You have spent months building your brand, promoting your product, and your customer flow certainly reflects all that hard work you put in. One of the many things businesses look over is the rate of return of their customers. Many things can make a customer either come back to your brand or avoid it like the plague. So how is a business able to keep these personal ratings in check? By implementing a customer feedback system called NPS.
What is NPS?
NPS stands for Net Promoter Score or Net Promoter System; all it implies is a single question that provides an incredible amount of feedback to a company. The magic question is “How likely is it that you would recommend our company/product/service to a friend or colleague?” When doing a survey, this question is frequently answered on a 0-10 scale. With this information, you can see which customers are going to be committed to your brand, and those who you need to work with more.
Understanding the scale of a Net Promoter Score is pretty straightforward once you understand the three main concepts it conveys.
They are the customers who answered below or equal to 6. They were not entirely satisfied with their experience and would probably tarnish your brand’s reputation with negative word-of-mouth. It would be highly unlikely that they would even return as customers again.
They are the customers who have answered the question with from 7 to 8. They probably had a good experience with your brand, but not so convinced with your service offering that they would go out of their way to recommend your brand among their social circle. They could be loyal to your business, but quickly switch to a competitor if needed.
The customers who answered the question with a 9 or a 10. They are the customers who loved your product or service offering and are most likely recommend your brand to their friends and family. They are your most loyal customers and would look forward to repeating business with you.
The Net Promoter Score is then calculated by subtracting the percentage of detractors from the percentage of promoters. Theoretically, it can range from -100 to +100. Practically, it is most likely to hover around 15 for most businesses in a competitive space. An NPS above 40, in fact, is considered exceedingly rare and is regarded as the benchmark for top players of any industry. This feedback system is a critical application in most businesses, restaurants, and hotels.
Advantages of using Net Promoter System
But why should your business rely on such a simple method? Here are a few of the reason we trust an NPS.
- It is an industry-recognized metric that was incorporated by the leading management-consulting firm Bain & Company, so any business manager using it can be confident of its credibility.
- It results in an easy-to-read number that can tell at a glance what percentage of the customer base is extremely satisfied with the service and performance. In essence, it gives the customer relationship manager an insight into their overall performance of customer retention and acquisition with just a single question.
- Using an industry-recognized numeric can help companies identify their position in the competitive landscape and established players can use their high NPS to set a benchmark in the industry.
- It is easy to implement and interpret, with results from day one. It is a simple out-of-the-box package that requires no experts to set up or analyze.
- Research has shown that NPS correlates strongly with a company’s revenue, so implementing this system in a business can motivate employees to strive for better customer service, and hence a higher NPS.
- By tracking the trend of NPS over time, a company can use this as a proxy for measuring its growth and maturity. A start-up is not well known and will probably have a low NPS while an established player will have a high NPS.
Drawbacks of NPS
However, it needs to be mentioned that with NPS, there is more than meets the eye. It comes with inherent drawbacks that need to be mentioned:
- It is indeed difficult to quantify a customer’s loyalty, which is what the NPS attempts.
- The question asks the customers their “likelihood” to recommend the brand or service, and business managers must be mindful of this word. In no way does it guarantee that a customer giving a score of 10 will most certainly go ahead and ‘promote’ the business.
- There is some debate regarding the statistical validity of collapsing an 11-point scale into three components, as it may lead to loss of information in the middle ranges. The statistical assumption of classifying a customer as “detractor” if he gives a score of 6 or less, and a “promoter” if he gives a score of 9 or 10 has been challenged.
- There is still dissent over the efficiency of NPS across industries. What is regarded as a good NPS in one industry may not serve as a good measure of customer loyalty in another industry. The NPS would serve its intended purpose much better if accompanied with a detailed questionnaire that seeks to measure customer loyalty across all parameters of service and at all points of contact with the customer.
Three things to keep in mind while adopting NPS for your business
Well measuring the NPS is as easy as it can get. But the trick lies in understanding what it means for your business. There are three things that every business manager must keep in mind when adopting the NPS:
- NPS is only an indicative measure of a customer’s loyalty, not their overall satisfaction with the company’s product or service. Hence, it must be accompanied with a full-fledged customer feedback survey to gauge their satisfaction level that can be analyzed in depth to ascertain the reason behind a company’s high or low NPS and take corrective actions.
- The NPS by itself would mean nothing if not implemented with an ambition to increase it over time. This would require dedicated commitment from the company’s management to make the company more customer-centric.
- It is imperative to close the feedback loop. If you take a customer’s feedback, it is important to act on it and communicate with the customer. Implementing Net Promoter System must be hand-in-hand with the implementation of a system that enables businesses to capture Voice of Customer and Take Actions.
By taking the decision to implementing an NPS program, a business has taken the decision to improve its customer’s loyalty and increase customer retention, along with a new source of advertising. But it is important to go through with the decision in a well planned system that ensures that the program is a complete success.
Measuring the satisfaction of your customers is tricky business because, for the most part, they are not going to come right out and tell you. However, there are several ways that you can employ to gauge their satisfaction, and address any problems that may have arisen. One of the most valuable resource a business can have is conducting surveys and is, in fact, one of the very few ways to effectively collect customer satisfaction. While you most likely already knew that, are you using all of the metrics available to you?
More often than not, businesses continue to measure customer satisfaction using wrong or insufficient metrics. Measuring the right customer satisfaction metrics, on the other hand, can help you promptly know how you’re doing, about your customers’ satisfaction, expectations and needs. This is your cheat sheet for the right metrics you can, and perhaps should, apply.
Rate of Return
The customer rate of return is one of the easiest seen metrics a business can use. In small startups and large companies, the more a customer returns, the strong the loyalty is considered to be. From a business standpoint, you need to treat each new customers like a first date – if you impress them, they will build a relationship with you. As the customer builds that bond, they will tell their friends and your business will grow through word of mouth, which indeed is one of the best forms of advertising and one that can aid any business greatly. However, that same aspect can work against you if they had a negative experience; for this reason other metrics will help you learn more about your customers.
NPS stands for Net Promoter Score, which focuses on a single question “How Likely Are You to Recommend This Product/Service to Friends or Family?” This question is crucial as it helps businesses to gauge what customers are likely to come back. Questions that typically follow will help hone in on what specific ally made the experience so great or horrible. While the NPS is great for gauging who will become a return customer, you need to be able to measure what influenced them to come back!
Meeting your customers’ expectations is the main goal of a business. What is crucial to meeting these expectations, is simply asking “Did you find everything okay,” sounds like a line you hear just about everywhere. There are statistics on that line, that is why it is so popular. Making a customer feel as though you care about their experience strengthens their brand loyalty, but also helps the business realize where a niche may be missed. In large companies, there are many services that are covered, but not everyone needs them. If you can offer “niche products” a customer is more likely to find what they need. Offering a balance of products, having a clean facility, maintained equipment, and an outstanding team is all a part of meeting customer expectations.
The final metric that is important you look at is the overall customer satisfaction your company holds. While places of business would like nothing more than to keep customers satisfied 100% of the time, all the time, it is not a realistic right off the bat. While keeping your customers happy with your brand or product is crucial to staying above water, progress is more important. If you have a poor score when you first start out, but after some changes, your score rises, then you are making good progress.
What Works For You?
Understanding customer feedback, or how it is gained has no specific formula. What works for one person may not be totally applicable to another. However, everyone can learn a few tips and tricks, no matter how long you have been established. It is ideal to build your surveys and feedback forms to help you capture the metrics we described above. They are sure to give you an insight into your customers’ satisfaction levels, their loyalty and recognize issues. After all, customers’ satisfaction is paramount and measuring it right is half the job done, and done well.
The business of dealing with and serving customers is tricky and unpredictable. What works for one segment of customers may not be the most suitable option for any other customer segment. To complicate matters even more, customer experience is often manifested over several “layers”, depending on how much the service delivery matches their service expectations.
In an age where businesses are competing tooth and nail for every incoming customer, merely satisfying customer may no longer suffice for retaining old customers, much less acquiring new ones. Sample the following scenario:
Imagine you walk into a hotel upon entering a new town, with the expectation of a clean lodging and food, and a decent ambience. Any hotel or inn meeting these expectations will provide you with satisfaction. Delight will result when a hotel exceeds your expectations of these basic necessities and possibly even surprising you – for example, arranging for your transfer when you leave, or replacing the linen in your room without your asking for it.
Meeting customer expectations of service are crucial to customer satisfaction and running a business successfully, but true customer loyalty can be gained only when the service exceeds customer expectations.
“Customer delight is that phase of customer experience when the service offered exceeds the service expected.”
While satisfied customers may leave the business feeling happy, they may not return. They may well be swayed by swanky advertisements or deep discounts offered by competitors the next time around. On the other hand, a customer who is delighted by a service exceeding his expectations will become a loyal patron of the brand forever, since the brand will always evoke a positive memory of association for him.
There are four reasons to invest in additional effort in delighting customers, as it can pay rich dividends in a very direct way:
Increased customer retention through loyalty
A delighted customer will develop strong loyalty for the brand that provided him with the delight, and will be far less likely to “experiment” with a new brand. Studies have shown that it may be 4 to 9 times more costly to attract a new client than retain an existing one.
More profitable customers
In addition to retaining existing customers, customer delight can also induce customers to spend more on their dealings with the business. Research has shown that, on an average, delighted customers end up spending more than merely satisfied customers.
Delighted customers turn into brand evangelists for the company. They will spread word of their positive experience around, shooting up the NPS score© of the company. 92% of customers consider word-of-mouth as the most reliable source of information, so delighted customers may well become a strong asset for the company by bringing in more and more customers, leading to a virtuous circle.
The enhanced network of customers developed over time may turn the business into an industry leader on the basis of service differentiation. This will enhance the brand recall of the company. It is common knowledge today that brands such as Xerox, Google and Jacuzzi have become synonymous with the product or service they are offering. That is the power of brand recall – when potential and existing customers will think of your company first and then consider what they need to purchase from it!
While it is established that concentrated efforts by businesses to delight their customers with enhanced levels of service will produce results in terms of increased customer loyalty and a much stronger brand, prudence is advised as this strategy comes bundled with two pitfalls:
- It may be a conundrum for businesses as to what lengths they need to go to delight their customers. After all, budgets are shrinking, and the profit gained from incremental investments begins to decrease after awhile – the iron law of diminishing returns.
- Add to that the burden of raising the bars of your service level forever in your customer’s eyes. Delighting a customer once might alter their opinion of what constitutes a fair level of service for the price they are paying.
As with any other conundrum, the solution lies in the middle – identifying when and how to delight customers. Certainly, in today’s business environment it is not advisable to delight every customer, every time; it would be unwise to even attempt that. In fact, in most business dealings, it would make sound commercial sense to just suffice customer’s expectations. Exceeding customer’s expectations will produce the best results if offered when the situation demands it.
In our example of the hotel cited earlier, arranging for the guest’s next travel plan would make sense when the guest is checking out at an odd time, such as late at night, or has to catch an early morning train or flight.
Building brands and NPS © takes time and can be perfected with judicious experimentation. Delighting customers by surprising them with unexpected service may turn out to be a unique way to create value and build a strong brand legacy. And the right start would be to implement instant customer feedback systems telling you what your customer’s opinions are about your service at present.