Continuing the discussion about Customer Loyalty; a common question is how to measure customer loyalty. Measuring customer loyalty should provide:
- An objective and consistent measurement
- A measurement that is easy to understand and provides a common goal across business areas
- A means to interpret results for improving customer loyalty
- A means to benchmark your performance with your industry and competitors.
Determining your Net Promoter Score is relatively straightforward:
- Ask your customers one question – “How likely is it that you would recommend [company name] to a friend or colleague?”
- Customers respond with a 0-10 point rating with 10 being extremely likely to recommend
- You then create 3 categories of customer loyalty based on the scores:
- Promoters (score 9-10) are loyal enthusiasts who will keep buying and refer others
- Passives (score 7-8) are satisfied but unenthusiastic and will consider competitive offerings
- Detractors (score 0-6) are unhappy and/or feel no loyalty to your company.
- The NPS is calculated as the % of Promoters minus the % Detractors.
A NPS of 50% or higher is considered good. Companies with great customer loyalty have a NPS in the 70-80% range. However, research shows that most companies are floundering along with NPS in the 5-10% range.
When you do the customer survey, don’t just ask the one NPS question. Formulate at least 6 additional supporting questions that will help you analyze where to focus your attention for improving your customer loyalty and NPS. Don’t go overboard and ask too many questions – we all dislike taking surveys with endless questions.
NPS is not perfect and has been subjected to some criticism. However, it is a popular approach that is favored by many CEOs because it provides a straightforward single measure that can be compared with other companies and industry averages. Just as important – it is one metric in which all functional areas of your business can have a stake and influence.
More details on NPS are available on the Net Promoter website.
Do you use NPS? If so, how has it worked for you? Your comments are always welcome.
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