How do you measure customer loyalty? Traditionally this has been very difficult. However that doesn’t mean it isn’t important. Understanding how loyal your customers are can help you focus your sales and marketing effort in the right places.
Many large firms use the Net Promoter Score (NPS) created by Fred Reichheld. NPS is a metric that allows organisations to measure customer loyalty. It’s also useful metric for small and micro businesses.
Loyalty is influenced by emotion. So, in order to measure loyalty, we need to gauge an emotional intention with an emotional question. For example, ‘How likely would you be to recommend…?’ is an emotional question. When we recommend something we do so in order to help, impress or show off to others. This is why the ‘How likely would you recommend…?’ question fits the emotional measurement.
Some companies are asking their customers ‘How satisfied are you with…?’ But this doesn’t really help us understand if the customer is loyal, if they will return, or if they will recommend the company to others.
Most people are influenced by family and friends when making purchasing decisions. So the ‘How likely would you be to recommend?’ question gives information that is far more useful.
So this is what you need to do:
Ask your customers; “on a scale of 0-10, with 0 meaning ‘not likely at all’ and 10 meaning ‘extremely likely’, how likely would you be to recommend (company name) to your family or a friend?”.
If customers give you a score anywhere from 0 to 6 then they are known as a ‘detractor’. People that score 0-6, generally speaking, have characteristics of negative behaviour. They tend to speak negatively about organisations, they tend to churn very quickly (a customer leaving a business) they spend less, they don’t stay as long with an organisation and that, of course, is bad for business. The good news is the detractors, if dealt with in the right way, can not only become promoters but also super promoters. We will come to that later on.
People who give a score of 7-8 are known as ‘Passives’. Passives are those who normally ‘sit on the fence’. The problem with passives is that when someone asks them “What about this company?” they’ll say some good things and negative things too. In addition, passives are extremely sensitive to price competition. So if a competitor comes along and says “I’ll offer you the same service for 10% cheaper”, it’s very likely they will go ahead with that offer. However, just like the Detractors, they can be turned around to become promoters and super promoters.
People who score 9-10 are what we call ‘Promoters’. The Promoter is someone who is extremely LOYAL! They are like the hard-core Apple fans that queue for hours for the latest release and rave about the products at any opportunity. These people will buy from you again and again and rave about you to almost anyone who will listen!
Many businesses believe they need to be perfect; they want to avoid detractors at all costs. However, it’s not the perfection that creates super promoters, it is the way a company deals with its mistakes and responds to the customer’s needs that helps create super promoters.
When you fix mistakes – that’s when your loyalty is deepened. So having detractors or passives is an excellent opportunity for growth. The key is what we do with the information afterwards; and again that’s where most companies go wrong – because they don’t act! If they did act, they would see improved profits.
Once you have the answers (scored from 1 – 10) to the ‘loyalty question’ (above) you can calculate your Net Promoter Score, as follows:
The % of people in your sample who scored as a promoter – the percentage of people in your sample who scored as a detractor = NPS
E.g. 100 people have responded 10 are detractors, 20 are passives, and 70 are promoters. So that would mean your NPS score is 60.
The scoring can range from -100 to +100. The closer the score is to +100, the higher the loyalty.
It’s important to understand how loyal your customers are – and constantly work to improve your loyalty rating (i.e. your NPS).
Customer loyalty is essential if you want to grow your business; by attracting loyal customers you’ll get repeat business and you’ll also get free advertising as they recommend you to their friends and family.
Dominic Kitchin is an expert in business growth. He is founder of The Science of Buying and has over 15 years’ experience helping business leaders and owners dramatically grow their businesses by understanding why their customers buy from them. He helps them enhance company leadership to create a customer centric culture, increase top and bottom line growth, strengthen company management teams, create and protect business wealth, implements succession plans and transitions businesses to achieve a life balance. He has worked with multinational corporations and household brand names such as HSBC, KFC, Radisson Edwardian, ING, amongst others.
LinkedIn: Dominic Kitchin