Net Promoter Score

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  • In his Harvard Business Review article ‘The One Number You Need to Grow', Reichheld maintained that since his tests showed propensity to recommend to be the single question that had the strongest statistical relationship to future company performance, there was no point asking any other questions in customer surveys.
  • Net Promoter Score

    1. 1. SERVICE OPERATIONS MANAGEMENT The Measure of Success Better Metrics for Customer Satisfaction Group 4: Amit Raizada Angshuman Adhikari Rajat Prasad Sreekanth Daruvuri Vivek Pandey
    2. 2. The Measurement of Success Better Metrics for Customer Satisfaction Three Major Products Financial-software company Quicken QuickBooks TurboTax Driving Good Profits is True Growth???Leadership – Scott Cook, Harvard MBA, Stint atProcter & Gamble before cofounding the company.Intuit’s Mission : “ To make the customer feel so good about the product they’llgo and tell five friends to buy it.”
    3. 3. Evolution of Intuit… Losing sight of its relationships with its customer. Rapidly growing Customer business, thousands feedback of people in multiple locations was Gone Public in 1993immediateand direct. Vague statistics of Birth in 1983 “satisfaction” “Follow- me-home” Managers program. focused on profits.
    4. 4. The Challenge: Measuring Customer Happiness Conventional customer satisfaction measures are less reliable. Hire Market-research firms to conduct satisfaction surveys. Track customer retention rates. How fast the bucket is filling up? Twenty questions on Loyalty Acid Test, Bain designed survey. Asses the state of relations between a A survey designed by Bain several years ago. company and its customer. Assistance of Satmetrix Systems ,Inc.Develops software to gather and analyze real- Detailed information from 4000 customers,14 time customer feedback. case studies. Measure the link between individual customer’s survey responses and their purchase or referral behavior.
    5. 5. Discovering the Ultimate Question What is the Ultimate Question?Key Features:Statistical correlation with repeat purchases or referralsPredict customer behaviorPredict a company’s growthGauges customer loyalty Which is the Ultimate Question? Fred’s Favorite: B2C: B2B: “How likely is it that you “How likely is it that you “How strongly do you would recommend will continue to purchase agree that Company X Company X to a friend or products or services of deserves your loyalty? ” colleague? ” Company X? ”
    6. 6. When do customers make a personal referral? They believe that the Company offers superior value – In terms of price, quality, functionality, ease of use They must “feel good” about their relationship with the Company – The Company knows them, understands them, values them, listens to them & shares their principlesThe 1st Condition engages The 2nd Condition engages It tests both the rational & the Customer’s Head the Customer’s Heart emotional dimensions
    7. 7. Scoring the AnswersOptimum Scale: Right Categorization: Must make sense to customers  Divide customers into groups answering the questions. deserving different attention. Easily differentiable  Easily understandable Simple Scale of 1-10 selected  Based on Consumer Behaviour Not at all Likely 0 Detractors: 1  More than 80% of negative 2 WOM comments. 3  Some customers profitable yet damaging company reputation. 4 Passives: Neutral 5  Motivated by inertia more than 6 loyalty. 7  May not defect until somebody offers a better deal. 8 9 Promoters: Extremely Likely  Highest repurchase rates. 10  Accounted for more than 80% of the referrals.
    8. 8. Scoring the Answers contd…%Questions Answered: Can the frontline managers grasp the customer satisfaction metric easily? Does it help employees clarify and simplify the job of delighting customers? Does it allow employees to compare their performance from week to week, month to month etc.? Percentage Percentage Net of of Promoter Promoters Detractors Score Any company seeking growth must concentrate on both – increasing percentage of Promoters and decreasing percentage of Detractors. NPS is to customer satisfaction as net profit is to financial performance.
    9. 9. Solving Intuit’s ProblemImplementation program for measuring NPS began in the spring of 2003Initial phone survey process based on two questions• What is the likelihood you would recommend to a friend or colleague?• What is the most important reason for the score you gave?Determine the existing mix of promoters, passives and detractors in each major business line Above the NPS Initial NPS Room for 27 %to 52% of average US score improvement company – 10% Problems with phone survey• No way to close loop with detractors• Open ended response manager’s interpretation• Confusing and contradictory responses
    10. 10. Solving Intuit’s Problem “Would recommend” Steady flowFormal Audit question in of NPS transaction insights surveys Hot spots relating to customer experience with the company Problem Cause Solution Result • Low NPS • Charging • Free tech- • NPS score score for customers support for increased customers for tech- first 30 by 30% who called support days of Tech phone calls ownership support
    11. 11. Solving Intuit’s Problem 6000 member “Inner circle” of customers whose feedback was taken for managerial decisionProblem Market share plummeted by 30 points from 2001 to 2003 Detractors Promoters New customer Improved quality of Cause technical support Longer rebate process Confusing tax jargons Improve installation 30% never used the process product the second time Relocated all phone tech- New priority for design support from India to US engineers – ‘make the and Canada Redesigned and program simpler’Solution simplified rebate forms Snap tax – for people with Increased tech -support simple straight forward tax staffing level returns 50% reduction in Turnaround time reduced NPS of first time users installation related tech- by several weeks higher than that of long support contacts Result time users (Snap tax generated NPS of 64%)
    12. 12. Intuits Results: Happy customers & Shareholders Over 2 year period from spring 2003 to the spring of 2005, Net promoter score for Turbo max jumped The desktop version rose from 46 % to 61 % New user’s scores climbed from 48% to 58% Retail market share surged from 70% to 79 % (Not easy feat in maturing market) Provided actionable insights. Every business line addresses this as part of their strategic plan, it’s component of every operating budget, it’s part of every executive’s bonus.“Net promoter gives us a tool to really focus organizational energy around building abetter customer experience” - CEO Steve Bennet
    13. 13. Intuits Results: Happy customers & ShareholdersJust as 6-Sigma had helped intuit improve its business process to lower costs and enhance quality, Net PromoterScores were helping it set priorities and measure progress toward the fundamental goal of stronger customerloyaltyThe more metrics are tracked, the less relevant each one becomesEach manager will choose to focus on the number that makes his decision looks good.The concept of one single metric has produced a huge benefit for intuit – customers, employees and investorsalikeIt was a business-critical priority so important to Intuit’s future that it deserved to be understood by shareholders
    14. 14. NPS - Beyond Intuit Case
    15. 15. NPS Vs American Customer Satisfaction IndexTraditional customer-satisfaction measures typically omitted willingness to recommend,instead focusing on aspects like perceived value, customer satisfaction, corporate image,and rational and emotional commitment American Customer Satisfaction Index
    16. 16. Critics of NPSCritics contend that it doesnt, that its 11-point scale has lower predictive validity thanother scales, that the segmentation of promoters/neutrals/detractors is arbitrary andthat other questions may be better predictors of growth ratesNot the Most Important Customer-Satisfaction QuestionWe find no support for the claim that Net Promoter is the single most reliable indicator of acompanys ability to growDoesnt Accurately Differentiate Promoters and Detractors "The rule-of-thumb score classes proposed by Reichheld (promoters are those respondents who give a likelihood of recommendation of 9 or 10 while the detractors give 6 or less) are not supported statistically, mask important changes and potentially mislead management that there is negative NPS when this may not be the caseSources:"A Longitudinal Examination of Net Promoter and Firm Revenue Growth“ - Ken Roberts, Forethought Research Australia
    17. 17. Critics of NPS Less Accurate than Composite Index of 3 Questions - A single item question is much less reliable and more volatile than a composite index. Fails to Predict Loyalty Behaviors - Contrary to assertions, the results indicate that recommend intention alone will not suffice as a single predictor of customers future loyalty behaviors. Use of multiple indicators instead of a single predictor model performs significantly better in predicting customer recommendations and retention NPS is attitudinal rather than behavioral, measuring how many people say they would be likely to recommend, rather than how many are doing so.- Customer Satisfaction - The customer experience through the customers eyes, Nigel Hill, Greg Roche and Rachel Allen, p. 7The Value of Different Customer Satisfaction and Loyalty Metrics in Predicting Customer Retention, Recommendation, and Share-of-Wallet" (Timothy L. Keiningham, Bruce Cooil, Lerzan Aksoy, Tor W. Andreassen, Jay Weiner).
    18. 18. Critics of NPSPerforms Worse than Satisfaction & Liking QuestionsThe paper "Measuring Customer Satisfaction and Loyalty: Improving the ‘Net-Promoter Score"by Daniel Schneider, Matt Berent, Randall Thomas and Jon Krosnick counter intuitivelydemonstrates that "satisfaction" and "liking" are better predictors of recommendations than"likelihood to recommend".Performs Worse than Other ScalesSchneider et al also demonstrate that the 11-point scale has the lowest predictive value of anyof the scales tested. The authors recommend a 7-point scale with labeled ends and midpoint forthe willingness-to-recommend question but also recommend a bipolar scale for a rewordedvariant

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