Net Promoter Hype vs. Reality
April 27, 2010I recently wrote about Peer 1’s customer success challenge to their hosting industry competitors. Their call has been answered, and the ante was raised in the process with “better” scores. Interestingly, this competitor was also proud of their response rates – a step in the right direction, but if you’ve been reading this blog you also know my position on coverage rates as a more important indicator. Just a few of the questions I have here are
1. Will these companies tap their base of promoters and detractors to drive incremental revenue growth?
2. How will these firms leverage the goodwill of their promoters to actually “promote?”
3. Have these firms leveraged their customers to understand any real differences that may exist between them?
While it’s interesting to watch this ‘debate’ I hope instead that we’ll be able to see some genuine leadership and definitive action. Stay tuned…?
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Posted by Steve Bernstein
Customer Intimacy Creates ROI
April 20, 2010While a growing number of B2B and B2C Marketing organizations publish their Net Promoter scores as a potential differentiator, I’m wondering why Marketing departments have been slow to embrace Net Promoter Score as a Key Performance Indicator.
If you been reading this blog you’ve seen our discussions around leveraging your customers as an asset, and how your customers can scale the company as an extension of your employees (see the 5 Cs of Finance). Now a San Francisco-based credit union shows us they have slashed their external promotional expenses from ~$800,000 to just $3,000 annually! As they implement improvements to optimize the customer experience, they continue to acquire new customers at an ever increasing rate through the power of word-of-mouth.
As happy customers scale your organization, they also provide valuable feedback that optimizes your operating expenses
There will always be those who doubt any causality. Meanwhile here’s another organization that believes that customers are the source of growth and they are reaping the rewards. Note that the improved customer acquisition rates began as far back as 2007, far earlier than the financial meltdown that has favored community-based operations. So while this CEO is able to allocate operating expenses to the areas of the business that matter most, I would love to hear from Marketing folks that are identifying and engaging their promoters in order to scale their organization.
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Posted by Steve Bernstein
Competing on Customer Success
April 14, 2010In a bold and potentially controversial move, Peer 1 Hosting has issued a challenge to all other hosting providers to publish their Net Promoter Scores. As many businesses can become commodities over time, simply providing products and services is not sufficient. And Peer 1 has recognized that their primary mission must be around helping customers achieve success.
So why is this “bold and controversial?” A few thoughts:
- Peer 1 has raised the bar, not just for their competitors, but for themselves as well. Customers that are attracted by this campaign are likely to have higher expectations… will this help or hurt?
- Peer 1 seems to have established an (unaudited) baseline for themselves. Will they work to improve from there, or rest on their laurels?
- Peer 1 has compared themselves to IT Services industry averages, and they compare well in that regard. But I wonder what competitive benchmarking they did before issuing this challenge? Rackspace’s fanatical support efforts have been well chronicled (here’s just one overview), and Savvis is proud of the their work with Net Promoter.
I applaud Peer 1′s efforts and look forward to hearing more over time about how they are improving their scores (and benefitting financially from the improvements in customer loyalty). How will the others in the hosting industry react? I look forward to hearing more.
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Posted by Steve Bernstein
NPS is dead… long live Net Promoter!
April 9, 2010The silent majority is very often an ignored asset for most companies. I’ll explain:
Those that are familiar with Net Promoter (or NPS) tend to think of the 3 customer segments that Net Promoter explicitly discusses – Promoters, Passives, and Detractors. But in reality there are 4 segments.
One of our SaaS clients has been very proud of their 68% NPS. And they should be – they have a strong base of loyal customers (~71% of key respondents rate them a 9 or 10 on the Recommend question) with very few Detractors. More importantly, their business has been growing for some time (as NPS predicts).
But a 2nd question needs to be addressed: Is the 69% NPS reflective of their customer base? The answer here is unfortunate as it turns out that the score was provided by only 9.8% of their customers. So we then looked back at their customer renewal behavior to see how accurate NPS is for their business. Here’s the punchline:
- They obtained a 97% (!) renewal rate for customers responding to the request for feedback– regardless of score (whether they were a Promoter, Passive, or Detractor);
- BUT only a 78% renewal rate for those customers that didn’t respond to their call for feedback.
[Click image for full -screen view]
Pay attention to the 4th segment – customers that don’t respond – as a source of improved growth
So NPS holds up as a segmentation model and leading indicator. This company’s need for stronger customer relationships (especially for their strategic customers) is quite clear. In their case, the 4th segment – the customers not even bothering to respond – provided clear evidence of the value of this methodology and their ROI for account management. Where a healthy score should be harvested from the segment generating the bulk of your revenue (often a 50%+ response rate for B2B companies), it’s clear that this company will be taking steps to improve the strength of their customer relationships.
The fact is, no matter how much you may believe in a given KPI such as NPS (or CLV, LTV, or any other TLA), a single metric never tells the whole story. And “Customer Coverage Rate” (“representiveness” of the customer base in the survey feedback results) proves once again to be a leading indicator of the leading indicator (the latter being NPS). I’d be very interested to hear of examples where a single metric provided all the evidence you needed to go forward…? Or where “coverage rate” worked or didn’t work as thought?
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Posted by Steve Bernstein
