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How Loyal are a Company’s Customers and Why Should you Ask?
Author: James Duez  | Posted: 26-07-2007 | Comments: 0 | Views: 26 | Rating: (57)  (?) 
 The level of customer loyalty that a company can sustain is rarely an investment consideration, but should it be? For most businesses, word-of-mouth referral and repeat visits are the lifeblood of accelerated growth. You only have to look at the social networking sites Facebook and YouTube to understand why.
So why don’t investors seek a metric that captures loyalty, that can serve as a robust indicator of a company’s sustainable growth? The answer is simple: until recently there hasn’t really been one that stood up to scrutiny. Now there is.Net Promoter Scoring (NPS) is a new metric being rapidly adopted by loyalty conscious businesses like eBay and Apple. What makes it exciting is that it is incredibly simple and inexpensive to implement.
In simple terms, NPS measures a customers perception of a business by asking how likely they would be to recommend it on a scale of 0 to 10. This single question is an excellent measure of the customer’s loyalty. Extensive research by Dr Fred Reichheld of the Harvard Business School has established that those who answer 9 and 10 are active promoters, and will go forth and spread positive word-of-mouth. Those who score 6 or less are detractors who will talk negatively of their experience. The remainder who give 7 or 8 are essentially, sitting on the fence.
If visible to investors, an NPS score would give an excellent indication of customer enthusiasm for a business. Certainly, organisations that rely on their customers to be part of their active sales-force are finding NPS is establishing itself as a very useful tool. In short, it is delivering the business intelligence required to drive continuous improvements, and therefore growth.So, if the other financial indicators look strong, should loyalty really matter? Of course, it’s all about sustainability.
Good financial performance is critical, but the long-term investor needs to know if this has been achieved at the expense of customer loyalty. A business must protect a customer’s future spend, and so the value of a metric that tracks the likelihood of a customer coming back and make referrals, is clearly valuable. If customers are actively discouraging others from buying from a company, it’s bad news and creates a significant barrier to growth. The company may be losing customers quicker than their sales force is adding them.
We all know it’s cheaper to keep customers than win them, and the key to the NPS metric is enthusiasm for repeat business and recommendation. If you calculate the percentage of people who are active promoters, and subtract those who are detractors, you have a metric that can closely tie to financial performance and growth.
So, why is an NPS score so rarely reported? Well for one, its still fairly new, but another reason lies in accountability. Measuring loyalty creates internal accountabilities that are difficult to reconcile. Given the relatively low cost of obtaining this information, there are few CEOs who are not behind the concept of loyalty, but as with many customer service initiatives, a lack of ownership of the customer experience sometimes gets in the way.
For those who can overcome this, the benefits are clear. It gives a metric that everyone from the CEO to the Cleaner can understand. Better still, putting this within an operational environment not only measures loyalty, but it can be used as a tool to improve it.
Certainly the growing list of companies who use it is impressive and includes USAA, Harley-Davidson and Amazon. Earning growth rather than buying it does make more sense, and NPS is certainly sustaining top-line momentum and delivering richer profits to those who have already embraced it.
James Duez is a Director of The Customer Feedback Company who help organisations track and improve customer loyalty levels.
Email: james.duez@thefeedbackcompany.com
Web: www.thefeedbackcompany.com"
Tel: 07912 064461
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