop and implement member acquisition, retention and engagement strategies and is the contact person for HBA membership-oriented programs such as Touch, TouchPlus and NPS.  She can be contacted at bford@nahb.org
Take it away, Brace.......

Significantly Increase First-Year Member Retention Using a Deceptively Simple Tool.
By Brace Ford

I don’t know about you, but my email box is cluttered every day with advertisements, various subscriptions and lots and lots of surveys.  As a marketer, I appreciate the perceived value of surveys, but I hesitate to open them for fear I’ll be committing the next 20 minutes to filling them out.  And once I’ve taken the time to respond, will the company I’ve just reviewed actually do anything with the information I’ve just provided?  Chances are, no.
The problem with the typical customer satisfaction survey is threefold. 

1. They often include questions that have nothing to do with the transaction that took place between customer and company, but instead ask an opinion meant to provide audience preference data for the benefit of advertisers.  For example, “Which of these products would you find most useful?”, “How often have you used the following products?”, “How often do you (read, watch, listen) to the (magazine, TV, radio)?  Clearly these questions do not measure customer satisfaction, but instead give the company some insight as to which advertisers they should pursue.

2. Customer satisfaction surveys are usually much too lengthy and response rates are usually very low.

3. Customer satisfaction surveys measure the wrong thing. 
For a business to experience sustainable growth, it needs to focus on efficiently providing a great product or service and increasing customer loyalty.  If customers love doing business with you and are consistently delighted, they will blog, post and tweet about their experience and the business will gain more customers.  Unfortunately they will blog, post and tweet about each bad experience too.  The power to shape public opinion has shifted from the corporation and its carefully crafted messages to the folks who buy from it or work for it. 
Fred Reichheld understood this and after much research wrote The Ultimate Question in 2006.  In his book, he introduced the concept of Net Promoter Score®, a deceptively simple way to measure customer loyalty and a tool companies can use to help turn detractors into promoters.
 
The ultimate question, as coined by Reichheld, is this: ”On a scale of zero to ten, how likely is it that you would recommend our (product, service, membership) to a friend or colleague?”  Depending on the score given, a follow-up, open ended question is asked, “What is the primary reason for your score?"

Responders are then categorized into three groups:



Promoters – People who respond with a score of nine or ten are communicating that they are extremely happy and are likely to tell their friends about their positive experience.  An organization should implement ways to recognize these customers and engage them regularly.

Passives – Passives are customers who give a company a score of seven or eight.  These customers are generally satisfied, but typically make few referrals.  They can be easily swayed by competitive offers and are more likely to defect.  Companies should attempt to improve their products and services to the point that these customers become promoters.

Detractors – These are customers with a score of six or less.  They are unhappy with the company and dissatisfied with the treatment they have received.  Their bad experience becomes the subject of conversation among their friends and colleagues and they are likely to register complaints with the company in question.  If they cannot easily switch providers, as in the case of a long-term contract, they often become problem customers, costing the company in time, efficient use of human resources and financial terms.  Companies faced with detractors should try to determine the root cause of the problem, apologize and attempt to determine if the problem can be solved economically.  In addition, the company should resolve to find ways to avoid this type of customer in the future.

Categorization is the first step.  To ascertain a company’s overall level of customer loyalty, Reichheld devised a simple metric: %Promoters - %Detractors = Net Promoter Score (NPS®)

The higher the NPS score, the better the level of customer loyalty and therefore profitability.
Fortune 500 companies such as Intuit, Apple, Enterprise, Zappos and thousands of others have incorporated NPS as the centerpiece of their management policies.  This simple gauge, easily understood at all levels of management, provides an easy way to measure customer sentiment towards the company and the open-ended follow-up question provides the reasons for their feelings.  Used together, companies can define new policies geared towards customer satisfaction, loyalty and retention.
In our next segment, you’ll learn about how you can take advantage of a national program your local can use to bring NPS home to your membership and increase member retention.  And by the way, it’s completely FREE of charge. 
Net Promoter, Net Promoter Score and NPS are registered trademarks of Bain & Company, Inc., Satmetrix Systems, Inc., and Fred Reichheld.


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