Separating the detractors and passives from the promoters
Richard Owen, chief executive of Satmetrix, admits he received the worst score possible from conference delegates for saying surveys are going to die out.
“It is a heresy in our industry. Satmetrix makes a huge amount of money out of data analysis, but we recognise that it is a dying technology,” he says.
Why does he think that? Because he believes that, in the future, it will no longer be necessary to ask customers what they think, because social media is providing all the data companies need about their customers.
To appreciate his view, it is necessary to understand the “net promoter score” (NPS).
A massive 86 per cent of the world’s top 1,000 companies use NPS. This is the name for the process based on the fundamental principle that every company’s customers can be divided into three categories: promoters, passives and detractors.
To calculate your company’s NPS, take the percentage of customers who are promoters and subtract the percentage who are detractors
By asking one simple question, “How likely is it that you would recommend your company or product to a friend or colleague?” the developers – Fred Reichheld, Bain & Co and Satmetrix – claim it is possible to track these groups and get a clear measure of a company’s performance through customers’ eyes. Customers respond on a 0-to-10 point rating scale and are categorised as follows:
- Promoters (score 9-10) are loyal enthusiasts who will keep buying and refer others, fuelling growth
- Passives (score 7-8) are satisfied but unenthusiastic customers who are vulnerable to competitive offerings
- Detractors (score 0-6) are unhappy customers who can damage your brand and impede growth through negative word of mouth.
To calculate your company’s NPS, take the percentage of customers who are promoters and subtract the percentage who are detractors. You can do this with everything. Take a straw poll from your family and see how they feel about you today.
NPS can be as low as −100 (everybody is a detractor) or as high as +100 (everybody is a promoter). An NPS that is positive (higher than zero) is felt to be good and an NPS of +50 is excellent. Companies are encouraged to follow this question with an open-ended request for elaboration, soliciting the reasons for a customer’s rating of that company or product. These reasons can then be provided to front-line employees and management teams for follow-up action.
But does satisfaction equate with loyalty? “Not completely,” says Mr Owen. “Satisfaction is too low a bar for loyalty. It doesn’t mean you would recommend or buy another. For example, if you are asked ‘Are you satisfied with the stay at your hotel?’ you may answer ‘Yes’, but is there sufficient of a ‘wow factor’ for you to recommend it?”
Is it possible to attach financial measurement to NPS? “There is a connection between customer experience excellence and some financial measure,” says Mr Owen. “It is simple and powerful. Customers who have a very strong proposition to recommend equate to promoters. It has such a strong economic value to the business. Take the example of Four Seasons Hotels. The bar for success is very high. Even so, they blow away people’s expectations.”
Despite its popularity among business executives, NPS has attracted criticism and controversy among academics and market researchers. Many argue there is no scientific evidence that the “likelihood to recommend” question is a better predictor of business growth compared to other customer loyalty questions, (for example, overall satisfaction, likelihood to purchase again).
So who would Mr Owen suggest as an example of an organization doing NPS well? “Aggreko is one. It is 73 on the FTSE index. It is the best B2B [business-to-business] company in the world. It rents out power generating equipment. It was in charge of the closing ceremony of the Olympics for this.”
He believes two seismic events have taken place recently that are impacting the way businesses should analyse their customer behaviour and preferences. These are the decline of surveys and rise of social media feedback.
Every consumer is inundated with requests to complete a survey and they are becoming choosy who to give their feedback to. “From now on, people are going to post their thoughts in the time and place of their choosing,” says Mr Owen. “It is as if they are saying to us, ‘You guys have to figure out what question it is I want to answer’.”
On social media, he says: “They are handing us the gift of a lifetime; they are telling us what they think. They are important and you need to realise how important. Conversation is the primary source of comment. Companies are going to have to mine conversation and chat.”
An interesting question is how email, social media generally and, of course, Twitter are affecting the future of NPS? Mr Owen admits that they are. “The NPS currency still works, but yes, we have had to change our business model. Everyone will. Some are not quite ready for this, which is why I received the bad conference mark for saying surveys are dead.”
So is the future unstructured data? “Yes,” he says. “It means, ‘In your own words’. We no longer need to know who you are. We will probably know you just by your Twitter Handle. This doesn’t matter. It is what you are saying that counts.”
There is a certain irony in the fact that even comparison websites are being benchmarked using NPS.
TripAdvisor emerges as the top choice for customer experience in this category with an NPS of 29, just ahead of Booking.com in second place with 25 points. The measurements take in customer comments, made via social media, concerning hotels and airlines.
In the highly competitive mobile telecoms market, Tesco Mobile claims the top position with an impressive NPS of 47, 27 more points than the average score for the sector and 13 points ahead of the second-placed company O2.
In terms of the key satisfaction drivers in the mobile network sector, ease of doing business and product or service reliability receive the most positive feedback, while online experience and customer service are earmarked as areas which have the biggest room for improvement.
The Apple iPhone again claims the top spot in the mobile phone category with an impressive NPS of 69, taking a comfortable lead on Samsung in second place with 49.