Fostering customer loyalty is paramount to any successful business. But how do you measure it effectively? There are plenty of tools and methods available on the market. You can choose from the likes of Repurchase Ratio, Upselling Ratio, Customer Loyalty Index (CLI), and more. But what should you use?
We recommend trying out utilizing Net Promoter Scores (NPS) – a metric that was introduced by Fred Reichheld in 2003. The concept is simple, logical, and powerful. What is it? Well, the short explanation is that you should only have to ask your customers just one question: “How likely are you to recommend us to your friends?” After that, you measure their response on a scale from 1 to 10. Depending on the answer, the customers are divided into three categories:
- Promoters: Those who answered 9 or 10 are your best customers. They're the ones who will most likely buy from you again and will actively recommend you to their friends/contacts.
- Passives: Do you think those who answer 7 or 8 are a loyal customer group? You're pretty much right. They are mainly satisfied with you and will continue to buy, but not enthusiastic enough to actively recommend you.
- Detractors: Customers with a score of 6 or lower are called “Detractors”. They probably won’t buy from you again and won’t recommend you to their friends. Their negative feedback can hurt your business.
Now that you know the three groups, you can easily calculate Net Promoter Score. It's the difference between the percentage of Promoters and the percentage of Detractors. The NPS can be as low as −100 (everybody is a detractor) or as high as +100 (everybody is a promoter). Have you got yourself a positive value? Good! If you have a NPS greater than 50%, that's fantastic!
When doing a Net Promoter Score you need to choose a communication channel in which the 'survey' can be done by your customers. Below are a few examples that are characterized by response rate, cost, and other benefits.
|Communication Channel||Response Rate||Cost||Benefits/Deficiencies|
|25% - 30%||Low||Standard|
|SMS||25% - 50%||Low||More personal, compared to email|
|Web*||20% - 30%||Low||Most effective, combinable with eCommerce|
|IVR||Up to 40%||Moderate||Quite expensive, but a solid channel|
|Phone||Varies||High||Personal, but outdated|
The most effective channel is the web since it can also easily be combined with eCommerce. Do you have an eCommerce presence? All you need to do is create a pop-up survey. A good example of a company who does this is Twitter.
After your NPS is measured, the actual work begins: results analysis, preparation and execution of response plans, and additional measurements. When you've done this, you may realize that your NPS isn't as high as you want it to be.
To boost your Net Promoter Score the following strategies should be considered:
- Empower Promoters to make it easier to promote your brand: Help them share their positive experience through social media, run expert forums, or even provide incentives for loyal customers who refer friends.
- Developing Passives: Ask them open-ended questions to address their real issues, actively engage with them, and always following up after feedback is collected.
- Converting Detractors to your supporters: Close the feedback loop promptly, find ways to make unhappy customers happier by resolving issues with products, better customer service, etc.
So, are you ready to start measuring your customer loyalty with a Net Promoter Score? The truth is that this is a long but enthralling journey. Firstly, you have to create the survey and measure your customers' responses. Than you analyze results and make improvements. After that you must measure one more time and repeat the analysis and improvement steps. Finally, you set up a loyalty target based on the benchmarks across your industry and main competitors.
In the course of this process, you learn a lot about your customers’ true needs and how to serve them better. So while this metric helps you, it also helps them. We wish you good luck and happy customers!
Want to learn more about Net Promoter Scores?
Videos on NPS:
NPS measurement for different companies and sectors:
- Fortune 500 NPS values: https://customer.guru/net-promoter-score/fortune-500
- Manufacturing companies: https://customer.guru/net-promoter-score/industry/manufacturing
- Technology software: https://customer.guru/net-promoter-score/industry/technology-software
- Retailers: https://customer.guru/net-promoter-score/industry/specialty-retailers-other
- Adobe: https://npsbenchmarks.com/companies/adobe
If you’d like to discuss these topics further, SMITH can help.
Whether you’re exploring an evolution in your approach to selling by moving to pure eCommerce or a hybrid approach, looking for an edge in operations optimization with augmented reality, or ready to deploy intelligent replenishment for your customers, we can help.