Why Meeting Customers’
Expectations Isn’t Enough
Happy customers may
come back, but only customers who are thrilled will recommend your product.
Whether you work for a start-up or a large
company, there have never been so many metrics to help you understand how your
business is doing. But I would argue that one metric rules them all: Net Promoter Score (NPS).
NPS
represents the willingness of consumers to recommend your product to someone
they know. For most businesses, especially start-ups and small businesses with
tiny marketing budgets, NPS is crucial. Why? Because word-of-mouth is their
most important marketing channel.
Word-of-mouth
fundamentally comes from the willingness of customers to recommend your business,
in other words, NPS. According to a survey conducted by
Verizon and Small Business Trends, 85 percent of small business
owners credit word-of-mouth as the main avenue for customers to find out about
them.
If
you have low NPS, positive word-of-mouth eludes your business. In fact,
potential customers might hear or read instead: "Stay away from Bruno’s
Beefeaters. You don’t want to know what I think I found in my last hot
dog..."
How is NPS calculated and what’s considered good?
Your
NPS is derived from a simple, one-line question that most of us have come
across in surveys. Typically, the question reads: "How willing would you
be to recommend our product (service) to a friend?" Answers are given on a
scale from 0 to 10, with 10 being the highest possible score.
The
score is calculated by subtracting the percentage of detractors (those who
don’t like or might negatively recommend your product) from the percentage of
promoters (your most vocal advocates). This gives you an NPS value from -100 to
100.
Consumers
falling in the 7-8 category are considered neutral (I call them “passive”) for
the purposes of the NPS calculation. This might feel a bit counterintuitive but
it really makes perfect sense. When do you typically recommend something to a
friend? When you’re blown away by the quality of the product and it far
exceeds your expectations. When do you complain? Many of us are quick to complain
at the slightest annoyance. People are much more likely to complain about
a product than praise it. That’s just human nature.
In
fact, according to research by
INSEAD Associate Professor of Marketing David Dubois, consumers have a
systematic tendency to use negative word-of-mouth with their close friends, as
they would rather “protect” them against bad experiences than try to boost
their own image as users of new, cool products.
In
terms of scoring, an NPS of 0 is neutral. But what constitutes a good score?
Typically, anything above 50 is considered excellent. Apple, for example, leads
the computer industry with an NPS of 72, while in retail, Amazon leads
with 69 and Netflix leads its industry with an NPS of 68, according
to Retently.com.
The benefits of a high NPS
Having
a sky-high NPS has many benefits. The most important one is that products
with a high NPS tend to have a higher retention rate than their competitors.
The iPhone’s retention rate in 2017 was
a whopping 92 percent compared to 77 percent for Samsung’s Galaxy.
Keeping existing customers is the top priority for marketers since repeat
customers do not come with the usual customer acquisition costs and are
therefore more profitable.
A
high NPS also means lower marketing costs due to the increase in positive
word-of-mouth. When was the last time a friend asked you for advice about a
movie, TV show or restaurant? When you offered them a recommendation, you acted
as a promoter of that product or service. That’s NPS in action for you!
All is not perfect
There
is some criticism of NPS and some have even said that NPS is dead. It has
its weaknesses. For starters, NPS is based on a survey question, which
always implies a risk of self-selection
bias. Second, it is a snapshot in time, so the
data is static. For example, Intuit usually asks me about once per quarter how
I feel about QuickBooks. If I’m having a really bad day or happen to be
struggling with a software problem, I might give a harsher rating than I
ordinarily would.
One
could also argue that in today’s fast-moving world, NPS data might not be
relevant by the time you get it. Mobile games have much faster update cycles
than cars, for example. However, that doesn’t totally invalidate the gamers’
experience at that point in time.
In
addition, even if consumers recommend your service, they may still switch to
another if they find a much better deal. We live in a hypercompetitive market:
Products and services improve all the time and consumers are better informed
than ever. You have to earn your customers’ trust every single
day. Never let up.
Best practices
There
are best practices when it comes to conducting NPS studies or any other
question-based research for that matter.
First,
make sure you use a reliable platform or vendor. There are plenty out there,
from SurveyMonkey (which allows you to run the survey yourself) to the more sophisticated
research agencies such as Qualtrics, YouGov and Nielsen. NPS was invented by
Satmetrix Systems, Bain & Company and Fred Reichheld.
Second,
make sure your sample size is large enough. If you’re not sure, ask the data
scientist or product manager on your team to calculate what a
statistically representative sample size would be.
Third,
run the survey often enough to track the changes you’re making to your product
but not so often as to annoy your users. Quarterly is usually best, though I’ve
seen games companies make it a monthly exercise for their constantly upgrading
mobile apps.
Fourth,
never rely just on NPS to assess the health of your business. You also need to
look at brand awareness, top-of-mind, intent-to-purchase and retention metrics.
NPS is the key metric, but you must combine it with others to get the full
picture. You should also periodically assess how your competitors are doing.
Benchmark your own metrics against theirs.
Fifth,
if it is technically feasible, you should run the NPS survey directly from
within your product. Many industries selling physical goods (like a car or a
bed) don’t have this option, but the closer you can get to the user’s
experience of the product, the better.
Lastly,
be consistent about how you structure the question and when you run the
survey. The more you change your variables, the harder it is to compare and the
less reliable the results.
NPS
is a vital metric every business from the smallest start-up to the largest,
company, should track. It’s easy to manage, fast to implement and
cost-effective. Just remember never to use it in isolation and always have
people on your team willing to challenge your assumptions.
In business, only
the paranoid survive.
Patrick 'Mad' Mork
Read more at
https://knowledge.insead.edu/blog/insead-blog/why-meeting-customers-expectations-isnt-enough-9611?utm_source=INSEAD+Knowledge&utm_campaign=a9f2dad3b4-EMAIL_CAMPAIGN_2018_07_05_04_07&utm_medium=email&utm_term=0_e079141ebb-a9f2dad3b4-249840429#53roqrMrUDiPYtuG.99
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