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Customer retention is easier than customer generation. In a marketplace that is saturated with competition, it is becoming increasingly difficult to find and acquire new customers. Many businesses have successfully stayed afloat through even the most trying economic conditions by investing a concerted effort into retention marketing - a practice that is becoming more prevalent in business today. Retaining customers is particularly important to a business' bottom line because of the high costs associated with new customer acquisition. When you think of how much money is invested into sales and marketing efforts, it begins making perfect sense to focus on existing clients for new revenue opportunities.
There are many such opportunities for this added revenue - through renewal business, selling alternate products and services to your installed base, cross-selling to different divisions of a company through referrals, and finally the latent boost given by positive branding.
One of the primary ways companies have been successfully keying in customer loyalty is by conducting a survey of its current customers. Though many different methodologies for customer surveys exist, one that has particularly taken the center stage in terms of efficacy and popularity uses a measuring system called "Net Promoter Score," or NPS. To determine its NPS, a company surveys its clients using a 0-10 point scale with "0" representing the extreme negative and "10" representing the highest rating. The respondents are divided into three categories:
Promoters
Those who rate the company a 9 or 10
Loyal enthusiasts who keep buying from a company
and urge their colleagues to do the same
Passives
Those who rate the company a 7 or 8
Satisfied, but unenthusiastic customers who
can be easily courted / taken away by the competition
Detractors
Those who rate the company 6 or below
Unhappy customers who feel they are trapped
in a less-than-acceptable business relationship
The final NPS is then determined by subtracting the percent of detractors from the percent of promoters, with fifty and above considered good scores. This percentage represents the NPS, and is similar to calculating the financial net worth of a company where you subtract the liabilities from the assets. The NPS similarly represents a "worth" of a company by emphasizing customer loyalty as a key metric toward identifying a company's ability to grow.
Is the NPS a proven indicator of business success? In most industries, leaders in NPS have displayed clear superiority in terms of growth - on average, more than two times the rate of their competition.
What, then, is rated on this 0-10 scale?
What questions might be asked?
It may come as a surprise that the NPS survey requires only one question. Often coined "The Ultimate Question," the NPS survey asks:
The Top Scores - Promoters
The concept heavily relies upon the fact that if customers can recommend a company to their own friends, families and business associates, then the company must indeed be offering a good product or service.
To place such an emphasis on one question really harkens back to one of the most fundamental best practices of surveying: keep it short and simple. One question is as simple as you can get! By doing so, it indeed elicits a higher rate of honest feedback because it gives a respondent time to really consider their answer without dreading another 10 pages of detailed questions.
The Middle Scores - Passives
What about the scores of 7 or 8? Why aren't they considered promoters?
Many businesses who implement the NPS survey for the first time ask these questions. Based on a scale of 0-10, these scores might be considered "positive." However, NPS experts claim that although these people might provide renewed business, they won't actively be referring and spreading word to their peers about the company's excellence. Consequently, these "passives" do not contribute to new business and growth.
The Low Scores - Detractors
These customers are almost always unhappy with the current relationship they have with the company and will likely not renew for future business.
Actionable Survey Insight
A common misconception is that the NPS is just a broad self-assessment metric. Successful businesses, however, have been utilizing this metric as an integral part of actual strategic, tactical and operational business processes that directly impact a company's profitability!
What the Net Promoter Score provides is more than a "satisfaction" measure. It provides guidelines toward carrying out certain specific best practices that can be enacted upon to improve a company's bottom line. Each NPS-defined segment of customers (even the detractors) can be turned into positive opportunities for a company.
Action - Promoters
There are two main types of promoters: high-profit and low-profit.
High-profit promoters are the customers that make up the lifeline of a company's revenue stream. These are the evangelists of your product and services - and they also buy the most. High-profit promoters must be the target of very strong retention marketing practices. Cross-selling to different divisions of this company is simple due to the existing rapport and positive relationships. Most likely, your current divisional client will provide a shining reference. You can also sell new products and other services to this company, and continue to maintain the excellent relationship you have with them. If you believe in the 80/20 rule, which claims that 20% of your customers make up 80% of your profits, you better believe that the high-profit promoters are holding the keys to your company's profits.
Low-profit promoters, on the other hand, are the loyal customers who are restricted for one reason or another from purchasing as much as they'd like. They should still be marketed to, but in a different fashion. Additional products and services can be offered, but they should not be over emphasized; the real value in low-profit promoter companies is their advocacy. Offering special pricing and deals can help them spread the word and promote your company - possibly to other high-profit promoters!
Action - Detractors
Like promoters, there are two types of detractors: high-profit and low-profit.
High-profit detractors are often considered to be as important as the high-profit promoters, simply because of the amount of revenue they provide to a company. However, these customers also feel they are trapped and stick around just because it's comfortable to remain within the status quo sphere. These are still very profitable customers, and heavy action must be taken to retain their business - especially because these clients are extremely attractive and profitable to your competition. Rather than losing them, it is important to conduct further satisfaction surveys and follow up initiatives to find out what's bothering them, and to fix what is wrong. The low-profit detractors represent those clients who you cannot please within reason. While you might be willing to lose some money making a high-profit detractor happy, it is fundamentally unsound business to invest too much into a client that does not offer opportunities for revenue. It is still important to maintain a positive corporate image, so it is best to help these unhappy customers find another provider.
The Moral
The moral of the story is that true bottom-line profitability lies within your current customers. A study by the Harvard Business School revealed, "Many companies are routinely surprised by which customers are high-profit promers, how much potential for crosssell exists among low-profit promoters, and how many detractors lurk in their portfolio." By implementing a quality survey program in your company to identify your best customers, and followup surveys to determine how to better serve those that represent the highest profit, a company can dramatically increase its bottom line.
Customer-loyalty guru Reichheld says that companies have to "get to the sane customers, the people who don't waste their time," and convince them that their input has value. That's the key to turning a detractor into a promoter. "If customers are willing to promote you," he says, "that's the clearest indication of loyalty. If they're not going to promote you, follow up with more questions to determine why - build a dialogue that turns them into promoters."
Here are some interesting statistics we've published in our past research, which are very relevant within this context:
- Increasing loyalty and customer retention by just 5% can increase profits by 75%
- Most dissatisfied customers will eventually tell nine other people about their problem
- Only 4% of dissatisfied customers actually complain to the company
- Satisfied customers, on the other hand, tell 5-6 other people about their positive experience
Use the Correct Technology to Make the Survey Process Efficient
Many companies can provide a range of services to assist with the implementation of a customer satisfaction program. Choosing the right supplier is crucial to ensuring that such an initiative is carried out with business value objectives in primary focus.
A quality survey solution should be able to streamline the integration of many of the aforementioned best practices into your current business processes. Some things to look for:
- An actual database of customer knowledge that dynamically serves as a central repository for all your customer information (survey history, transactional history, etc.)
- Real-time email alerts to address customer issues immediately
- Question scoring to use variable weighting on different dimensions of customer satisfaction An easy-to-use interface with a manageable learning curve
- Pre-survey consultation with real consultants and survey experts - not just software - that will ensure your deployment is on the right track
About Cvent
Cvent delivers the commercial-grade survey software solutions and services that organizations need to cost-efficiently implement a superior customer satisfaction survey program. Established in 1999, Cvent is the largest strategic meetings management and site selection company in the United States, with over 400 employees worldwide.
More than 10,000 professionals use Cvent every year to create over 100,000 surveys, events, and marketing campaigns. Cvent's users have sent over 175 million invitations and have processed over 5 million registrations and survey responses. Over $20 million in research and development has been invested into Cvent's proven technology solution and services.
