Board of Dirs Need to Switch from NPS to CLV Obsession

Net Promoter Score (NPS). It rolls off the tongue easily, boasts catchy single-digit metrics, and finds its way onto every executive dashboard. But beneath the seemingly simple surface lurks a truth that CEOs and Board of Directors need to hear: NPS is a mirage in the customer loyalty desert. While it offers a glimpse of satisfaction, it fails to illuminate the oasis of Customer Lifetime Value (CLV) that truly sustains a business.

Why the NPS Appeal?

NPS's charm lies in its simplicity. A single number, easily quantified and compared, provides a sense of customer sentiment. Boards love its immediate snapshot, its easy integration into dashboards, and its perceived connection to growth. But here's the rub:

• NPS measures emotion, not behavior. A happy customer today might churn tomorrow. CLV, on the other hand, tracks actual transactions and revenue, painting a clearer picture of long-term value.
• NPS ignores context. A "neutral" score could mask both simmering resentment and quiet contentment. CLV, by considering purchase history and engagement, reveals the drivers of true loyalty.
• NPS lacks actionable insights. Knowing sentiment is great, but how do you improve it? CLV analysis pinpoints specific customer segments and behaviors requiring attention, guiding targeted action.

CLV: The True North Star

CLV isn't just a number; it's a philosophy. It shifts the focus from momentary satisfaction to the holistic experience that drives customers to stick around, year after year. Here's why boards need to make the switch:

• Strategic decision-making: CLV identifies profitable customer segments, informing resource allocation and marketing strategies. NPS offers no such guidance.
• Predictive power: CLV analysis forecasts future revenue, enabling accurate financial planning and investment decisions. NPS is a historical snapshot, offering little future visibility.
• Focus on retention: CLV incentivizes strategies that keep existing customers happy and engaged, the most cost-effective path to growth. NPS prioritizes acquisition, potentially neglecting a loyal customer base.

Two examples:

Amazon: Originally a proponent of NPS, shifted focus to CLV. Amazon has increasingly emphasized Prime membership and personalized recommendations, showcasing a focus on long-term engagement and higher order values, key drivers of CLV.

Starbucks: Went beyond NPS by leveraging its rewards program and mobile app to personalize offers and drive frequent visits, demonstrating a focus on building long-term customer relationships and increasing CLV.

Making the Shift: From NPS to CLV Champions

Embracing CLV requires a change in mindset. Here's how boards can lead the way:

• Demand data, not just anecdotes. Encourage deep dives into customer behavior and purchase history, moving beyond NPS surveys.
• Set CLV targets and track progress. Hold all departments accountable for driving CLV alongside other key metrics.
• Invest in tools and expertise. Data analysis and customer segmentation are crucial for understanding and maximizing CLV.

NPS isn't the enemy, but it can't be the sole hero. It plays a role in understanding initial sentiment, but boards need to move beyond the fleeting hype and embrace the wisdom of CLV. It's the true map to navigating the customer loyalty landscape, leading to a sustainable oasis of growth and customer devotion.

So, boards and executives, swipe left on NPS mirage and swipe right on your CLV obsession today. Your future profits and customers will thank you.