How to Turn your On-line Customers into Promoters

It is already more than 10 years ago that the book The Ultimate Question (1) was published. In this book, the Net Promoter Score (NPS) was introduced. The NPS measures promotion of products by the customers of a company. The NPS has been adopted by many companies all over the world. But is NPS still relevant in today’s digital world of mobile internet and social media with fragmented markets and user behavior? Is NPS still a useful concept? This blog discusses why NPS is still very relevant in today’s digital world, and how it can be applied to turn your customers into an on-line sales force.

The concept of Net Promoter Score

The key insight underlying NPS is that customer satisfaction is not a continuous scale of increasing satisfaction, with dissatisfied customers at one end of the scale and satisfied or even delighted customers at the other end of the scale. The key insight of NPS is that there are clear cut-off points where customer behavior changes from passive behavior into active behavior, which has a real impact on the business performance.

At the bottom end of the scale there are customers who are so dissatisfied with the products or services of a company that they stop buying products from that company and even start to actively discourage other people from buying. We call this active group of customers: detractors. At the top end of the scale there are customers who are so delighted with the product that they buy more products from that company and even start to actively promote those products to other people. They help to sell the product of a company. We call this active group of customers: promoters. In the middle of the scale there are customers, who are neither very happy nor very dissatisfied, and they do not undertake any action. We call this group of customers: passives. A company can now turn its customers into a loyal sales force by undertaking actions to create as many promoters as possible while reducing the amount of detractors to a minimum.

The ultimate question

The NPS is a single number which measures the degree of promotion by the customers of a business. The NPS is calculated in the following way. Customers are asked the following question: “how likely is it, on a scale from 0-10, that you recommend this product (or service, or company) to a friend of colleague?” This is the so-called ultimate question of the book mentioned before. The detractors are the group of people who score 0-6. The passives are the group who score 7 or 8. Promoters are people who give an exceptional score of 9 or 10.

The NPS is now calculated by the following formula:

Net Promoter Score = % promoters – % detractors 

The higher this number, the more likely it is that your customers are selling your product. If the NPS is a negative number, there are more detractors than promoters. This has a negative effect on sales. If the NPS is a positive number, there are more promoters than detractors. This has a positive effect on sales. In this case customers are helping to sell the product of a company. Research as presented in (1) has demonstrated that there is a positive correlation between NPS and profitable growth: companies with high NPS scores grow faster and gain market share. This correlation was found for many companies across industries, for both traditional brick-and-mortar companies as well as on-line businesses.

The importance of NPS in today’s digital world

In today’s market place with lots of new products, fragmented markets, diffuse product communication and continuously changing product offering, customers are frequently experiencing problems to find the products they are looking for. Nowadays the product offer is a lot less transparent to potential customers than it used to be in the past. Businesses have more problems to reach potential customers, because they use more channels to find information and buy products. That is why they also invest in new channels like the mobile internet and social media sites to provide product information and purchase options.

In this fragmented landscape, customers increasingly refer to third parties, like product comparison sites and social media sites, to find information and recommendations about products. In this digital landscape, digital word-of-mouth, is even more important than word-of-mouth in the past. With one click of a button, digital word-of-mouth can spread around the globe. Because of the speed of information exchange on the internet and social media, recommendations or complaints of customers about products spread much faster and reach more people than word-of-mouth in the past.

Implementing a NPS improvement process

Based on over 10 years of practical experience with application of NPS in both mature companies as well as start-up companies, I can highly recommend NPS –in fact, I am a promoter myself. My experience is that in order to apply NPS effectively in today’s dynamic market environment, a thorough NPS process needs to be in place, meeting the following 4 conditions:

First of all, actionable NPS measurements must be defined. It is essential to ask not only the ultimate question, but also why customers promote or discourage products. These reasons are called NPS drivers. If it is not clear what the drivers are, it is not possible for a company to take action to improve. In the past I have frequently seen that NPS measurements are not actionable. In such a way, NPS is only a reactive measurement which cannot be used to improve the business.

Second, NPS measurements must be executed on a regular basis. Measurements can happen in different ways, depending on the type of business. Measurements can happen by means of a customer survey, online feedback collection or a telephone interview, for instance. To collect input, it is important to use the same channels which your customers are using. This is to make sure that your reach the right customer segment. So when you are interested in on-line promotion by your customers, you must approach customers via the same channels, for instance mobile websites and social media sites. A company could measure NPS of its own products, but it could also measure products of competition. This way a company does not only know how its own products are doing but also how they are doing compared with the competitor’s products. It is essential to repeat measurements over time, because market conditions and reactions of customers change over time. My experience is that monthly measurements are the best frequency. By measuring NPS over time, one gets a grip on customer satisfaction behavior and related trends in the market.

Third, a NPS improvement plan must be defined. This plan defines how to improve NPS over time. There are different ways to improve the NPS, dependent on the situation of a company. For instance, a company with a high number of detractors can reach most progress by focusing on solving quality issues of the product first. It does not work to give benefits to customers which are not happy with the basics, so fix the basics first. In this way detractors are turned into passives or even promoters. A company which sells already high quality products must aim to turn passives into promoters. This can be done by communication to make customers more aware of certain product features or benefits. Or by giving certain presents or benefits to existing customers, to make them even more loyal. In this way passives are turned into promoters. For all measures, it is important to decide what measures to focus on first and what measures next. Typically there are some measures which have more impact than others. My experience is that there are many companies which measure NPS, but few actually have a plan how to improve NPS.

Last but not least, it is important to rigorously execute the plan. It is not the plan but real-life improvements that result in higher NPS scores in the future. Therefore actions must be followed up on a regular (e.g. weekly) basis. To realize progress it is important to create NPS awareness and commitment for the plan in the organization. Some companies choose to make NPS scores part of the employee incentive plans.

Some of you may notice that the NPS process is similar to the Deming quality circle of Plan-Do-Check-Action. The NPS process is also a closed loop, but not only focusing on quality but also on creating real promoters.

Summary    

In today’s digital age, the Net Promoter Score is more than ever an important tool to create promoters out of your customers who help to sell your products. In today’s world of internet and social media, digital word-of-mouth is replacing traditional word-of-mouth as a key factor to make purchase decisions. In order to improve NPS, it is essential to have a proper NPS process in place. The process consists of actionable NPS measurements, regular NPS measurements, a NPS improvement plan and thorough execution of the plan. If this process is followed on a regular basis, it will help to turn your customers in on-line promoters and drive the growth of your company.

References

1. ‘The Ultimate Question’, Fred Reichheld, Harvard Business School Press, 2006