The Ultimate Question 2.0: How Net Promoter Companies Thrive in a Customer-Driven World - by Fred Reichheld & Rob Markey
Date read: 2017-06-16How strongly I recommend it: 8/10
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Net Promoter Score (NPS) is more than just a score. And the real work needed to improve your rating happens well after you survey your customers. Good read on the importance of NPS and examples of companies using NPS to improve their customer's satisfaction.
Contents:
- FUNDAMENTALS
- PRINCIPLE 1: ASK THE ULTIMATE QUESTION AND VERY LITTILE ELSE
- PRINCIPLE 3: AVOID CONFUSION BETWEEN INTERNAL (BOTTOM-UP) SCORES AND EXTERNAL (TOP-DOWN OR BENCHMARK) SCORES
- PRINCIPLE 4: AIM FOR HIGH RESPONSE RATES FROM THE RIGHT CONSUMERS
- PRINCIPLE 7: AUDIT TO ENSURE ACCURACY AND FREEDOM FROM BIAS
- PRINCIPLE 8: VALIDATE THAT SCORES LINK TO BEHAVIORS
- GETTING RESULTS
My Notes
The Ultimate Question: On a zero-to-ten scale, how likely is it that you would recommend us (or this product/service/brand) to a friend or colleague?
What is the primary reason for your score? Customers typically fall into three well-defined groups:
- Promoters. People who respond with a nine or a ten are signaling that their lives have been enriched by their relationship with the company.
- Passives. People who give the company a seven or an eight got what they paid for, nothing more.
- Detractors. And then there are the people who give a rating of six or below. Their score indicates that their lives have been diminished by their dealings with the company.
NPS ultimately is a business philosophy, a system of operational practices, and a leadership commitment, not just another way to measure customer satisfaction.
The goal is to balance the need for profits with the overarching vision of providing great results for customers and an inspiring mission for employees.
Bad profits are about extracting value from customers, not creating value.
A company earns good profits when it so delights its customers that they willingly come back for more.
Truly customer-centric company is one that lives up to the Golden Rule. Employees treat customers the way they would want to be treated if they were customers.
NPS leaders tend to grow at more than twice the rate of their competitors.
The average U.S. company has an NPS of 10 to 20 percent.
What would it be worth to turn a detractor into a passive or a promoter? What would it be worth to raise our relative NPS by 10 points? Where and when would this improvement show up in our financials?
The first step is to calculate the lifetime value of your average customer: tally up all the cash flows that occur over the life of a typical customer relationship and put them into today s dollars. Then, using the lifetime value of an average customer as a baseline, tally up the differences in lifetime value for promoters, passives, and detractors.
Retention rate: Detractors generally defect at higher rates than promoters, which means that they have shorter and less profitable relationships with a company.
Pricing: Promoters are usually less price sensitive than other customers.
Annual spend: Promoters increase their purchases more rapidly than detractors.
Cost efficiencies: Detractors complain more frequently, thereby consuming customer-service resources.
Begin by quantifying (by survey if necessary) the proportion of new customers who selected your firm because of reputation or referral.
It s essential to determine the NPS for your businesses relative to the NPS of key competitors.
A high NPS in and of itself is not the real objective, because a high NPS by itself does not guarantee success. NPS merely measures the quality of a company s relationships with its current customers, and high-quality relationships are a necessary but not a sufficient condition for profitable growth.
As firms gain share, the more dominant they become and the more likely they will stumble into the trap of bad profits.
Traditional methods of measuring customer satisfaction have so many shortcomings:
- Most surveys are too long. They create unnecessary complexity and waste customers time. They are designed to generate research reports, not to drive daily frontline learning and behaviors.
- They are often anonymous, which eliminates the possibility of closing the loop with individual customers.
- They are structured in the language of the researcher, not the customer.
- Response rates are typically low, so the results are unreliable.
- Often, the wrong customers respond especially in business-to-business settings, where the senior executives responsible for purchase decisions rarely take the time to fill out surveys. The results are easily gamed and manipulated (think of the last time you dealt with a car dealer who pleaded for a top-box score).
Another good question that can aid diagnosis for any rating below perfection is this: What is the most important improvement that would make you more likely to recommend us? Note that the answers to these follow-up questions merely begin the diagnosis; they don t affect the score calculation itself.
If you want to find out more about why customers give you the score they do, the best way is to engage managers and frontline supervisors in dialogues with those customers in person, by phone, or if appropriate by e-mail and to do so shortly after the score is received.
Bottom-up surveys often take place after particular transactions.
The bottom-up process ensures that the person who does the discovery and learning is the same person whose behavior needs to change (or that person s direct supervisor).
Begin with the customers you care most about your core or target customers.
A good rule of thumb is this: if your survey response rates are lower than 65 percent, your process needs to improve.
Some companies rate every nonrespondent as a detractor, since the choice not to invest the time to answer a brief survey indicates a flawed relationship.
Net Promoter measurements are vulnerable to four types of bias:
- Fear of retribution. If a supplier enjoys market power say, because the supplier is much larger than a customer or is a technological leader customers will tend to avoid negative ratings. Solve this by offering each customer appropriate levels of confidentiality.
- Bribery and collusion. Solve this by educating your employees, emphasizing that such tactics are totally antithetical to the culture of your company. When the timing of feedback requests is hard to predict, people find it harder to game the system.
- Sample bias. One of the easiest ways to boost Net Promoter scores artificially is to avoid sending surveys to detractors. Solve this by creating a system with very high response rates from the correct sample of customers.
- Grade inflation. Most customers hesitate to be hard graders, particularly when they have to provide the negative feedback directly. Customers will also hesitate to give negative comments if they don t believe their feedback will lead to actual improvements or if they fear that saying something negative will get them entangled in a time-consuming and potentially awkward follow-up discussion. Solve this by having a third party ask for feedback at the right moment. Demonstrate that it s worthwhile to grade accurately.
Ongoing analysis of retention, purchasing patterns, feedback, and referrals can confirm the integrity of your feedback process.
Whenever NPS helps produce extraordinary improvements:
- The senior leadership team and especially the CEO personally embrace the improvement of customer loyalty through the Net Promoter system as a mission-critical priority.
- They hardwire NPS customer feedback into key decision processes up and down the organization, creating closed learning and improvement loops.
- Companies organize the Net Promoter initiative as a long journey of cultural change and growth, not just as a short-term program or initiative.
- Economic. Net Promoter makes it possible to invest in customer loyalty, and to calculate the return on that investment.
- Inspirational. Most people want to do the right thing by customers to affect customers lives in a positive way.
eNPS scores tend to be substantially lower than customer scores. Employees seem to hold their company to even higher standards than customers do.
Building customer feedback into their regular daily operations and then closing the loop by talking to individual customers and taking appropriate action. Appropriate action often involves straightforward service recovery fixing an individual customer s problem.
One of the best ways to ensure that customer feedback packs an emotional wallop is to let employees hear the actual voice of the customer, not just a manager s interpretation or a statistical summary.
Another important tool for integrating NPS and the voice of the customer into vital decision processes up and down the organization is customer communities groups that provide regular feedback on company products and services.
Understand the language and choice of words that resonate most with customers.
The top items that promoters value and would mention to nonusers. The responses articulated the precise advantages of the products in the language used by its biggest fans. Intuit could then incorporate this learning directly into marketing messages and advertising copy.
Failing to close the loop with detractors is failing to treat them with dignity and respect. Whenever a manager neglects to call back a detractor, the message is clear: living up to a customer s expectations and righting failures are simply not top priorities.
Work to contact every detractor within twenty-four hours.
Three guidelines are critical for those leading the adoption of the Net Promoter System:
- The leader must have the right skills, experience, personal qualities, and energy.
- Consider where the greatest changes must be made, and organize the initiative accordingly.
- In every case where NPS has generated great results, the change leader has reported directly to the CEO or an important business unit s general manager.
Hire the right kind of people. It really comes down to core values, and we don t train our employees in core values.
Tech skills can be taught; attitude cannot.
If you hire the right employees, you don t need to pay them extra to delight a customer; that should be the most fun and rewarding part of their job.
A premature link between NPS and frontline bonuses can create several problems. First, it focuses the organization on the score as an objective in itself, rather than as a tool to ensure that people learn the right lessons and take the right actions to improve the customer s experience. Second, it puts enormous pressure on the team developing the measurement process to get the metric exactly right; nobody tolerates an error that affects their paychecks.
Direct link to bonuses will almost certainly encourage gaming and manipulation.