RAPID Loyalty Measurement

Selecting the Right Measures of Customer Loyalty
RAPID Loyalty Measurement
Bob E. Hayes, Ph.D.

Overview
Customer Loyalty and Business Growth
Three General Types of Customer Loyalty Behaviors
RAPID Loyalty Measurement Approach
Customer Lifecycle and Customer Relationship Management
Comparing RAPID Loyalty Measures and NPS

The degree to which customers experience positive feelings for, possess allegiance to, and exhibit positive behaviors toward a company
Customer Loyalty

Research shows companies with higher customer loyalty experience accelerated business growth
Customer Loyalty Key to Business Growth
1 Retention, Advocacy, Purchasing, Renewal rate, Churn rate

Growth relies on three types of customer behavior
Customer Loyalty and the Impact on Growth
Growth is all about:
Retention
Advocacy
Purchasing
Profit from price premium
Profit from reduced operating costs
Profit from referrals
Profit from increased purchases and higher balances
Base Profit
Customer acquisition cost
Years
Frederick Reichheld. The Loyalty Effect. Harvard Business School Press, 1996

Customer Loyalty and the Impact on Growth
Customer lifetime value impacted by three customer loyalty behaviors
Business Programs
Marketing
Sales
Service
Retention Behaviors
Customer Renews
Advocacy Behaviors
Customer Acquisition
Customer Lifetime
Value
Firm Value
Purchasing BehaviorsCustomer Buys More
Based on the article by Gupta, et al. (2006). Modeling customer lifetime value. Journal of Service Research, 9(2), 139-155.

Three Dimensions of Customer Loyalty
Analysis of seeminglydisparate customer behaviors also reveals three primary dimensions of loyalty1
1 Based on factor analysis of self-reported customer behaviors; Results can be found in Hayes, B. E. (2009). Beyond the ultimate question: A systematic approach to improve customer loyalty. Quality Press. Milwaukee, WI.
* Reverse coded so lower rates of these behaviors indicates higher levels of Retention Loyalty.

RAPID Loyalty Measurement Method
Retention Loyalty Index (RLI)
Measures the degree to which customers will remain as customer/not leave to competitor
Advocacy Loyalty Index (ALI)
Measures the degree to which customers feel positively toward/will advocate your product/service/brand
Purchasing Loyalty Index (PLI)
Measures the degree to which customers will increase their purchasing behavior

RAPID Loyalty Indices Predict Different Types of Business Growth
Source: Hayes, B. E. (2009). Beyond the ultimate question: A systematic approach to improve customer loyalty. Quality Press. Milwaukee, WI.

Customer Lifecycle
Understanding how to improve customer loyalty begins with understanding the customer lifecycle
Attraction phase
Marketing process attracts customers through advertising of perceived value of product and/or service
Attract
Acquisition phase
Sales process acquires customers and sets their expectations regarding product and/or service
Service phase
Service process delivers service and ensures customers’ expectations are met regarding product and/or service
Service
Acquire

Factors Impacting Customer Loyalty
Retention Loyalty
Personal values
Customer experience
Advocacy Loyalty
Customer experience
Purchasing Loyalty
Personal values
Customer experience

RAPIDLoyalty and Business Growth
Three Ways to Grow Business
Customer Lifetime Value
Revenue
Profitability
Market share
1
2
3

Introduced by Frederick Reichheld in 20031
Based on one question: “How likely is it that you would recommend us to a friend or colleague?” (0 to 10 rating scale)
0-6 = Detractors
7-8 = Passives
9-10 = Promoters
Equals proportion of Promoters minus proportion of Detractors (NPS = P – D)
Organizational-level metric, not customer-level metric
Widely used today by major corporations
General Electric, American Express, Progressive, Intuit
Reported in conference calls
Net Promoter Score (NPS)
Not at all
Likely
Extremely
Likely
Neutral
10
5
1
2
3
4
6
7
8
9
0
Detractors
Passives
Promoters
1 Reichheld, Frederick F. (2003). The One Number You Need to Grow. Harvard Business Review, 81 (December), 46-54.

Pitfalls of Using NPS Methodology
NPS is not best predictor of growth1,2
Does not improve growth through existing customers
NPS is ambiguous
Could arrive at same NPS with different number of Promoters and Detractors
NPS = P – D
30% = 50% – 20% OR 30% = 40% - 10% OR 30% = 30 – 0%
Use of only NPS leads you to overlook disloyal customers defined in other ways3
Better to use all loyalty questions to identify at-risk customers
1Keiningham, T. L., Cooil, B., Andreassen, T.W., & Aksoy, L. (2007). A longitudinal examination of net promoter and firm revenue growth. Journal of Marketing, 71 (July), 39-51. Correlations of the NPS and overall satisfaction with revenue growth were not significantly different from each other.
2 Morgan, N.A. & Rego, L.L. (2006). The value of different customer satisfaction and loyalty metrics in predicting business performance. Marketing Science, 25(5), 426-439. Correlations of the loyalty questions with business performance measures were small and, often times, not significantly different from each other.
3 Hayes, B. E. (2008). Customer loyalty 2.0: The Net Promoter Score debate and the meaning of customer loyalty, Quirk’s Marketing Research Review, October, 54-62. Of customers who are not Detractors, 31% were likely to switch to a different wireless service provider.

Comparing RAPID Indices and NPS
RAPID indices are reliable, valid and useful predictors of business growth through new and existing customers
1 RAP refers to Retention, Advocacy and Purchasing Loyalty Indices. NPS refers to Net Promoter Score.

Select the Right Loyalty Measurement
Predictability is improved when loyalty measures and business outcomes are matched
Churn predicted best by retention loyalty
New customer growthpredicted best byadvocacy loyalty
Up/Cross-selling predictedbest by purchasing loyalty
To effectively manage business growth, companies need to intelligently select their customer loyalty measures

For More Information
Business Over Broadway
Business growth through customer insight
Bob E. Hayes, Ph.D.
Email: bob@businessoverbroadway.com
Web: www.businessoverbroadway.com
Blog: www.businessoverbroadway.blogspot.com
Twitter: www.twitter.com/bobehayes

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RAPID Loyalty Measurement

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