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Why net promoter score is not enough for SMEs to know their customers

NPS is quick and simple but it is only a health check, not a detailed diagnosis needed to plug the gap, if any, in customer experience

November 06, 2021 / 10:49 AM IST
Representative image

Representative image

Many clients we work with for strategy execution and alignment use the net promoter score (NPS) as a measure for some of their customer value objectives.

NPS was conceived as a means to help managers find a better way to know how customers feel about the company and establish accountability for the customer experience. Yes, it is a simple measurement and it is only the tip of the iceberg.

Just like any customer satisfaction research, this too requires an action plan and figuring out ways to convert detractors.

It is a dream of every company to have many of their customers as advocates of their brand but the problem is defining which customer is loyal and can be persuaded to drive the company brand in public. That's when one of the big consulting firms went on to invent NPS, some 15 years ago.

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Because the marketing was good, marketers started to look at one metric as an answer to all their problems. Unlike the traditional CSAT surveys, NPS helped to know how customers felt about a company and established accountability for the customer experience.

The NPS survey mainly correlated the score on one question, “How likely are you to recommend company/brand X to a friend or colleague?” with repurchases or referrals.

On a scale of 1-10, customers rate their likelihood of recommending a company or brand and they are sorted into three categories based on their responses—promoters, with the rating of 9-10, are likely to keep buying from the company and refer other customers. Passives, with a 7-8 rating, are satisfied but not keen to recommend to others. Detractors, with a rating from 1-6, are unhappy and can damage the company or brand with a negative word.

Marketers take this as the easy measure because of its simplicity but there are as many negatives about this measure as there are positives.

Yes, on the positive side, it is simple, findings are easily understandable and can be benchmarked. With normal CSAT studies, customers may interpret questions wrongly and the results could be misleading.

It is relevant in this digital era, and with social media, customers can really bad mouth a brand. The difficulty before NPS was that there was no particular number one could depend on to measure customer happiness.

For example, if a CSAT result says your company scored 7.4, what does that mean? Compare this with something like 65 percent of your customers are promoters as an answer. Such a result will help to communicate better within the company for buy-in to improve customer experience.

Because it is a number that is applied to all companies that have customers, you can also compare your score with other companies in the same industry or similar industries.

There are some downsides to it as well.

For one, it is trying to measure the relationship and not just the transaction. On its own, it may be good but the customer is quizzed immediately after his or her transaction on the likelihood of recommending the company to someone else.

In the past, customers were asked how likely they would recommend and why but now it is refined to asking a question on the transaction itself.

The downside

For one of our retail clients, NPS is measured by catching hold of a random customer post his check out and asked about the likelihood of her recommending the retail chain to others and then asked about how the shopping experience was?

When you do that right after a specific transaction, you may get responses that have very little to do with their real intention. If their experience is pleasant, they will rate high but if it is not, the rating will be bad.

The second downside is that NPS is only a health check and not a detailed diagnostic. If one is trying to improve a product feature or service element, it will not be much of help in providing insights.

We will have to then plan a more detailed CSAT study. Essentially, we will have to do progressive surveying with the NPS score as the first question. Based on the answer we get, we can plan different sets of questions to probe further. That may address the details behind the score.

Third, the NPS route may result in tunnel vision. This is because it ignores the employee sentiments totally and focuses only on an indication of where the company is heading in terms of providing the right customer experience.

If we want to improve our ability to get customer loyalty, we need to focus on the motivation, enthusiasm and innovative thinking of our employees.

The key to avoiding this is to ensure proper communication to, and authority for, the frontline folks and enable them to convert customers to advocates at the moment of truth.

To use an analogy for NPS, it is like measuring your weight. To lose the extra kilos, you need to change your mindset as well as behaviour.

In addition, customers who fall into each of the three categories require distinct communications.

For example, if you have a large number of detractors, you will want to plan a quick service recovery action and reach out to them.

With the Passives, you may want to know more about why they are ok with you but not ok for referring others to you. And you will need to reach out to the Promoters for effective ways to acquire new customers and public advocacy.

It is always good to measure NPS but use it only as a starting point and not an end in itself. You need to begin a journey of dialogue with your customers.
M Muneer is the managing director of CustomerLab Solutions, a consulting firm.
first published: Nov 6, 2021 10:49 am

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