Net Promoter Score is everywhere. Like the 1950’s movie The Blob, NPS has seeped into the cervices of businesses trying to improve customer experience.
While NPS has its value, being reliant on the NPS score as the marker of customer loyalty will lead companies to bad decisions.
The sad reality is that these decisions can be costly, at best. In some cases, they can even decrease long-term customer value.
But you can avoid that fate!
By the end of this article, you’ll know where Net Promoter Score has value, the fundamental drawback to the metric, and what to do about it. Enjoy the upside of NPS and avoid making decisions from bad data.
More importantly, you’ll understand how to improve customer experience to boost company profits.
Better customer experience and higher profits – a winning combination!
The Upside of NPS
The Net Promoter System is seductively simple, and that’s why it has gotten such traction. Originally conceived by Bain & Co. in 2003, the Net Promoter Score provides companies a window into a customer’s inclination to repurchase, refer and more.
As a result of using NPS, you discover how customers feel about their experience by answering one magic question. “What is the likelihood that you would recommend Company X to a friend or colleague?”
The advantage of sending the NPS survey right after a purchase means, it’s real-time. It’s not a look-back.” There’s legitimate value in knowing how customers feel about purchases right after they’ve made them.
So that’s where NPS can be valuable.
The Dangers of NPS
Here’s the problem. Too often, companies use NPS as the be-all, end-all yardstick of customer experience.
Managers are given the imperative to improve the NPS score. Get more “net promoters” and reduce the number of “detractors.”
And, given a goal, managers will focus on achieving it. This is especially true when their performance reviews (and bonuses) are on the line.
With that singular focus, nuance disappears.
NPS doesn’t know how to differentiate between customers. All customer data is dumped into one calculation and treated as equally valid.
When companies try to improve the NPS score, decisions are made to accommodate all unhappy customers.
All scores are treated equally, but all customers are not equal
As I share in Keep Your Customers, the top 20% of a company’s customers account for two-thirds to three-quarters of a company’s revenue.
Even more mind-boggling, that same band of top customers account for 105% – 113% of a company’s net income. By definition, 80% of the customer pool are served at a loss. This doesn’t suggest that every customer below the 20% mark is served unprofitably, but at some point, there’s a demarcation between those customers who make the company money, and those that do not.
And the number of customers served at a loss may be alarmingly high.
Treating all customers as equal can mean companies listen to the wrong voices. Companies can over-rotate to serve unhappy customers, no matter what their actual value to the company.
They make decisions about product lines or marketing platforms to improve NPS. They end up serving the unprofitable many instead of the highly profitable few.
In fact, in an effort to add net promoters, some companies inadvertently reduce or eliminate the products and services the highly profitable love most!
Their effort to boost NPS decreases long-term customer value.
How To Get The Best Of Both Worlds
Fortunately, there’s a simple way to extract the juice of an NPS score without being pulled off-course by listening to the wrong voices.
The NPS score can’t stand alone. It must be aligned with additional customer data.
Some of the data might include:
- Financial contribution, such as how often customers buy and how much they spend.
- The share of wallet you earn.
- The lifetime value of the customer’s spending.
Even better is to understand a customer’s indirect value, in terms of referral and engagement.
By tying NPS score to overall customer contribution, companies have a way to gauge the value of that feedback. Only then will they know if, and how, they want to use it.
NPS is easy, and that’s part of reason it’s been the go-to metric for such a long time. But when companies rely on it too heavily – and especially when they make improving the NPS score a company goal – they can miss important information and undermine their growth goals.
Until companies tie the context of customer value to the feedback they get, they’ll risk making expensive decisions. NPS may lead them to serve unprofitable customers at the expense of the profitable.
Companies win when they evaluate NPS scores in relation to customer contribution.