Welcome to The Net Promoter Score (NPS) Measuring & Improving Customer Loyalty

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Spencer Bryan
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1 A customer feedback program should be viewed not as market research but as an operational management tool. Frederick F. Reichheld December 15, Welcome to The Net Promoter Score (NPS) Measuring & Improving Customer Loyalty ASQ Orange Empire Monthly Dinner Meeting November 14, 2017 Frank G. Adler, Ph.D. Principal & Managing Partner Operational Excellence Consulting LLC December 15,

M.S. Mathematics & Physics, Freie University of Berlin Germany Ph.D. Operations Research & Industrial Economics, Helsinki University of Technology Finland Nokia Mobile Phones 1994 2005 Frank-G.

2 M.S. Mathematics & Physics, Freie University of Berlin Germany Ph.D. Operations Research & Industrial Economics, Helsinki University of Technology Finland Nokia Mobile Phones Frank-G. Adler Specialist, Global Operations & Supply Chain Development - Finland Manager, Operations & Quality Development - Fort Worth, TX Director, Lean Six Sigma & Quality Americas - Irving, TX General Manager, Mexico Operations - Reynosa, Mexico General Manager, US Operations - Fort Worth, TX Magellan Navigation Vice President, WW Quality & Customer Support - San Dimas, CA Angelica Corporation Corporate Director, West Coast - Operations, Logistics & Services Operational Excellence Consulting (OEC) 2012 December 15, The Net Promoter Score A Little Bit of History Net Promoter Score is a customer loyalty metric developed by (and a registered trademark of) Fred Reichheld, Bain & Company, and Satmetrix Systems. It was introduced by Reichheld in his 2003 Harvard Business Review article "One Number You Need to Grow. Today, the Net Promoter Score has been widely adopted with more than two thirds of Fortune 1000 companies using the metric. "Essentially, all models are wrong, but some are useful." George Box December 15,

3 The Net Promoter Score Used in many Industries December 15, A Definition of Customer Loyalty First, a definition. Loyalty is the willingness of someone a customer, an employee, a friend to make an investment or personal sacrifice in order to strengthen a relationship. For a customer, that can mean sticking with a supplier who treats him well and gives him good value in the long term even if the supplier does not offer the best price in a particular transaction. December 15,

a product or service typically reduces a company s Customer acquisition

Customers who are truly loyal tend to buy more over time, as their incomes

The tendency of loyal Customers to bring in new Customers at no charge to

4 Some Benefits of a Loyal Customer True loyalty clearly affects profitability. While regular Customers aren t always profitable, their choice to stick with a product or service typically reduces a company s Customer acquisition costs. Customers who are truly loyal tend to buy more over time, as their incomes grow or they devote a larger share of their wallets to a company they feel good about. Loyal Customers talk up a company to their friends, family, and colleagues. The tendency of loyal Customers to bring in new Customers at no charge to the company is particularly beneficial as a company grows. December 15, Customer Loyalty vs. Growth Rate It is proven that in most industries, the percentage of Customers who are enthusiastic enough to refer a friend or colleague perhaps the strongest sign of Customer loyalty correlates directly with differences in growth rate among competitors. = December 15,

5 Customer Loyalty vs. Customer Satisfaction Rate An even less reliable means of gauging customer loyalty is through conventional customer satisfaction measures. Research indicates that satisfaction lacks a consistently demonstrable connection to actual customer behavior and growth. In some cases, there is an inverse relationship; at Kmart, for example, a significant increase in the company s American Customer Satisfaction Index (ACSI) rating was accompanied by a sharp decrease in sales as it slid into bankruptcy. December 15, The Net Promoter Score (NPS) The Question & Scale On a scale of 0 to 10, how likely are you to recommend this company s product or service to a friend or a colleague? December 15,

6 The Net Promoter Score (NPS) The Categories DETRACTORS Detractors gave a score lower or equal to 6. They are not particularly thrilled by the product or the service. They, with all likelihood, won t purchase again from the company, could potentially damage the company s reputation through negative word of mouth. PASSIVES or NEUTRALS Passives or Neutrals gave a score of 7 or 8. They are somewhat satisfied but could easily switch to a competitor s offering if given the opportunity. They probably wouldn t spread any negative word-of-mouth, but are not enthusiastic enough about your products or services to actually promote them. PROMOTERS Promoters answered 9 or 10. They love the company s products and services. They are the repeat buyers, are the enthusiastic evangelist who recommends the company products and services to other potential buyers. December 15, The Net Promoter Score (NPS) The Metrics On a scale of 0 to 10, how likely are you to recommend this company s product or service to a friend or a colleague? Example: Responses Responses Responses Ʃ = 100 NPS = 17% - 28% = - 11% December 15,

should be viewed not as market research but as an operating management tool.

7 Customer Loyalty vs. Customer Satisfaction Rate p =? 2 R =? December 15, The Net Promoter Score The Objective A Customer feedback program should be viewed not as market research but as an operating management tool. We need more promoters and fewer detractors in order to grow. The goal is clear-cut, actionable, and motivating. December 15,

The Net Promoter Score 2016 NPS Benchmarking Study Each year Satmetrix, the co-developer of Net Promoter, benchmarks leading brands according to their Net Promoter Score (NPS).

8 The Net Promoter Score 2016 NPS Benchmarking Study Each year Satmetrix, the co-developer of Net Promoter, benchmarks leading brands according to their Net Promoter Score (NPS). The research behind the Net Promoter methodology shows that companies with scores higher than their competitive set grow faster and are more successful. How does your company compare? 44, US respondents via opt-in survey Brands Industry Sectors Or more responses per brand Research conducted January & February 2016 December 15, The Net Promoter Score 2016 NPS Benchmarking Study Department / Speciality Stores Grocery / Supermarkets Hotels Online Shopping Shipping Services Banking Airlines Health Insurance Cable / Satellite TV Services Internet Services December 15,

9 The Net Promoter Score Growth by Word of Mouth. Research shows that, in most industries, there is a strong correlation between a company s growth rate and the percentage of its Customers who are Promoters that is, those who say they are extremely likely to recommend the company s products or services to a friend or colleagues. by the way, size does not matter here. December 15, Net Promoter Score Growth Rate vs. NPS December 15,

walks in with a chart of the last 12 months of the organization s Net

The score went down last month and he want s to know why.

10 Net Promoter Score Growth Rate vs. NPS December 15, NPS Estimator Margin of Error (MoE) Your boss walks in with a chart of the last 12 months of the organization s Net Promoter Score survey results and he s not happy! The score went down last month and he want s to know why. Looks like you ll have to hunt around to find a reason for the change; or will you? December 15, CI = ± z MoE z = 1.96 for the 95% Confidence Interval

Detractors December 15, 2017-21 NPS Estimator Margin of Error (MoE) Let us assume: #P = 915, #N = 543, #D = 282 #T = #P + #N + #D =

11 NPS Estimator Margin of Error (MoE) First you need to know more than just the score, you need the actual number of Promoters, Detractors and Neutrals in your sample: #P is the number of Promoters #N is the number of Neutrals (or Passives) #D is the number of Detractors December 15, NPS Estimator Margin of Error (MoE) Let us assume: #P = 915, #N = 543, #D = 282 #T = #P + #N + #D = NPS 100 = #P - #D #T #T = = Mean Value = ( (+1) * (0) * (-1) * 282 ) / 1740 = December 15,

Var NPS = #P +1 NPS 2 + #N 0 NPS 2 + #D 1 NPS 2 #T December 15, 2017-23 NPS Estimator Margin of Error (MoE) Finally, you can calculate the Standard Error (SE) or

12 NPS Estimator Margin of Error (MoE) So, first you can calculate the number of total responses: #T = #P + #N + #D Second, you need to calculate the Net Promoter Score (NPS) or better NPS / 100. NPS = #P - #D #T #T Now you can calculate the Variance of the Sample NPS using the discrete random variable approach. Var NPS = #P +1 NPS 2 + #N 0 NPS 2 + #D 1 NPS 2 #T December 15, NPS Estimator Margin of Error (MoE) Finally, you can calculate the Standard Error (SE) or Margin of Error (MoE) for your sample with the sample size #T. SE = MoE = 2 Var(NPS) 2 #P + #N + #D CI = ± z MoE z = 1.96 for the 95% Confidence Interval December 15,

NPS Estimator Margin of Error (MoE) Example Let us assume: #P =

/ 100 = #P / #T #D / #T = 915 / 1740 282 / 1740 = 0.

13 NPS Estimator Margin of Error (MoE) Example Let us assume: #P = 915, #N = 543, #D = 282 #T = #P + #N + #D = 1740 Therefore NPS / 100 = #P / #T #D / #T = 915 / / 1740 = Therefore VAR(NPS/100) = and SE = NPS = 36.4 ± 1.96*1.8 NPS = [32.9, 39.9] with a 95% Confidence December 15, NPS Estimator Tracking with Margin of Error (MoE) December 15,

14 NPS Comparison Chi-Square Test Analysis Rows: Period Columns: NPS Responses Detractors Neutrals Promoters All Sample Sample A p-value below 0.05 indicates that there is a significant difference between the NPS of Sample 1 and Sample 2. All Chi-Square Test Chi-Square DF P-Value Pearson Likelihood Ratio December 15, Net Promoter Program TOP 10 Best Practices 1. The Net Promoter Score is not just a metrics. The Net Promoter is not a market research but an operational management tool. Sales & Marketing may not be the right home for your Net Promoter Program. The Net Promoter is mostly focused on helping you to understand and improve the day-to-day operations. Collect your Net Promoter Score data as real-time as possible. It is not about gaming the system to move the number. It s about improving the Customer experience. Treat your Net Promoter Program like any major change initiative. December 15,

15 Net Promoter Program TOP 10 Best Practices 2. Brand you Net Promoter Score (NPS) Program. Give your Net Promoter Program a tagline. Ensure that your program is internally recognized. Communicate the value of the Net Promoter Program to all members of the organization. December 15, Net Promoter Program TOP 10 Best Practices 3. Launch your NPS Program properly. Make it visible. Insert the NPS on the Executive dashboard. The NPS should be visible but so should the actions that are taken to change the business. Data Democracy The score is just one element of the closed loop process. Today Customer satisfaction is expected. Employees need to be able (willing & capable) to surprise & delight your Customers. Show the good, the bad, and the ugly. Not just the ugly. Re-launch your Net Promoter Program periodically (e.g. annually) to re-energize it and keep it moving. December 15,

16 Net Promoter Program TOP 10 Best Practices 4. Survey design consistency is vital. For most organizations you will need to add questions to understand what drives the score. No more than 10 questions. Test for correlation. You want the survey as short as possible to drive up the response rate and lower the impact on your customers. Ensure that the survey is consistent from one customer to the next and one wave or transaction to the next. Resist the urge to re-order questions, add new ones, change the wording, etc. Understand how to improve: You know what drives the score but you also need to know how to move the score. December 15, Net Promoter Program TOP 10 Best Practices 5. Be humble and accept that you need to change. The Net Promoter is mostly focused on helping you to understand and improve the day-to-day operations. Consider the humility to recognize flaws and fix problems quickly. Eliminate the distance between the Customer wants and what the company is doing. Too often we are quick to reject feedback from Customers as wrong. How do we improve?, not How do we prove the Customer wrong? December 15,

17 Net Promoter Program TOP 10 Best Practices 6. Create a NPS Improvement Team. To make a Net Promoter Program work you have to have a cross functional team tasked with driving change. Employees know 100% of the Customer concerns because Customers tell them every day. You can t satisfy your Customers with disengaged employees Internal Detractors Passives Promoters enps. Implementing your Net Promoter Program correctly will drive employee engagement. 0 is a special number. These Customers are generally still engaged with your brand. Act on it! December 15, Net Promoter Program Service Recovery Process Make sure that service recovery is one of the very first processes that you implement as you roll out your Net Promoter Program. It is invaluable for two reasons: 1. You win back customers and they are more loyal than ever. 2. You demonstrate to everyone that the program is driving actions and change. For too many companies, after you fill in the feedback form that s the end of the process. You never hear anything about the survey again. Telling customers that you have heard them and are actively considering their input sets you apart from your competitors. December 15,

Net Promoter Program The Single Feedback Loop December 15, 2017-35

18 Net Promoter Program The Single Feedback Loop December 15, Net Promoter Program The Double Feedback Loop December 15,

19 Net Promoter Program TOP 10 Best Practices 7. Instrument the Customer Journey. Get a deep understanding of how Customers perceive each and every interaction with them in your Customer journey. In case your Customers interact with you several times to complete a task, it is best to start with a map of their journey through the process in this map identify the moments-of-truth that are important to the customer can cause drop out or ensure success at each Moment of Truth (MoT) determine the key drivers of satisfaction, where the data to trigger a feedback request will come from and the best channel to present that request Sample customers at each Moment of Truth (MoT) December 15, Net Promoter Program Customer Experience Management RELATIONSHIP NPS SURVEY NPS & Up to 10 Questions Measures Loyalty DETAILED MOMENT OF TRUTH TRANSACTIONAL SURVEYS JOURNEY STAGES Measures Interactions Research Purchase Delivery Pay Bill Usage Get Help FUNCTIONAL ACCOUNTABILITY Website Marketing Sales & Legal Warehouse & Shipping Finance & Collections Product Engineering Customer Support Google Analytics LEADING OPERATIONAL DATA & METRICS Time to Close Fulfillment Lead Time Employee Input Aging Usage Statistics 1 st Call Resolution Employee Input December 15,

Employee Alignment by Role Net Promoter Program Customer Experience Management JOURNEY STAGES Research Purchase Delivery Pay Bill Usage Get Help FUNCTIONAL ACCOUNTABILITY Website Marketing Sales &

Leadership & Steering Team Cross-Functional NPS Improvement Team Account Management December 15, 2017-39 Net Promoter Program Customer Experience Management What if every C-level executive followed

20 Employee Alignment by Role Net Promoter Program Customer Experience Management JOURNEY STAGES Research Purchase Delivery Pay Bill Usage Get Help FUNCTIONAL ACCOUNTABILITY Website Marketing Sales & Legal Warehouse & Shipping Finance & Collections Product Engineering Customer Support Marketing Leader Sales Leader Department Leaders Department Leaders Product Leaders Service Leaders Executive Leadership & Steering Team Cross-Functional NPS Improvement Team Account Management December 15, Net Promoter Program Customer Experience Management What if every C-level executive followed up with a detractor once a month? Would your product leaders benefit from speaking to a sampling of detractors, passives, and promoters who all mention product in their comments? Have you considered a Passive-to-Promoter initiative? Who would be best to follow up with Passives to understand what it takes to garner greater loyalty? Are sales and marketing leaders following up with Promoters for customer advocacy groups, referrals,? December 15,

Net Promoter Program TOP 10 Best Practices 8. Read and share all qualitative responses. There can be a tendency to not read all the text responses from Customers.

21 Net Promoter Program TOP 10 Best Practices 8. Read and share all qualitative responses. There can be a tendency to not read all the text responses from Customers. 4% of responses ask you to take action for the Customer, including providing a quote for more business not something you want to miss. Share the Customer verbatim comments with the entire organization the good, the bad, the ugly. Transparency of this data across the organization is key. December 15, Net Promoter Program TOP 10 Best Practices 9. Understand sample size and margin of error. What changes of your Net Promoter Scores are significant and what are not (sample-to-sample, customer segment-tosegment, product-to-product, site-to-site, )? You generally need larger samples to get the same statistical significance for the NPS than for simple Customer satisfaction. Test 1: Margin of Error Test 2: Chi-Squared Test December 15,

Net Promoter Program TOP 10 Best Practices 10. Don t bother benchmarking your score externally. unless you are going to do it right, i.e. understand the drivers of the score.

22 Net Promoter Program TOP 10 Best Practices 10. Don t bother benchmarking your score externally. unless you are going to do it right, i.e. understand the drivers of the score. The only valid comparison of your Net Promoter Score is to your past trend. Cross-company comparisons are in most cases sheer folly. If you re ahead of your competition are you going to stop driving change? No. If you re behind them are you going to stop driving change? No. Information that drives no change in what you will do is worthless. December 15, Net Promoter Program Recognition & Rewards Recognition and rewards come in many forms, and while compensation is the most obvious way to reward employees, it s a blunt instrument. Why? 15% 20% of Pay is Incentive Compensation 5 6 Annual Objectives or Initiatives 2% 3% Impact for each Initiative!!! If you want to reinforce desired behaviors, small, regular, immediate rewards are often far more effective. December 15,

23 Net Promoter Program Recognition & Rewards Let s take a look, then, at the variety of reward and recognition techniques available. Real-Time Feedback The central technique of the Net Promoter System is to provide customer feedback as soon as possible to each of the employees who were involved in the transaction. Informal and Formal Storytelling Promoter stories can also be reinforced and shared in supervisor-led conversations or team huddles. Peer Recognition For many employees, the most meaningful recognition often comes from colleagues and teammates. Award Competitions Some organizations have competitions to ensure recognition is embedded in the culture and celebrated. Executive Recognition Executives often have more influence than they fully understand, and the symbolic messages they send through the positive reinforcement can have a huge impact on employees. December 15, Perfection is not attainable, but if we chase perfection we can catch excellence. Vince Lombardi OPERATIONAL EXCELLENCE C O N S U L T I N G Frank-G. Adler, Ph.D. Principal & Managing Partner Operational Excellence Consulting, LLC Phone: + 1 (888) frankadler@oec-us.com Website: December 15,

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