NEWS EXTRA
NET PROMOTER SCORES AND THE MERCHANT
Adam Bernstein on how Merchants can use a Net Promoter Score to attract more customers and be on top of their game...
COMPETITION AMONG MERCHANTS is strong. There are numerous suppliers selling product that is almost universally available. So, what makes a tradesman go to one merchant over another? Some might cite proximity to a job, others might say it’s because they have product in and at the right price. But all things being equal, there’s another factor – that the trade both like and has confidence in the particular merchants they buy from. Of course, it is possible to run a business on a diet of ‘one-hit wonder’ customers, but it’s a time consuming and expensive way of generating business. It’s much better to win and keep custom by understanding buyer’s lifetime value through studying their loyalty to the merchant. One way of doing this is to generate what is termed a ‘Net Promoter Score’.
The Net Promoter Score Quite simply, a Net Promoter Score (NPS) is a loyalty tool developed by Fred Reichheld of Bain & Company, and Satmetrix, that was introduced in 2003. It’s used to monitor and gauge the loyalty of a business relationship, irrespective of whether it’s business to consumer or business to business. The key benefit of NPS is that it gives insights into elements of a relationship such as customer satisfaction, effectiveness of communications and how well customer service is judged. Ian Cass, managing director of the Forum of Private Business (FPB), believes it to be a very effective way of measuring customer experiences as “you can see if the customer would recommend you to others, with answers based on a zero to 10 scoring method.” Cass says that the size or sector of the business concerned does not matter because it’s the understanding of the customer experience that is important as “it allows the business
to keep improving.” He adds: “It is a great tool for driving a strategy for business performance; it can also improve a business model as it provides a metric measurement which is important, especially from a purchaser’s point of view.”
NPS calculations Essentially NPS asks a series of “why” and “would” questions which return scores of between zero to 10.
Cass illustrates how the process has worked for the FPB. “From our perspective, we’ve asked many members for their opinions over the years, from looking at changes to government policy to business rates and budgets. And because we often have lots of questions that we want to ask our members we look to condense what we ask into a 20 – 30 second questionnaire which is great for our members to answer quickly.”
So, under an NPS scoring regime a standard has been established. If a response scores:
9-10 customers are labelled as a promoter. They are likely to buy again and promote the business to others as a recommendation. They are a great advocate for the business to have and they will be a loyal customer in the future. 7-8 customers are labelled as passive. These people fall in the middle of being a promoter or detractor. They are undecided and do not want to commit and so do not give active responses to the questions and try to remain impartial.
0-6 customers are labelled as detractors. A detractor can be detrimental to a business as they can become negative and give comments that will influence others and they may not complete business transactions. The problem for businesses faced with detractors is that the web feeds the subconscious. As
August 2018
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Cass remarks: “Buyers today may look at comments made about the products and services of a business and this can have a negative or positive effect.” That may be less likely with tradesmen, but the word will still get out if they’ve had bad service.
Using NPS to best effect
It should go without saying that NPS needs to be used properly if the right result is truly wanted. For Cass, NPS should be important to any business wanting to know how well it is doing while helping to measure the customer experience of those that deal with it. He says: “Having a score for a product or service will give you the insight of a job well done or not.” NPS can be used generally or specifically, depending on the strategy being deployed. For example, after a customer has visited a yard a simple automated email can be sent asking for feedback. But Cass offers a note of caution here. He says that for NPS campaigns to work a business-wide strategy needs to be implemented and it needs to take into consideration factors such as making all staff aware of what NPS is, how the measurements work and what they mean; not ignoring or failing to respond to negative comments; and actively seeking to engage with those classified as promoters.
NPS as a predictor of growth
It’s not hard to see, then, that if NPS scores are high, it’s fair to hope this would be reflected with a healthy business that is growing. Conversely, if the scores are low it can be expected that the rate of growth for the business will be poorer. But Cass says that this may not always be the case, and he cites an example well known to economists: “If your product is one that is in very high demand, say
it’s the trendy thing to have at the moment, then it may sell despite poor customer service and low NPS scores.” But clearly a business in this situation won’t have a long life.
Getting a score The actual calculation when measuring NPS is a function of the total number of respondents who replied, the total number of promoters and the total number of detractors; the percentage of detractors need to be subtracted from the percentage of promoters. The closer the result to 100, the better it is and anything with a negative should be dealt with quickly.
It’s important to remember that NPS is not the be-all and end-all of customer satisfaction. Any business owner or manager worth their salt should have an ear to the ground for customer feeling. It’s also fair to say that NPS is just one tool for honing the detail.
To sum up
NPS can be an effective method of seeking feedback with minimal input from customers. Used correctly, it can condense down a number of issues effectively into an easy to answer questionnaire. It’s important to note that scores can indicate a probable path of business growth but can equally illustrate areas of weakness that need work.
No matter the desire to seek answers, the process behind NPS requires that customers are continually monitored to note any deviations of their sentiment. But once those customers who are considered to be “promotors” have been identified, they should be considered – with consent – a marketing asset. BMJ
• Sources of information The Loyalty Effect by Frederick F Reichheld, creator of NPS
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