Who has not heard of NPS, the mythical indicator invented by Fred Reichheld, partner at Bain and one of the most influential gurus in the young discipline of Customer Experience?
In his well-known article “The One Number you need to grow”, published in Harvard Business Review in 2003, Fred Reichheld explains how he came to the conclusion that the simple question “From 1 to 10, how likely would you be to recommend this company to a friend or colleague?” correlated most strongly with customer loyalty and company growth and profitability.
As Fred Reichheld explains, customer loyalty is not about whether they continue to buy from us, but whether they are willing to make the effort to stay with us. In many cases, customers stay with a company for years because they do not have many options to change, out of sheer inertia or simply because no competitor has offered them better conditions than those they enjoy.
On the contrary, loyal customers are capable of making “sacrifices” for our company. If they are loyal enough, they will do things like pay a higher price, refuse aggressive promotions from competitors, buy more products or recommend us to others.
As he showed in his study of hundreds of US companies in various industries, companies with high NPS were companies that grew in sales and profitability. In highly competitive industries such as airlines, telecommunications or car rental companies, the linear correlations were even higher than in industries where competition was more restricted.
Since the publication of this famous article, NPS has established itself in most companies and sectors of activity as a simple and versatile indicator, capable of keeping the pulse of our customers’ experience alive.
Its main virtue is its simplicity. Unlike the complex studies carried out by market research companies, as it consists of a single question, the companies themselves can implement it and collect it themselves, reporting information in real time.
The other great advantage of NPS is that it is an indicator that moves directly to action, as it clearly identifies which customers are promoters, neutrals and detractors. This allows action plans to be tailored to each of these segments and to move detractors to neutrals and neutrals to promoters.
This makes NPS the perfect indicator if you want to implement a Close The Loop process.
Despite its many benefits and its widespread implementation in companies, NPS has come in for some criticism in recent years. The main criticism is that many companies, by linking the NPS system to the remuneration of front-line teams, put excessive pressure on their teams and cause their sales and customer service staff to skew the indicator by asking customers to give them nines and tens.
This form of cheating is doubly damaging. Firstly, because it can create a rebound effect and completely spoil the Customer Experience, as they feel instrumentalised at the end of their interaction with the company. And secondly, because it makes the indicator lose its main usefulness, which is none other than to identify who the detracting customers are in order to work on the causes of their dissatisfaction.
This type of behaviour on the part of companies has led some reputable consultants to question the NPS. One of them, called Fred Reichheld (where have I heard that name before?), proposes in his article “Goodbye NPS? Inside The New Metric For CX Success”, he proposes replacing it with a more reliable indicator.
But we will talk about that another day.
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