Understanding how loyal your customers are is important if you want to focus your sales and marketing effort in the right places. However, explains Dominic Kitchin, until recently there hasn’t been a way to measure customer loyalty, only the effectiveness of adverts – and although this is useful, it doesn’t tell you how many customers are going to stay with you …
Without a statistically-proven method to measure loyalty, it is difficult to determine which areas of a business need improving in order to increase the number of returning customers.
Many large firms use the Net Promoter Score (NPS) created by Fred Reichheld to measure customer loyalty – we buy based on emotion, and what usually follows is a rationalisation of the purchasing decisions through logic.
This is backed up by Professors Patrick M Georges, Anne-Sophie Bayle-Tourtoulou and Michael Badoc in their book, Neuromarketing in Action: “Customers decide with their gut. Half of their decisions are irrational and emotional. Marketing must deal with customers’ emotions as well as their reasons to buy.”
Loyalty is influenced by emotion – so we need to gauge an emotional intention with an emotional question, such as “How likely would you be to recommend …?”. When we recommend something, we do so in order to help, impress or show off to others. This is why this question fits the emotional measurement.
Therefore, understanding your NPS is essential. Ask your customers the following: “On a scale of 0 to 10, with 0 meaning ‘not likely at all’ and 10 meaning ‘extremely likely’, how likely would you be to recommend (company name) to your family or a friend?”
If customers give you a score from 0 to 6 then they are known as a detractor – they tend to speak negatively about organisations, they spend less, and they don’t stay as long with an organisation. The good news is, if dealt with in the right way, they can become promoters.
People who give a score of 7-8 are known as passives – they sit on the fence. When someone asks them “What about this company?” they’ll say some good things and negative things too. In addition, passives are extremely sensitive to price competition. However, just like the detractors, they can be turned around to become promoters – and super promoters.
People who score 9-10 are what we call promoters – someone who is extremely loyal. They are like the hardcore Apple fans who queue for and rave about the products at any opportunity.
To calculate the Net Promoter Score, deduct the percentage of people in your sample who scored as a detractor from the percentage of people in your sample who scored as a promoter. For example, of 100 people that have responded, 10 are detractors, 20 are passives, and 70 are promoters. So that would mean your NPS score is 60. The scoring can range from -100 to +100. The closer the score is to +100, the higher the loyalty. It’s important to understand your customer loyalty – and constantly work to improve your NPS.
Many organisations believe they need to be perfect in order to avoid detractors. However, it’s not perfection that creates super promoters, it is the way a company deals with its mistakes and responds to the customers’ needs that creates super promoters. When you fix mistakes, your loyalty is deepened, so having detractors or passives is an excellent opportunity for growth.
Customer loyalty is essential if you want to grow your business. By attracting loyal customers you’ll get repeat business, and you’ll also get free advertising as they recommend you to their friends and family.
