A recent article in the UK’s weekly ‘Marketing’ journal discusses how big businesses are changing their approach to measuring customer loyalty. T-Mobile, American Express, General Electric, Allianz and more, are increasingly measuring customer loyalty using the Net Promoter Score (NPS) from management consultancy Bain & Co. Put simply, the NPS identifies the percentage of customers that are likely to recommend a brand or company and uses this as a predictor for future growth.
Marketing’s writer suggests this approach to measuring customer loyalty recognises “the power of word of mouth” in marketing. For all of us small businesses this is particularly true - it’s likely a good percentage of your customers, especially at start-up, come from friends, family and other customer referrals.
So what does this mean for you? Putting it simply, if you work on increasing the number of referrals / recommendations you receive, the more likely you are to achieve long term growth. It’s hardly rocket science. However, it does get interesting if you try to apply this to your business. The way to achieve this is something like:
1) Ask every customer to rate how likely they are to recommend your business on a scale of 0-10 (0 being not at all, 10 being highly likely). The top scorers are called promoters, the low scorers detractors.
2) Calculate the percentage score by subtracting the detractors from the promoters. If you have more promoters then you’ll have a positive score, if you have more detractors, you will have a negative score (and an awful lot of work to do).
3) Measure the percentage change between two periods, so for example over a year or two.
4) Identify what you need to do to improve your NPS. This might be done by team brainstorming, or more likely calling any detractors and asking why they had a negative experience. It’s likely that by examining every touch point a customer has with your company, you can easily identify areas for improvement.
5) Create a plan of action for implementing improvements.
6) Measure the impact of your action plan based on changes in your NPS.
I very much like the idea of the Net Promoter Score. The market research industry claims this is dumbing down customer research, but for small businesses it’s a simple tool for what can often be an expensive process. If you use this measure, it’s likely you’ll be doing much more than many of your competitors.
Remember, marketing is all about putting the customer at the heart of your business. What better way to measure if you are doing this well than by understanding how many of your customers are willing to recommend you.
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Customer service