Loyalty – How Should You Measure It?
Sam Klaidman
Partnering with midmarket B2B OEM leaders responsible for growing after-sales revenue and profit and improving customer loyalty.
When I was a kid growing up in Brooklyn, my mother always told me “actions speak louder than words.” I would say, “OK” and then forget about it until the next time she mentioned it.
One day a kid in my class picked a fight with me and I overpowered him and said “Give up?”. He said “yes” and, while I still held him, I asked “promise never to start a fight with me again?” He again said “yes,” so I let him go and he ran home. The next day he snuck up to me from behind and again jumped on me. I again overpowered him, and this time I had to threaten great bodily harm to extract a promise of truce. That is when I learned the true meaning of “actions speak louder than words.” His word was meaningless!
What does this have to do with loyalty you ask?
According to Satmetrix – “Net Promoter Score (NPS?) is the most popular and proven metric for measuring and acting on customer loyalty data.” The NPS is based on the answer to this question: “How likely is it that you would recommend our company/product/service to a friend or colleague”?
In other words, people are asked to indicate their intent to recommend the company/product/service to others. Like the kid who promised to never bother me again until he did.
In 1999, I was fortunate enough to read a wonderful book by Mark L. Feldman and Michael F. Spratt titled “Five Frogs On A Log.” The book is about mergers and acquisitions and is scary. The title comes from a child’s riddle:
Five frogs are sitting on a log.
Four decide to jump off. How many are left?
Answer: Five.
Why?
Because deciding and doing are not the same things.
My conclusion is that loyalty, which is a trailing indicator of growth, is best measured by looking at actual outcomes – how often did your company receive a recommendation from a customer. There are two ways to gather the required data:
1. Every time the company gets a lead that was not the direct result of company actions (direct mail, cold calls, unsolicited RFQ), ask how the prospect hear about your company. To be more direct, ask “Did any of our customers recommend us to you?”
2. As part of your ongoing retention activities, ask your current customers “during the past 12 months, have you every recommended us to a friend or colleague?”. If they answer in the affirmative, ask “who?” If they answer in the negative, then follow-up with “did you have a chance to recommend us and decide not to?” If they say “yes,” ask why and take corrective action. Also, ask if they warned the other company to not do business with you.
If you ask the NPS question as part of your customer feedback process, then you should have enough information to compare intent and actual actions. Be prepared to be surprised. Every time I go through this exercise with my clients, I find that most of the NPS promoters have not recommended you. Follow up reveals that the usual reasons include no opportunity, they did not feel your company was a good fit for my friend’s needs, she would have liked to but she works for the government and am not allowed to recommend any company, etc.
Also, I find that many detractors will still recommend your company. Sounds weird to me but when I follow up, I hear things like "I was unhappy with your company when I took the survey but overall you guys do a great job", "you are the best fit for them and would make things work", or "there is really no other choice so I recommended you but warned them about what to watch out for".
As part of your company’s Balanced Scoreboard, I recommend you report Net Recommendors monthly; that is (actual recommendations) – (had an opportunity and did not recommend + specifically told them not to consider you). It is also useful to continue asking the NPS question to find out what your company is doing well (from the promoters) and what is broken (from the detractors).
As in many cases with sales, value, customer experience, and loyalty, it’s all about the outcomes! Fortunately, for me, I learned this lesson early in life and so now it seems obvious. For those of you not fortunate to have learned this as a kid, I hope you will take this post to heart and apply it in your daily activities.
If you like this post you can read similar content at https://www.middlesexconsulting.com/BlogRetrieve.aspx?BlogID=10715
CEO @ Micrima Ltd | Medical Devices | Innovator working to detect more instances of breast cancer, earlier
8 年Hi Sam. Nice piece. For me NPS has always been a useful measure but is one of three factors that combine to provide an accurate gauge on loyalty. For me these are 1. NPS (what does your customer think and say about you). 2. how many recommendations lead to orders. A recommendation is only powerful when your existing customer is passionate enough to not only recommend you but win the deal through the power of their recommendation. 3. growth of your share of wallet with that customer. If they like you that much then they should spread that love in to growth of existing and parrellel product lines. Finally, as we all know. If you handle a customer with a low NPS in the right way they can turn in to your most loyal customers and advocates.
CoLeadership Automation | Mass Conversation Facilitation | Simultaneous, safe, structured, and serious conversations with each and all about moving the whole forward and seeing all things in full potency and potential |
8 年And you are right writing so, Sam. Our repeated research consistently shows NO correlation between intention to recommend and actual referrals. Worse, while often too small an effect to be significant, we see a negative relationship between high NPS and willingness to collaborate towards innovation and change. High NPS customers seem to seek status quo and individual sovereignty (read: "don't ask me anything')
VP Customer Experience Management @ VIEWAR | Driving Growth through Human-Centered Experiences | Co-Creation Expert
8 年Thanks for the post, I'm always happy to read critical thoughts on NPS! I agree that outcomes make more sense. At the same time I think Olaf Hermans comment is very valuable in this discussion. When talking about loyalty, there is more than promoting. I.e. if my customer never promotes my services but is very open and actively co-creating our product, that too show loyalty (which on long term can be even more valuable). A grounded NPS score as you describe it, to me, is only one (good) piece of the puzzle in the loyalty equation.
?? Trusted advisor ?? I introduce leaders. To themselves. ?? And then we build their strengths together.
8 年Never trust surveys you did not fake on your own:-)
Thank You Sam Klaidman for sharing this interesting post on measuring loyalty. After reading your post, some thoughts that came up are 1) If customers continue to buy the same products or its upgraded versions and stick with the same provider - the hypothesis is a relationship exists and there is some value being provided for the customer. 2) In today's context where there are web sites that provide a comparison of similar products or services, my belief is customers may short list a few providers but final decision is vetted with an individual they trust. An example could be to reach out to technology - savvy individual in one's circle when purchasing a electronics product. In such a case this individual is influencing the decision could have a certain loyalty to the provider and their products and services.