| Net Promoter Score (NPS) is a metric for assessing customer loyalty for a company's brand, products or services. Many companies use NPS as part of their customer relationship management (CRM) strategy because the metric is easy to calculate. The company just has to ask their customers one simple question: "How likely is it that you would recommend us to a friend or colleague?" Answers are assigned a score from zero to 10, with 10 being the most positive. Customers are then divided into three categories: Promoters, Passives and Detractors. Promoters (score: 9-10) are the most loyal, Passives (score: 7-8) are satisfied, yet unenthusiastic, and Detractors (score: 0-6) are unhappy. The Net Promoter Score is calculated by subtracting the percentage of Detractors from the percentage of Promoters. NPS was first introduced in a 2003 Harvard Business Review article by Fred Reichheld entitled "The One Number You Need to Grow." Reichheld felt that it was important for a company to know how many of its customers were assets and how many were liabilities. By correlating the customer's subjective response to an objective number, the metric can legitimately be used to drive a company's internal priorities. Reichheld maintains that the Net Promoter Score can be used as a key performance indicator (KPI) for growth because loyalty, in his estimation, is the most important factor for generating sustainable growth. His research found that companies with a better ratio of Promoters to Detractors grew more quickly than their competitors when they maintained an NPS within a 50-80 overall range. Subsequent research from others has challenged that conclusion and NPS detractors recommend that if an NPS score is used, it should be supplemented with additional questions to provide the company with insight into customer motivation so actionable items can be identified. |
Showing posts with label NPS. Show all posts
Showing posts with label NPS. Show all posts
Friday, July 18, 2014
Net Promoter Score
Saturday, January 12, 2013
How the Net Promoter Score Helps You Benchmark Customer Loyalty [INFOGRAPHIC]
How the Net Promoter Score Helps You Benchmark Customer Loyalty [INFOGRAPHIC]
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Just how loyal are your customers? Think about this: A Harvard Business Review study found that 48% of customers who had negative experiences with a company told 10 or more people. Eek! Talk about some bad word of mouth! Not exactly something you want in a business, is it? So if you don't have a clue about how satisfied your customers are with your products or services, you might want to consider putting a system in place to figure out just that.
Luckily, there's a pretty simple survey method to help you determine how loyal your customers are. The Net Promoter Score, or NPS, is a customer satisfaction metric that measures, on a scale of 1-10, the degree to which people would recommend your company to others. To calculate NPS, you subtract the percentage of "detractors" (customers who wouldn't recommend you) from the percentage of "promoters" (customers who would recommend you). Obviously, the fewer detractors, the better. Regularly determining the NPS for your business allows you to establish benchmarks for your business so you can figure out how to improve the loyalty of your customers.
Interested in learning more about how NPS works? Check out the helpful infographic from referral marketing software company Ambassador below for more information, including some industry NPS averages, how some big brands fare, as well as the benefits of building a loyal customer base ... referrals!
(Click infographic to enlarge.)
Want to know more about customer loyalty and retention? Then the following HubSpot blog posts are just for you!Read more: http://blog.hubspot.com/blog/tabid/6307/bid/34041/How-the-Net-Promoter-Score-Helps-You-Benchmark-Customer-Loyalty-INFOGRAPHIC.aspx#ixzz2HkCbPc44
Tuesday, October 23, 2012
7 Customer Loyalty Programs That Actually Add Value
According to Inc., it costs a business about 5-10 times more to acquire a new customer than it does to sell to an existing one -- and on average those current customers of yours spend 67% more than a new one. So, what are you doing to keep your customers coming back to your business? If you’re like 65% of marketers, your company has implemented a loyalty program.
But is it working? According to the 2011 Colloquy Customer Loyalty Census, of the $48 billion worth of perceived value in reward points and miles distributed by American businesses annually, one-third goes unredeemed by consumers. Companies lose money on time and effort, and customers get no more value from the businesses to which they are "loyal."
So how do you keep your business out of that one-third segment? How do you convey enough additional value in your programs to keep your customers coming back? It’s time for marketers to look beyond convoluted rewards systems and offer actual value to customers using their loyalty program. To get you started, here are some ideas for customer loyalty programs that might work for your business.
7 Customer Loyalty Program Ideas for Your Business
1) Use a Simple Points System
This is the most common loyalty program methodology. Frequent customers earn points, which translate into some type of reward. Whether it’s a discount, a freebie, or special customer treatment, customers work toward a certain amount of points to redeem their reward. Where many companies falter in this method, however, is making the relationship between points and tangible rewards complex and confusing. Fourteen points equals one dollar, and twenty dollars earns 50% off your next purchase in April! That’s not rewarding, that’s a headache. If you opt for a points-based loyalty program, keep the conversions simple and intuitive.
One example of a company using a points-based loyalty program well is Boloco. They speak the language of their audience by measuring points in dollars, and rewards in food items. Customers swipe their stylish Boloco card at every purchase and the card tracks the amount of money spent. Every $50 spent earns the customer a free item. Doesn’t matter if they choose a super jumbo burrito or an extra small smoothie - it’s free after $50. This is an example of a company simplifying points with an accessible customer reward system.
Although a points system is perhaps the most common form of loyalty programs, it isn't applicable to all business types -- this type of loyalty program is most appropriate for businesses that encourage frequent, short-term purchases.
2) Use a Tier System to Reward Initial Loyalty and Encourage More Purchases
Finding a balance between attainable and desirable rewards is a challenge for most companies designing loyalty programs. One way to combat this is to implement a tiered system. Offer small rewards as a base offering for being a part of the program, and encourage repeat customers by increasing the value of the rewards as the customer moves up the loyalty ladder. This helps solve the problem of members forgetting about their points and never redeeming them because the time between purchase and gratification is too long.
Virgin Airlines’ Flying Club inducts members at the Club Red tier, then bumps them up through Club Silver and Club Gold. Club Red members earn miles on flights and get discounts on rental cars and hotels. Club Silver members earn 50% more points on flights, expedited check-in, and priority stand-by seating. Club Gold members get double miles, priority boarding, and access to exclusive clubhouses where they can grab a drink or get a massage before their flight. The key is to offer benefits in the early stages to hook the customer into coming back. Once they do, they’ll realize that "gold" status isn’t unattainable, and offers really cool benefits.
The difference between points and tiered systems is that customers extract short-term versus long-term value from the loyalty program. You may find tiered programs work better for high commitment, higher price-point businesses like airlines, hospitality businesses, or insurance companies.
3) Charge an Upfront Fee for VIP Benefits
Loyalty programs are meant to break down barriers between customers and your business -- are we seriously telling you to charge them a fee? In some circumstances, a one-time (or annual) fee that lets customers bypass common purchase blockers is actually quite beneficial for business and customer alike. By identifying the factors that may cause customers to leave, you can customize a fee-based loyalty program to address those specific barriers.
In 2011, eCommerce shopping cart abandonment hit a record high of 72%, and is still rising. This abandonment is often caused by "sticker shock" after tax and shipping prices have been applied. ECommerce giant Amazon found a way to combat this issue in their loyalty program called Prime. For $79 annually, Prime users get free 2-day shipping on millions of products with no minimum purchase, among other benefits.
This program is innovative because it charges loyal customers while providing enough in return for those frequent shoppers to realize the benefits. Analysts estimate that Amazon actually loses about $11 annually for each Prime subscriber, but makes up for it in increased transaction frequency that would not have otherwise happened without their exclusive benefits.
Clearly this system is most applicable to businesses that thrive on frequent, repeat purchases. For an upfront fee, your customers are relieved of inconveniences that could impede future purchases. Amazon has mastered this for eCommerce, but this loyalty program model also has potential to work for B2B businesses who deliver products to businesses on a regular basis.
4) Structure Non-Monetary Programs Around Your Customer's Values
Really understanding your customer means understanding their values and sense of worth. And depending on your industry, your customers may find more value in non-monetary or discounted rewards. Every company can offer promotional coupons and discount codes, but businesses that can provide value to the customer in ways other than dollars and cents have an opportunity to really connect with their audience.
Patagonia, an eco-friendly outdoor apparel company, realized that their customer needed more than just points and discounts from a loyalty program. Late last year, the company implemented its Common Threads Initiative. In it, they partnered with eBay to help customers to resell their highly-durable Patagonia clothing online through the company website.
This program builds on their brand of sustainability and creating a high-quality product, and it matches perfectly with the company’s customer persona by providing a value that they really care about. So before implementing a loyalty program of this nature, be sure you’ve researched and designed an in-depth customer persona!
5) Partner With Another Company to Provide All-Inclusive Offers
Strategic partnerships for customer loyalty, also known as coalition programs, can be extremely effective for customer retention and company growth. Again, fully understanding your customers every-day lives and their purchase process will help determine which company is a good fit as a partner.
American Express has a huge partner base with companies across the country. Their recent Twitter Sync campaign rewards customers for tweeting about them by syncing discounts and deals with Twitter #hashtags. According to Visibli.com, cardholders have redeemed over $2,000,000 in rewards. Participating companies that are benefitting from their coalition with Amex include Whole Foods, Staples, and Zappos.
Luckily, you don’t have to be a multi-million dollar credit card company to implement a partnership plan. This methodology is applicable on a much smaller scale, as long as you understand how individual customers experience your product or service and what would fit best for them.
For example, if you’re a dog food company, partner with a veterinary office or pet grooming facility to offer co-branded deals for mutual benefits for your company and your customer. The target audience obviously owns a dog, so any services that dog will require offer added value from your company. Providing customers with value beyond even what your company can offer will show that you understand them, and grows your network to reach your partners’ customers, as well.
6) Make a Game Out of It
Who doesn’t love a good game, right? Turning your loyalty program into a game is a fun way to encourage repeat customers and, depending on the type of game you choose, help solidify your brand's image.
GrubHub, an online food ordering and delivery website, started Yummy Rummy late last year. Once customers place three unique orders through GrubHub, regardless of price, they get to play a game for a chance of winning free stuff. Players choose one of four cards and have a 25% chance of winning a free dessert, drink, gift card or other cool stuff.
It’s important that customers understand you’re not duping them out of rewards, though. The odds should be no lower than 25% and the purchase requirements to play should be attainable. This type of loyalty program has potential to backfire if customers feel like your company’s jerking them around to win business. Executed properly, however, this type of program could work for almost any type of company, even an off-the-beaten-path B2B company. If your audience enjoys having a little fun and purchases frequently, this type of program can make the buying process fun and engaging.
7) Scratch the 'Program' Completely
Considering how many marketers are offering loyalty programs (whether they are effective or not is another story), one innovative idea is to nix the idea all-together. Build loyalty by providing first-time users awesome benefits, hooking them, and offering those benefits with every purchase.
The concept sounds simple, but one of the most innovative companies on thehttp://blog.hubspot.com/blog/tabid/6307/bid/31990/7-Customer-Loyalty-Programs-That-Actually-Add-Value.aspx planet implements this strategy: Apple. Even the most loyal Apple customers don’t get special rewards or discounts ... because they don’t offer them to anybody. Apple "enchants" customers by delighting them with a product or service the first time. The loyalty is voluntary and long-lasting, according to Apple evangelist Guy Kawasaki. Apple has plenty of supporters, both online and off, ready and willing to rave about their product. For them, loyalty happen organically.
This minimalist approach works best for companies whose products or services are unlike any other. That doesn't necessarily mean that you offer the lowest price, or the best quality, or most convenience -- I’m talking about redefining a category. If, like Apple, your company is pioneering a new product or service, a loyalty program may not be necessary. Customers will be loyal because there are few other options as spectacular as you, and you have communicated that value from your first interaction.
Measuring the Effectiveness of Your Loyalty Program
As with any initiative you implement, there needs to be a way to measure your marketing success. Customer loyalty programs should increase customer happiness and retention; and there are ways to measure these things besides in rainbows and sunshine. A lot of ways, actually. Different companies and programs call for different analytics, but here are a few of the most common metrics companies watch when rolling out loyalty programs.
Customer Retention Rate: This metric is an indication of how long customers stay with you. With a successful loyalty program, this number should increase over time as the number of loyalty program members grows. Run an A/B test against program members and non-program customers to determine the overall effectiveness of the loyalty initiative. According to Fred Reichheld, author of the Loyalty Effect, a 5% increase in customer retention can lead to a 25-100% increase in profit for your company.
Negative Churn: Churn is the rate at which customers leave your company; negative churn, therefore, is a measurement of customers who do the opposite -- upgrade, or purchase additional services. These help to offset the natural churn that goes on in most businesses. Depending on the nature of your business and loyalty program, especially if you opt for a tiered loyalty program, this is an important metric to track.
Negative Churn: Churn is the rate at which customers leave your company; negative churn, therefore, is a measurement of customers who do the opposite -- upgrade, or purchase additional services. These help to offset the natural churn that goes on in most businesses. Depending on the nature of your business and loyalty program, especially if you opt for a tiered loyalty program, this is an important metric to track.
Net Promoter Score: NPS is a customer satisfaction metric that measures, on a scale of 1-10, the degree to which people would recommend your company to others.
NPS is calculated by subtracting the percentage of detractors (customers who would not recommend your product) from percentage of promoters (customers who would recommend you). The fewer detractors, the better. Improving your net promoter score is one way to establish benchmarks, measure customer loyalty over time, and calculate the effects of your loyalty program. A great NPS score is over 70% -- your loyalty program can help get you there!
Customer Effort Score: CES asks customers, "How much effort did you personally have to put forth to solve a problem with the company?" Some companies are vying for this metric over NPS because it measures actual experience rather than the emotional delight of the customer. A Harvard Business Review study found that 48% of customers who had negative experiences with a company told 10 or more people. In this way, customer service impacts both customer acquisition and customer retention. If your loyalty program addresses customer service issues, like expedited requests, personal contacts, or free shipping, this may be one way to measure its success.
Have you implemented a customer loyalty program? Share what tactics worked (and what didn't) in the comments!
Image credit: joelogon
Read more: http://blog.hubspot.com/blog/tabid/6307/bid/31990/7-Customer-Loyalty-Programs-That-Actually-Add-Value.aspx#ixzz2A7aomgJa
Tuesday, December 27, 2011
Understanding Net Promoter Score (NPS) with an example
Beyond Philosophy, a global customer experience consultancy, and Hachiko, an Indonesia-based customer loyalty consultancy, partnered to conduct a Net Promoter Score study among more than 2,700 respondents in Indonesia.
Respondents were first asked how likely they are to recommend each of the main competitors in a range of sectors. Next they were asked to rank the extent to which they feel certain emotions toward each of these companies. The results were then benchmarked against Beyond Philosophy's database of more than 25,000 interviews.
The results were interesting from both a local market and an international perspective. The most intriguing result came from our analysis of emotional profiles by industry sector. When broken out by sector, we saw far better numbers when comparing them to our Overall Business Index (an index of more than 25,000 interviews across a variety of sectors and countries).
For example, Figure 1 illustrates that if we compare Net Promoter Scores in the banking sector in Indonesia with our overall financial industry index, the positive emotions (the greens) are at the 7-8 point range for Indonesia vs 4-6 point range for the financial services index (the black line), while at the same time the negative emotions (the reds) are felt to a much lesser extent in the Indonesia banking sector compared to the financial services index (the black line).
Figure 1
If people in Indonesia are saying that they feel the positive emotions to such an extent and almost don't feel negative emotions toward businesses in Indonesia, you would expect that they would be willing to recommend those businesses. This, however, is not the case.
As you can see in figure 2, when we asked individuals how likely they were to recommend a brand, 76 percent were passives (responding between 7 and 8) vs. 29 percent of those in our global NPS index. However if we compare the NPS scores, we'll see that they are almost the same: -4 percent for Indonesia vs -3 percent for our global NPS index. Therefore, there seems to be a cultural bias in Indonesia for people anchoring their responses toward the 7-8 range on a 0-10 scale, being shy to give a low score but also equally shy or not convinced enough to give the highest score.
Figure 2
Implications for Market Research
The implication for marketers is that if you ask people what they think of a certain product or service, you may well get encouraging results, but you shouldn't be fooled by them.
However, we don't recommend avoiding market research; you just need to dig deeper in order to uncover the drivers of consumer behavior. That's what we did, and we found interesting results when we applied a proprietary analysis method using structural equation modelling (SEM), which is used to identify causal relationships, not just correlations. We looked at:
- the main touch points in different sectors,
- the customers' emotional response to them, and
- the value outcomes businesses seek (e.g. spend, likelihood to recommend, likelihood not to discourage someone from using a brand).
We found "Warm welcome and goodbye" to be a driver of value for the banking sector as a whole. Businesses in Indonesia should not overlook this point, and businesses across the globe should consider that this may or may not be the case for the banking sector in their markets.
In the Automotive sector, we found that "timeliness of product delivery" was an important factor in the experience, as often there have been delays dues to shortage of stock. An interesting finding in the SUV car sector showed the importance on focusing on emotions that drive value. The interactions with employees were making people feel "safe," "cared for" and "pleased." In other words, Indonesian automotive sales managers were emphasizing these emotions in the SUV sales process. However, those emotions were not driving value in the SUV sector. The emotions that were driving people to recommend a brand and spend more were "happy," "interested," "stimulated" and "valued."
In the telecom sector, we found that the feeling of indulgence was a particular driver for the market leader.
Other key differentiators for the sector market leaders were the timeliness of delivery and their company promises. The former relates to the notion of a trustworthy relationship, while the latter gives subconscious clues about the organization. Overall, the biggest driver of spend across all industries was interactions with employees. Again this brings to the surface a key cultural peculiarity – in Indonesia people highly value personal relationships, and once they're in place business will follow.
The message is clear: regardless of the market, it's of utmost importance to take local cultural differences into account when conducting your market research, when designing your experience and when doing business. If you consider the cultural biases you may find in your research, think about cultural perspectives when assessing your key touch points, and make sure you understand which key emotions drive value for your business in that region, you will eliminate a multitude of factors that can hurt your business and set the stage for success.
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