Posted by: Bill von Achen | May 14, 2010

Customer Loyalty and the Net Promoter Score

As business leaders, we instinctively know the importance that satisfied customers and clients play in the ongoing growth and success of our companies.  Satisfied customers are a primary source of repeat business for existing products and services, and usually represent the most receptive prospects for new offerings.  And satisfied customers can serve as a strong referral point for business with new customers.   

So it’s surprising how few companies maintain effective programs for measuring customer satisfaction and customer loyalty.  In a recent informal poll of the members of our Best Practices Boards peer group program, a mere 20% of respondents have attempted to measure their customers’ overall satisfaction with their company’s products and services.  And, among those who do, only a handful have a formal program in place that enables them to gauge customer satisfaction with sufficient regularity to provide meaningful and actionable data.   

The reasons for not engaging customers in formal and active discussions about their satisfaction are varied (in some instances, it’s as plain as simply not asking!).  But, in many cases, it boils down to the difficulties of connecting the information that comes from traditional customer satisfaction and loyalty assessment efforts with the strategic and operational changes necessary to directly improve customers’ overall attitudes.  Clearly, what’s called for is an assessment approach that creates a clear link between the data and the requisite action.

For some of our clients, the Net Promoter Score (NPS) method comes closest to making this connection.  The concept of the Net Promoter Score was originally outlined by Bain & Company consultant Fred Reichhold in his book The Ultimate Question (Harvard Business School Press, 2006), and has taken hold in global organizations and small businesses alike.

In brief, the idea behind the Net Promoter Score is that that successful companies who achieve sustained growth and success continually work to create satisfying, long-term relationships with customers and clients.  These loyal customers become unofficial promoters of the company and its products and services.  Therefore, the ‘ultimate’ question to ask your customers is “How likely is it that you would recommend Company X to a friend or colleague?” 

For Reichhold, the Net Promoter Score crystallizes the link between the quality of the relationship that a company has with its customers and that company’s overall growth prospects.  As proof, he points to extensive research demonstrating that companies who achieve long-term profitable growth have Net Promoter Scores that are twice that of their average competitors.  And, companies with high Net Promoter Scores outgrow their competitors by an average of 2.5 times.

Extensive excepts of The Ultimate Question are available at no charge through Google Books at http://tinyurl.com/23ot2rh.

Have you used the Net Promoter Score method in your business to assess customer/client satisfaction and loyalty?  If so, how has it changed the way you operate?  If you haven’t used the Net Promoter Score, what methods do you use to gauge customer satisfaction?  Contribute your thoughts and ideas by commenting on this post.


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