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Customer Loyalty Is the Goal  

By Dr. Laura Brooks, VP Research and Business Consulting, Satmetrix

The ability for companies to move beyond measuring satisfaction to understanding who will recommend them is improving their success. Net Promoter is more than just the question or the score. It is a discipline that focuses on creating a customer-centric view. By implementing a Net Promoter discipline throughout the corporate culture, companies are finding they can increase positive word of mouth and drive profitable growth.

Every company says customer satisfaction is a top priority. Who wouldn’t? Satisfied customers are more likely to remain customers versus disgruntled ones who may jump ship and purchase from a competitor the next time around.

Is customer satisfaction a good predictor of future customer behavior and growth? To some extent, it is. But is it enough? I would argue that one needs to go beyond satisfaction to capture true customer loyalty. Loyalty is what companies should measure and strive to increase, to help their businesses grow. Satisfaction and loyalty aren’t the same. Examine the definitions of each from one dictionary:

Satisfy to conform to (as specifications) a: Be adequate to (an end in view) b: To make true by fulfilling a condition
Loyal unswerving in allegiance: c: Faithful to a cause, ideal, custom, institution or product

If a customer is satisfied, it doesn’t necessarily mean he or she is loyal. Satisfaction is about fulfilling promises/expectations; loyalty goes way beyond that by creating exceptional experiences and long-lasting relationships. There is a reason why marketers strive to build brand loyalty, not brand satisfaction.

Customer loyalty has become an even more important marketing measurement and strategy. The reason is word of mouth. When customers are loyal to a company, product or service, they not only are more likely to purchase from that company again, but they are more likely to recommend it to others – to openly share their positive feelings and experiences with others. In today’s world, thanks to the Internet, they can tell and influence millions of people. That equates to new customers and revenue. The same holds true, if not more, when customers are disloyal. Disgruntled customers can share their negative experiences with an ever-widening audience, jeopardizing a company’s reputation and resulting in lost revenue.

So how can you measure and increase customer loyalty? Today, many companies are having success implementing Net Promoter.

Net Promoter
In 2006, Fred Reichheld, Director Emeritus at Bain & Company, published his third book on customer loyalty titled, “The Ultimate Question: Driving Good Profits and True Growth.” It has drawn a lot of attention and became a number one best seller on both the Wall Street Journal and USA Today lists.

The book introduces Net Promoter, which Satmetrix helped develop. At its core, Net Promoter is a simple way for companies to measure and truly understand how loyal their customers are by asking one simple question: “How likely are you to recommend (company, product, service) to a friend or colleague?”

This ‘recommend’ question gets to the heart of the matter in truly understanding customer loyalty. If customers are willing to put their reputations on the line and make the effort to tell others about your company, product or service, then they are demonstrating their utmost loyalty toward your company. The Net Promoter metric – based on this core question – has been linked both to individual customer behaviors (e. g., spend and repurchase) as well as word of mouth.

The book also suggests asking customers ‘why’ they provided their particular rating. This enables you to understand exactly what opportunities and obstacles are in front of you. For example, one company that recently presented at our Net Promoter conference in Miami discovered that a service fee it charged was frustrating customers and impacting their loyalty. Even though the company received very high satisfaction scores, these additional charges were eroding loyalty over time. As a result, the company decided to rebate the charges to enhance customer loyalty.
The Net Promoter Score
When surveying its customers, companies that follow the Net Promoter methodology use an 11-point scale on which customers are asked to rank their willingness to recommend (0 being not at all likely, 10 being extremely likely). Once the data is collected, customers are segmented into three loyalty categories:

  • Promoters (scores of 9 and 10), who are enthusiastic customers that will keep buying and who refer others
  • Passives (scores of 7 and 8), who are satisfied, but unenthusiastic customers that may consider competitive offerings
  • Detractors (scores from 0 to 6), who are unhappy customers that are less likely to buy from you again and may spread negative word of mouth

By segmenting customers into these three categories, companies are able to calculate their Net Promoter Score (NPS). This is done by taking the percentage of Promoters (those who are highly likely to recommend your company, products or services) and subtracting the percentage who are Detractors (those who are less likely to recommend your company, products or services).

NPS = % of Promoters – % of Detractors
NPS is a means to measure and gauge customer loyalty performance over time. It also serves as an indicator of growth. There have been several studies and analyses showing that companies with higher NPS than its competitors achieve higher long-term profitable growth. In some studies, NPS leaders have outgrown its competitors by an average of 2.5 times.

What’s a good Net Promoter score? That depends on the type of industry a company is in. Customer expectations vary depending on the industry segment. For example, consumers of financial service products have higher expectations than they have of telecommunication providers. In some industries, there are companies that score below zero, which means they are at great risk of losing business through negative word of mouth. In others, where customer service and loyalty are a premium, scores are higher and new customers have been attracted by positive word of mouth from Promoters.

Regardless of industry, the most important thing a company can do is to take action to move the NPS needle higher. That’s where the true value of Net Promoter comes into play.

More Than a Question/Score
Net Promoter is more than just the question or the score. It is a discipline that enables companies to profitably grow by focusing on their customers. This was no more evident than at one of our recent Net Promoter conferences.

During the two-day event, numerous companies such as GE, Symantec, LEGO, Intuit and eBay presented cases on how their companies are achieving success with Net Promoter. Many of them explained how Net Promoter creates a customer-centric culture, empowering their employees to achieve a higher NPS. Some speakers talked about how customer feedback has helped them identify specific needs for improvement in areas such as operations, marketing, product development and customer service. And, several provided details about how they integrate customer feedback into day-to-day activities and provide employees with the information they need, when they need it, to improve the customer experience.

Though the companies that presented apply varying techniques to act on customer feedback, there were some consistent themes and words of wisdom I’d like to share:
  • Executive buy-in and employee accountability are a must
  • Capturing trustworthy data boils down to asking the right questions in the right way, to the right customers, at the right time
  • Measuring and understanding customer experience across all touch points enables companies to pinpoint areas and opportunities for improvement
  • Segmenting customers into categories (Promoters, Passives, Detractors) enables employees across the organization (sales, service, marketing, products) to rapidly respond
  • Getting timely feedback to employees and empowering them to improve/enhance the customer experience is key

Springboard for Marketing
Knowing who your Promoters are through Net Promoter also provides the foundation for word of mouth.

Many companies are building their own online communities to engage with their customers and maintain an ongoing dialogue with them. In contrast to general online communities such as Facebook, MySpace, etc., these brand communities provide a more personalized relationship and customer experience to improve brand loyalty with their Promoters, as well as move Detractors and Passives to Promoters.

There are many benefits associated with this strategy. First, it allows companies to hear what customers like or dislike and to understand the root-causes driving loyalty. Second, it allows companies to build relationships with their customers through continuous dialog and personalized communications. Some even use their communities as a means of involving customers in the development of new products or services. For example, LEGO developed and launched several new products based on ideas generated by its community members. One of these products sold out an entire year of production in only five weeks.

Brand communities also serve as a springboard for word of mouth. By engaging your community members and communicating back to them that you listen and act on their feedback, you create enthusiastic Promoters of your brand. Brand community members are often active in other communities, increasing the opportunity to refer. The key is to inspire them to recommend your products and services, which can involve a number of different tactics such as exclusive product offers, special discounts and sneak previews or exclusive content.

Whatever the tactic, the foundation for increasing loyalty through an online brand community stays the same: Closing the loop. Listening to and engaging with customers becomes much more sustainable and powerful if your company can show members how their engagement effected decisions or outcomes.

What makes Net Promoter so valuable is that it is an open standard that all companies, large or small, B2C or B2B, can apply to their organizations. It creates an organizational discipline and culture for the entire company to rally around. It establishes measurement and accountability to gauge improvement. It provides valuable customer insight and feedback to make improvements and enhance the customer experience. It can serve as the foundation to activate positive word of mouth. And, it is an indicator of customer retention, customer acquisition through word of mouth and overall profitable growth.

Dr. Laura Brooks is Vice President of Research and Business Consulting at Satmetrix, a software and services company focused on customer experience management. She has extensive experience working with clients in the areas of employee opinion surveys, organizational development, customer satisfaction, management development, team building, quality, job evaluation and compensation. Prior to joining Satmetrix, Laura worked as a Project Director and Manager for several consulting firms that specialized in statistical and psychological tools for measuring customer satisfaction and employee performance. She has published on Inter-Rater Reliability and Validity in Behavioral Research Methods in Computers and also participated in the survey-specific portion of the Malcolm Baldrige Award. For article feedback, contact Laura at laura.brooks@satmetrix.com.

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