NPS is a waste of time. Use these metrics instead

 Ask any executive what the top 3 metrics they watch in their company are and you’ll get some combination of revenue and sales metrics and, of course, the company’s NPS. Net Promoter Score, a measure of customer satisfaction and loyalty, is so widespread and common that over two-thirds of the Fortune 1000 claim to use it. It’s popularity might lead you to believe it was introduced decades ago, forged in years of trial and error and scientifically tuned to become the “one metric to rule them all” in enterprise and startup alike. It turns out it was introduced in 2003 by Fred Reichhold in an HBR article called The Only Number You Need to Grow. In that article Reichhold rightfully sees word-of-mouth marketing as a key driver of growth and, in fact, without these “promoters” exponential growth is nearly impossible. He posited that a short survey with the right questions could predict customer loyalty. And so, the NPS survey was born.

(I’m working with the assumption that most of you know what NPS is but if not, there is a short overview here.)

The cult of NPS has grown so quickly that there is almost no service or commercial experience today that doesn’t end with a short survey. Often times those survey requests are accompanied with a nudge to rate the company highly. Over the years though, many have raised objections about the validity and supremacy of NPS as the core metric the organisation should work to improve. Along with complaints of organisations pushing for high ratings (gaming the system in essence) you’ll find concerns with whether asking consumers to predict future behaviour is accurate, how the scale is laid out and what makes someone a “9” vs “8” or “8” vs “7” — significant differences on the NPS scale — as well as many other critiques of this technique. The cult of loyalty survey scores has gotten so pervasive, annoying and prominent that it’s led even Reichhold himself to lament his creation.

So, if we can agree that word-of-mouth marketing and loyalty are critical to company growth and that measuring them with NPS surveys is highly flawed and likely yielding far less value than your organisation thinks it is, what should an organisation measure?

The real billion-dollar question

There’s a concept I use when working with organisations on their transformations into customer-centric, product-led companies. It’s the concept of outcomes — measurable changes in customer behaviour that drive business results. Outcomes are the indicators of future business success. We can apply this concept in search of customer loyalty and satisfaction as well.

Instead of asking your customers some variation of, “Are you satisfied enough right now to do something in the future we find valuable?” ask them nothing, observe their behaviour and pose the following question to your team:

“What do satisfied customers do in our product?”

The answers your team comes up with will be customer behaviours — outcomes. These are the metrics you should be measuring instead. They are the current behaviours of existing customers. Here are some examples:

Commerce:

• Number of items purchased per visit
• Number of visits per user per month
• Number of referral codes redeemed

B2B:

• Number of sales leads from current customers
• Number of products sold per customer
• Number of positive reviews in trade publications
• Number of licenses activated

Healthcare:

• Number of family members using the same practice
• Number of transactions handled via your website compared to in-person/telephone

Asking people to predict the future — what the NPS conversation is all about — is highly risky. In the future we always make the best decisions, we never make mistakes and we don’t make people feel bad. However, measuring, getting stories about or better yet, observing first-hand, recent behaviour in a particular product or service is far more telling about how well you’re meeting customer needs and whether it’s enough to retain those customers and attract new ones.

Modern businesses are complex and unpredictable. Your customers are too. Attempting to boil down how well you’re meeting customers’ needs with one question and one metric is naive and risky. Instead, do the work to understand what success means to your customers and what that looks like in the usage of your service. Measure that behaviour. Optimise your product to promote those outcomes. Remember, regardless of what the surveys say, whether your customers rate you a 7, 8, 9 or 10 doesn’t matter if they never act on it.

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55 Business Model Patterns. #10 Customer Loyalty

 

Customers are retained and loyalty assured by providing value beyond the actual product or service itself, i.e., through incentive-based programs. The goal is to increase loyalty by creating an emotional connection or simply rewarding it with special offers. Customers are voluntarily bound to the company, which protects future revenue.

How they do it: Lufthansa’s loyalty program ”Miles & More” allows customers to collect status tier and reward points for each flight or spend with the airline. This allows the company to tie frequent flyers to them by offering rewards which can be physical products or flights as well as access to exclusive lounges and priority treatment at the airport.

Top Industries

Pattern Co-Occurrence

Below, the pattern "Customer Loyalty" is analyzed based on co-occurrence, in order to get insights into how this business model pattern is applied in combination with other patterns within the firms we studied.

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Loyalty business model

The loyalty business model is a business model used in strategic management in which company resources are employed so as to increase the loyalty of customers and other stakeholders in the expectation that corporate objectives will be met or surpassed. A typical example of this type of model is: quality of product or service leads to customer satisfaction, which leads to customer loyalty, which leads to profitability.

The service quality model

A model by Kaj Storbacka, Tore Strandvik, and Christian Grönroos (1994), the service quality model, is more detailed than the basic loyalty business model but arrives at the same conclusion.^[1] In it, customer satisfaction is first based on a recent experience of the product or service. This assessment depends on prior expectations of overall quality compared to the actual performance received. If the recent experience exceeds prior expectations, customer satisfaction is likely to be high. Customer satisfaction can also be high even with mediocre performance quality if the customer's expectations are low, or if the performance provides value (that is, it is priced low to reflect the mediocre quality). Likewise, a customer can be dissatisfied with the service encounter and still perceive the overall quality to be good. This occurs when a quality service is priced very high and the transaction provides little value.

This loyalty business model then looks at the strength of the business relationship; it proposes that this strength is determined by the level of satisfaction with recent experience, overall perceptions of quality, customer commitment to the relationship, and bonds between the parties. Customers are said to have a "zone of tolerance" corresponding to a range of service quality between "barely adequate" and "exceptional". A single disappointing experience may not significantly reduce the strength of the business relationship if the customer's overall perception of quality remains high, if switching costs are high, if there are few satisfactory alternatives, if they are committed to the relationship, and if there are bonds keeping them in the relationship. The existence of these bonds acts as an exit barrier. There are several types of bonds, including: legal bonds (contracts), technological bonds (shared technology), economic bonds (dependence), knowledge bonds, social bonds, cultural or ethnic bonds, ideological bonds, psychological bonds, geographical bonds, time bonds, and planning bonds.

This model then examines the link between relationship strength and customer loyalty. Customer loyalty is determined by three factors: relationship strength, perceived alternatives and critical episodes. The relationship can terminate if:

1. the customer moves away from the company's service area,
2. the customer no longer has a need for the company's products or services,
3. more suitable alternative providers become available,
4. the relationship strength has weakened,
5. the company handles a critical episode poorly,
6. unexplainable change of price of the service provided.

The final link in the model is the effect of customer loyalty on profitability. The fundamental assumption of all the loyalty models is that keeping existing customers is less expensive than acquiring new ones. It is claimed by Reichheld and Sasser (1990) that a 5% improvement in customer retention can cause an increase in profitability between 25% and 85% (in terms of net present value) depending upon the industry. However, Carrol and Reichheld (1992) dispute these calculations, claiming that they result from faulty cross-sectional analysis.^[2]

According to Buchanan and Gilles (1990), the increased profitability associated with customer retention efforts occurs because:

• The cost of acquisition occurs only at the beginning of a relationship: the longer the relationship, the lower the amortized cost.
• Account maintenance costs decline as a percentage of total costs (or as a percentage of revenue).
• Long term customers tend to be less inclined to switch and also tend to be less price sensitive. This can result in stable unit sales volume and increases in sales volume.
• Long term customers may initiate free word of mouth promotions and referrals.
• Long term customers are more likely to purchase ancillary products and high-margin supplemental products.
• Long term customers tend to be satisfied with their relationship with the company and are less likely to switch to competitors, making market entry or competitors' market share gains difficult.
• Regular customers tend to be less expensive to service because they are familiar with the processes involved, require less "education," and are consistent in their order placement.
• Increased customer retention and loyalty makes the employees' jobs easier and more satisfying. In turn, happy employees feed back into higher customer satisfaction in a virtuous circle.

For this final link to hold, the relationship must be profitable. Striving to maintain the loyalty of unprofitable customers is not a viable business model. That is why it is important for marketers to assess the profitability of each of its clients (or types of clients), and terminate those relationships that are not profitable. In order to do this, each customer's "relationship costs" are compared to their "relationship revenue". A useful calculation for this is the patronage concentration ratio. This calculation is hindered by the difficulty in allocating costs to individual relationships and the ambiguity regarding relationship cost drivers.

Expanded models

Schlesinger and Heskett (1991) added employee loyalty to the basic customer loyalty model. They developed the concepts of "cycle of success" and "cycle of failure". In the cycle of success, an investment in your employees’ ability to provide superior service to customers can be seen as a "virtuous circle". Effort spent in selecting and training employees and creating a corporate culture in which they are empowered can lead to increased employee satisfaction and employee competence. This will likely result in superior service delivery and customer satisfaction. This in turn can create customer loyalty, improved sales levels, and higher profit margins. Some of these profits can be reinvested in employee development thereby initiating another iteration of a virtuous cycle.

Fred Reichheld (1996) expanded the loyalty business model beyond customers and employees. He looked at the benefits of obtaining the loyalty of suppliers, employees, bankers, customers, distributors, shareholders, and the board of directors.

Duff and Einig (2015) expanded the model to debt issuers and credit ratings agencies to investigate what role commitment plays in issuer-CRA relations.

Satisfaction-profit-chain (SPC) model

The satisfaction-profit chain is a model that theoretically develops linkages and then enables researchers to test them statistically for a firm using customer data (both from surveys and other sources). The satisfaction-profit-chain was tested in the context of banking industry showing that product and services improvements indeed were associated with customer perceptions, which led to beneficial customer behaviors such as repurchase, and desirable financial outcomes such as increased sales and profitability ^[3] The satisfaction-profit-chain, as a methodology for managing customer loyalty and firm profitability, is also applicable in business-to-business markets, irrespective of whether the B2B firm sells goods and/or services.

The satisfaction-profit-chain refers to a chain of effects whereby increased performance on key attributes leads to improvements in overall satisfaction, which in turn affects loyalty intentions and behaviors. The increased customer loyalty is shown to affect short- and long-term financial outcomes including sales, profitability, and stock price. More recently, some studies show that especially in the context of services such as retailing and financial services, employee satisfaction can play a critical role in enhancing customer loyalty. This happens because both customer satisfaction and employee satisfaction can mutually reinforce each other, and promote stronger customer loyalty. More specifically, for a given level of overall satisfaction, customer loyalty is disproportionately stronger when customers perceive that employees are also satisfied.

The SPC model has become the basis of a large body of empirical research showing the strong impact of customer satisfaction on customer loyalty. Research has clearly shown that one of the best ways to increase customer loyalty—measured as repurchase intentions and/or repurchase behavior—is by increasing customer satisfaction (more satisfied customers are more loyal, in general).^[4][5][6] Though the relationship is positive, research shows there are many differences:

1) The effect of customer satisfaction on customer loyalty can vary based on customer demographics and segments, such that it is stronger for some demographic groups and segments than others.^[7][8]

2) The effect of customer satisfaction and customer loyalty, and subsequent financial outcomes for firms, can vary based on industry. Specifically, factors such as—goods versus services industry, degree of competition or concentration in the industry, the utilitarian or hedonic nature of products, and customers' switching costs can affect the nature (non-linearity) and strength of the link between customer satisfaction and customer loyalty.^{[9][10][11][6]}

3) The measurement of loyalty—especially for customers is multi-faceted. Customer loyalty includes a variety of outcomes—intentions and behaviors associated with repurchase including word-of-mouth,^[12][13] complaint behaviors,^[14] share-of-wallet or the relative proportion of purchasing from a single firm relative to customer's total purchasing,^[15] and likelihood to recommend.^[16]

4) Customer loyalty is influenced, not only by customer satisfaction but also employee satisfaction. Customer loyalty is a function of customer satisfaction. In many firms, especially service-oriented industries such as retailing, health-care, financial services, education, and hospitality the level of satisfaction experienced by front-line employees is a critical component. The level of employee satisfaction influences customer satisfaction as shown in a large-scale study of managers, front-line employees, and customers of a DIY retailer in Europe:^[17] results showed that managers affected overall job-satisfaction of front-line employees, which in turn affected the satisfaction of customers they interacted with. Most surprisingly, the level of customer loyalty was much higher among those customers who were themselves more satisfied, but also interacted with more satisfied employees. Highly satisfied customers who dealt with relatively less satisfied employees were relatively less loyal.

Commitment-loyalty model

The customer commitment approach to loyalty is based on the idea that customers with higher commitment toward the brand are also more likely to be loyal toward the brand. Earlier models of customer commitment conceptualized it as a unidimensional construct (e.g., Garbarino and Johnson 1999; Moorman et al. 1992).^[18][19] More recently, scholars have developed a five dimensional scale to measure customer commitment and relate it to customer loyalty. The five commitment dimensions include:

• Affective commitment
• Normative commitment
• Economic commitment
• Forced commitment
• Habitual commitment

Data collection

Typically, loyalty data is being collected by multi-item measurement scales administered in questionnaires by software providers such as Confirmit, Medallia, and Satmetrix.^[20] However, other approaches sometimes seem more viable if managers want to know the extent of loyalty for an entire data warehouse. This approach is described in Buckinx, Verstraeten & Van den Poel (2006).

All historical trends for different segmentations and their standard of living may also be very helpful in developing customer retention strategy. Lifestyle is also a very powerful tool, can be used for better customer retention and to know his/her needs in better way.

Notes

1. ^ Storbacka, K. Strandvik, T. and Gronroos, C. (1994) "Managing customer relationships for profit", International Journal of Service Industry Management, vol 5, no 5, 1994, pp 21-28.
2. ^ Carrol, P.; Reichheld, F. (1992). "The fallacy of customer retention". Journal of Retail Banking. 13 (4).
3. ^ Carr, Nicholas G. 1999. Marketing: The economics of customer satisfaction. Harvard Business Review (March-Apr). 15-18.
4. ^ Lee, Jonathan, Janghyuk Lee, and Lawrence Feick. "The impact of switching costs on the customer satisfaction-loyalty link: mobile phone service in France." Journal of services marketing 15, no. 1 (2001): 35-48.
5. ^ Homburg, Christian, and Annette Giering. "Personal characteristics as moderators of the relationship between customer satisfaction and loyalty—an empirical analysis." Psychology & Marketing 18, no. 1 (2001): 43-66.
6. ^ Jump up to:^a b Gonçalves, Fábio M.R.R.; Cândido, Carlos J.F.; Feliciano, Isabel Maria Pereira Luís (2020-06-11). "Inertia, group conformity and customer loyalty in healthcare in the information age". Journal of Service Theory and Practice. 30 (3): 307–330. doi:10.1108/JSTP-08-2019-0184. hdl:10400.1/14708. ISSN 2055-6225. S2CID 219924463.
7. ^ Homburg, Christian, and Annette Giering. "Personal characteristics as moderators of the relationship between customer satisfaction and loyalty—an empirical analysis." Psychology & Marketing 18, no. 1 (2001): 43-66.
8. ^ Danaher, Peter J. "Customer heterogeneity in service management." Journal of Service Research 1, no. 2 (1998): 129-139.
9. ^ Anderson, Eugene W., Claes Fornell, and Roland T. Rust. "Customer satisfaction, productivity, and profitability: Differences between goods and services." Marketing science 16, no. 2 (1997): 129-145.
10. ^ Gupta, Sunil, and Valarie Zeithaml. "Customer metrics and their impact on financial performance." Marketing Science 25, no. 6 (2006): 718-739.
11. ^ Keiningham, Timothy L., Bruce Cooil, Tor Wallin Andreassen, and Lerzan Aksoy. "A longitudinal examination of net promoter and firm revenue growth." Journal of Marketing 71, no. 3 (2007): 39-51.
12. ^ Kowalski, Robin M. (1996), “Complaints and Complaining: Functions, Antecedents, and Consequences,” Psychological Bulletin, 119 (2), 179–196.
13. ^ Anderson, Eugene W. "Customer satisfaction and word of mouth." Journal of service research 1, no. 1 (1998): 5-17.
14. ^ Fornell, Claes, and Birger Wernerfelt. "Defensive marketing strategy by customer complaint management: a theoretical analysis." Journal of Marketing research (1987): 337-346.
15. ^ Cooil, Bruce, et al. "A longitudinal analysis of customer satisfaction and share of wallet: Investigating the moderating effect of customer characteristics." Journal of Marketing 71.1 (2007): 67-83.
16. ^ Ryu, Gangseog, and Lawrence Feick. "A penny for your thoughts: Referral reward programs and referral likelihood." Journal of Marketing 71, no. 1 (2007): 84-94.
17. ^ Brickley, James A., Frederick Dark, and Michael S. Weisbach (1991),‘‘An Agency Perspective on Franchising,’’Financial Manage-ment, 20 (1), 27-35.
18. ^ Moorman, Christine, Gerald Zaltman, and Rohit Deshpandé (1992), “Relationships Between Providers and Users of Market Research: The Dynamics of Trust Within and Between Organizations,” Journal of Marketing Research, 29 (August), 314-328.
19. ^ Garbarino, Ellen, and Mark S. Johnson (1999), “The Different Roles of Satisfaction, Trust, and Commitment in Customer Relationships,” Journal of Marketing, 63 (April), 70-87.
20. ^ Lester, Aaron (2013-04-23). "Seeking treasure from social media tracking? Follow the customer". SearchBusinessAnalytics. Retrieved 2013-10-01.

How to Achieve a Leading NPS

 Customer loyalty is of strategic importance. It generates customers with a high “lifetime value”. A loyal customer is more likely to recommend you to others – impacting on business growth and reputation!

A widely used metric to measure customer loyalty is the Net Promoter Score (NPS). This is very easily determined. We ask customers how likely they are to recommend ‘supplier X’ using a 0-10 scale. Scores of 9 and 10 are promoters; scores of 7 or 8 are neutral (passives), and scores of 6 or less are detractors. The Net Promoter Score is calculated by subtracting the proportion of those giving a score of 6 or less from those giving a score of 9 or 10. This provides a great benchmark by which to judge the performance of your company. The average B2B company has an NPS of +24 which is far from ideal. Best in class companies have an NPS of 50 to 80. Find out more in our infographic below.

https://bit.ly/3O1K4L7

Customer Loyalty – What it is and Why it’s Important

Customers are a business’ most important asset, without them the business wouldn’t exist. So it’s imperative to keep these customers happy and improve their loyalty to your business. We created this customer loyalty infographic to help you not only understand it, but to help you cultivate that loyalty among your own customers.

 

https://bit.ly/3LiXqBf

The Challenger Sale

Compete and win in a customer-empowered world

Why Challenger?

Three questions sales leaders frequently ask prompted the research leading to Challenger:

1. What sets the best sales reps apart in a complex sales environment?
2. How do you replicate winning sales behaviors?
3. How do you create a differentiated sales experience? 

We studied thousands of customers and sales professionals around the world, spanning every major industry, geography and go-to-market model, and discovered that classic relationship building is a losing approach in today’s complex business-to-business sales.

Instead, challenging customer thinking and teaching customers new insights are key.  Download Gartner's latest research to learn how Challenger has evolved.

The sales environment is complex

The traditional approach to selling doesn’t work today. Deals are increasingly complex, and customers have access to more information earlier in the sale. As a result, customers are buying in new ways, delaying initial contact with suppliers and requiring greater consensus to move forward.

Today’s customers don’t need sales reps in the same way as in the past — customers now wait until they are 57% through the purchase process before contacting a rep. Buyers do independent research and set their own purchase criteria, all before the first seller interaction.

For the first time, our customers know more about us than we know about them.

Vice President, Sales, Healthcare Industry

It’s not what you sell, it’s how you sell

Due to this more complicated sales environment, it’s no longer just about what you sell, but rather how you sell.

Our research revealed that 53% of customer loyalty is driven by the sales experience — more so than by the brand, product, service and price combined. A customer's interaction with a rep largely dictates this experience. 

Sellers fall into one of five profiles

Our research revealed that every sales professional in the world falls into one of five distinct profiles:

Hard Worker: Goes the extra mile, doesn’t give up easily, is self-motivated, likes feedback and development 

Challenger: Has different view of the world, understands the customer’s business, loves to debate, pushes the customer 

Relationship Builder: Builds strong customer advocates, is generous with time to help others, gets along with everyone 

Lone Wolf: Follows own instincts, is self-assured, is independent 

Problem Solver: Responds reliably, ensures all problems are solved, is detail-oriented

Challenger reps are most likely to win

Challenger reps outperform all other profiles. In fact, more than 50% of all star performers in complex sales environments are Challengers.

Challenger rep behaviors build constructive tension

Challengers teach, offering a unique perspective and maintaining two-way communication.

They tailor their approach according to customer value drivers and economic drivers.

And they take control of the money discussion with the customer.

Challengers lead with insight

The Challenger selling approach relies on delivering insight about an unknown problem or opportunity in the customer’s business that the supplier is uniquely positioned to solve.

Challengers capture the customer’s current belief or assumption, expose the flaws or misinformation in that thinking and present a better course of action. The better course of action helps customers learn something new about their business, usually how to save money, make money or mitigate risk.

Keys to a successful Challenger rollout

Companies who achieve the largest commercial impact from Challenger focus on building sustainable capabilities by taking a methodical approach to change management and sustaining momentum over time.

Generate buy-in

Prepare the organization

Align sales and marketing

Equip managers to coach and lead change

Build commercial insights

Design and deliver training

Embed into account planning, opportunity pursuit & CRM

Reinforce the change

Stay ahead of changing customer dynamics