How do you determine the value of Net Promoter Score®?
"How do we determine the value of NPS — in two sentences?" That's the question a customer's CFO asked when reviewing the investment in NPS data collection. The honest two-sentence answer needs three short logic links underneath it. Here they are, with a worked example using the customer lifetime value calculator.
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Recently, the CFO of one of my customer’s asked “How to we determine the value of Net Promoter Score?” and wanted a “two sentence response”. The question was asked in the context of investing in NPS® data collection.
It is a very good question and one that took a while for me to answer succinctly. Not because the value of NPS is low, it is high, but because there are a few links in the logic chain that need to be made explicit before you can provide that answer..
Link 1: Increasing customer loyalty increases business value
Customer loyalty is the propensity for a customer to re-buy, buy more or buy different things from a company over an extended period. It is generally acknowledged that it is cheaper and more efficient to sell again to an existing customer than find a new customer.
On this basis; higher levels of customer loyalty increase business value. If you doubt this assertion you can try out a few scenarios on this customer lifetime value calculation tool. You can change the different variables in the model to see how it affects customer and business value.
You will see that increasing the customer retention (or loyalty) statistic invariably leads to increased company value.
Link 2: Net Promoter Score processes tell you what influences customer loyalty
The next critical link is that the Net Promoter Score approach can help you to understand what service and product attributes influence customer loyalty. Many organisations have tested the Net Promoter Score approach and, those that have implemented it correctly, have tapped into a very effective way to listen to and understand what customers want.
This is important because in order to lift customer loyalty you first need to understand what customers care about, what is important to them and how you are performing in their eyes. Only with this understanding can you make the correct changes in the business.
Link 3: Make changes in your business to efficiently deliver what customers want.
The link to action is the last critical step. Measuring and understanding are a waste of resources without making changes in the organisation to deliver what customers want. You have to make changes in your business to deliver value from the NPS process.
The value of Net Promoter Score
So to come back to our first question:
How do you determine the value of Net Promoter Score?
Think of it this way, the only reason that you have a speedometer in your car is so you know how fast you are going. If you were to ignore this information it can come at a heavy penalty: death, injury or at the very least a speeding fine. Instead you use the information it provides to constantly adjust your speed up and down to optimise your progress to your destination. Fast enough to be efficient, legal, and not slow down those around you. Slow enough to not be a danger to yourself or those around you.
Net Promoter Score feedback is no different. It enables you to constantly adjust your business to meet what customers want without over-delivering in one area or under-delivering in another. It helps you to be the most efficient and effective business possible.
So what was my two sentence response?
“The value of the Net Promoter Score process is the lift in business value derived from driving up customer loyalty and driving down organisational costs. NPS enables the company to constantly adjust product and service attributes to meet customer needs in the most efficient and effective way; without over-delivering or under-delivering in any area.”
