The Next Engine: Beyond Campaign Thinking

More and more companies are employing a customer loyalty metric called the Net Promoter Score. NPS, developed jointly by research firm Satmetrix and Fred Reichheld, simply asks customers (on a scale of 1-10) whether they would recommend a given product, service or brand to their friends or family. The resulting score, and its relative movement through time (many now believe) provides a clear and direct correlation between brand loyalty and sales performance.

At its core, NPS seeks to demonstrate a phenomenon that has recently become acutely important for companies to understand and quantify - namely the impact of positive or negative customer referrals on their business.

The issue is now the hottest of hot buttons thanks to the radical behavior being exhibited by consumers on the web. Thanks to the power of the internet as an interactive publishing platform nonpareil, users in their millions are taking the opportunity to publish their opinions, reviews and ratings of the brands they’ve interacted with and the products or services they’ve purchased.

In this context, where the opinion of a trusted reviewer might be seen by thousands, a positive or negative referral is potentially as important (or even more so) than an actual sale - a hypothesis borne out by a recent Satmetrix study that seeks to quantify the value of positive or negative referrals in the computer hardware industry.

Without going into detail, the study shows that each sale resulting from a positive customer experience adds almost 50% to the value of that sale thanks to positive referrals, while each negative experience subtracts more than 90% of the value of the sale. In other words, every two happy customers convince a third person to buy, whereas each unhappy customer convinces a second person to look elsewhere.

It also shows (no surprise) that Apple’s NPS is significantly higher than both the average for the industry as well as its closest competitors.

Three take-aways from this:
1) Companies ignore great customer service (in all forms) at their peril.
2) Brand perception lies with the consumer, and their power to impact sales has never been greater.
3) Net Promoter is a great way to monitor overall brand perception but other more diagnostic metrics should be employed to understand the key issues that are impacting the NPS. Part of the toolbox should be a forensic approach to social media analysis.

All of which is another way of showing how the web continues to change things for the better. As more companies come to appreciate the value of NPS and work hard to improve it, the consumer will continue to benefit from better products and customer service.