Measuring the customer satisfaction – NPS

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For any startup/ business it is necessary to track the satisfaction or loyalty of their customer.
When it comes to e-commerce, it becomes more important as your customer is only one click away from the competitor.

How do you calculate the satisfaction?

Actually, the satisfaction is a subjective thing. You may include hell lot of questions, but you will always feel that I am missing something. So, you need to have a metric which can provide you the direct answer to the satisfaction.

What is NPS?

Net Promoter Score, is the answer to your need.NPS is a customer loyalty metric developed by (and a registered trademark of) Fred Reichheld, Bain & Company, and Satmetrix. It was introduced by Reichheld in his 2003 Harvard Business Review article “One Number You Need to Grow”. NPS can be as low as −100 (everybody is a detractor) or as high as +100 (everybody is a promoter). An NPS that is positive (i.e., higher than zero) is felt to be good, and an NPS of +50 is excellent.

The Net Promoter Score is a measure of customer loyalty and is based on a single question: How likely is it that you’ll recommend this product to a friend or colleague? The response options range from 0 (Not at all likely) to 10 (Extremely likely). Responses are then bucketed into the following segments.

Promoters: Responses from 9-10
Passives: Responses from 7-8
Detractors: Responses from 0 to 6

Subtracting the proportion of detractors from the proportion of promoters and converting it to a percent gets you the Net Promoter Score. For example, 100 promoters and 30 passive and 80 detractors gets you a Net Promoter Score (NPS) of 9.5% (20 divided by 210). This mean there are 9.5% more promoters than detractors. A NPS of -10% means you have 10% more detractors than promoters.

Net Promoter Score (NPS) measures the loyalty that exists between a Provider and a consumer. The provider can be a Company, employer or any other entity. The provider is the entity that is asking the questions on the NPS survey. The Consumer is the customer, employee, or respondent to an NPS survey.
NPS is based on a direct question: How likely are you to recommend our company/product/service to your friends and colleagues? The scoring for this answer is most often based on a 0 to 10 scale.Companies are encouraged to follow this question with an open-ended request for elaboration, soliciting the reasons for a customer’s rating of that company or product. These reasons can then be provided to front-line employees and management teams for follow-up action.Local office branch managers at Charles Schwab Corporation, for example, call back customers to engage them in a discussion about the feedback they provided through the NPS survey process, solve problems, and learn more so they can coach account representatives.
Additional questions can be included to assist with understanding the perception of various products, services,and lines of business. These additional questions help a company rate the relative importance of these other parts of the business in the overall score. This is especially helpful in targeting resources to address issues that most impact the NPS. The NPS marketplace is dominated by providers that offer a full suite of metrics, reporting, analytics, best practices and consulting services. In the most advanced systems promoters are given the opportunity to promote immediately using social media connectors.
The primary purpose of the NPS methodology is to evaluate customer loyalty to a brand or company, not to evaluate their satisfaction with a particular product or transaction. Legacy survey methodologies have focused on the satisfaction of a customer with a particular transaction and are more subject to the mood of the customer and environmental factors such as news articles and competitor messaging. The ability to measure customer loyalty is a more effective methodology to determine the likelihood that the customer will buy again, talk up the company and resist market pressure to defect to a competitor.
When a provider factors in the customer acquisition cost to the overall profitability of a consumer account, the longer a consumer stays active and resists defection the more profitable the relationship can be for both parties. Measuring the value of the relationship after costs gives the provider a clear view of how to attract and retain the most profitable consumers and how to most effectively invest in and develop those relationships.
Net Promoter methodology also includes a process to close the loop. Closing the loop is a process by which the provider actively intervenes to change a negative perception and convert a detractor into a promoter. The Net Promoter survey will identify a detractor and should automatically alert the provider to contact the consumer and manage the followup and actions from that point.
Proponents of the Net Promoter approach claim the score can be used to motivate an organization to become more focused on improving products and services for consumers. They further claim that a company’s Net Promoter Score correlates with revenue growth. Discussed at length in The Ultimate Question: Driving Good Profits and True Growth by Fred Reichheld, and “Answering the Ultimate Question” by Satmetrix Executives Richard Owen and Laura Brooks, the Net Promoter approach has been adopted by several companies, including E.ON, Philips, GE, Apple Retail, American Express, and Intuit.It has also emerged as a way to measure loyalty for online applications, as well as social game products.

A customer is able to leave comments in the surveys sent to them. This is what allows a company to use the VOC (Voice of Customer) to ensure that company is meeting the expectations.
The same methodology can be used to measure and evaluate employee satisfaction with their employer. Tracking and managing the internal score is a way that companies can keep a focus on their culture. This measures more than just an employees satisfaction with common KPI points in the company. It expands to include the importance of various factors rather than just focussing on list of workplace issues to improve.

Criticism:

Many analysts or businesses claim that this NPS score is not a true or actionable metric. It doesn’t give you the actionable factors to work upon.
It is the same thing like temperature of your body is not giving you the medicines you must take. It just tell that your body have some problem and you have to look into it.
The same thing is with the NPS, it gives you the insight that your customer are not satisfied, it is giving you the overall satisfaction score of your consumer.

Some Insights Generated out of NPS:

NPS gives you the score of consumer satisfaction, you can also bucket them in different criteria. Few, survey companies came with few insights –

• Retention rate. Promoters generally defect at lower rates than other customers, which means that they have longer, more profitable relationships with a company.

• Annual spend and share of wallet. Promoters increase their purchases more rapidly than detractors, because they tend to consolidate their purchases with their favorite supplier. They are more interested in new offerings and brand extensions than detractors are.

• Pricing. Promoters are often less price sensitive than other customers, particularly detractors. Examine the market basket of goods or services purchased by each group over a six-to-twelve-month period and then calculate the margin on each basket. While many loyal customers expect “the best deal” you have to offer, others stay with you for reasons other than price. It’s important to know which of your promoters are price sensitive and what impact that has on your financial performance.

• Cost efficiencies. Promoters typically require less in sales, marketing and advertising costs than other customers. Moreover, their average order size is typically larger, leading to lower transaction costs per unit of revenue. They generally have fewer complaints and account for fewer credit losses. Their positive attitudes have a hard-to-quantify but important effect on boosting employee morale and productivity.

• Word of mouth. Promoters generate 80 percent to 90 percent of referrals. Quantify (by survey if necessary) the proportion of new customers who selected your firm or product because of reputation or referral, and allocate the value of those customers to promoters. Conversely, detractors account for most negative word of mouth, so allocate the cost of this drag on growth to them.

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Mohit Bansal(23) is B.Tech in Electronics and Communication Engineering from Indian School of Mines, Dhanbad, India. He has interest in business and entrepreneurship and has published couple of research articles. He is also associated with various NGOs. He is with Techaloo when it was just in concept stage. The Techaloo site was not existing even then. Currently Mohit is working with Mu Sigma as a Business Analyst Profile.

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