Marketing has a simple definition: the action or business of promoting and selling products or services.  Promoting and selling products or services are not mutually exclusive; the selling of products depends on the promotion of those products.  While many different types of marketing exist, the most effective (and least-expensive) form of marketing is word-of-mouth marketing.  But how do you get customers to promote and create hype about your products and services? How do you measure customer promotion?  Why do you want to measure customer promotion? Here’s why: companies whose customers promote their brand see growth.  Here’s how: Net Promoter Score.

Net Promoter Score allows businesses to measure their customer loyalty and find out how likely their customers are to create their own hype about the brand.  As Fred Reichheld—the father of Net Promoter Score—says: “The only path to profitable growth may lie in a company’s ability to get its loyal customers to become, in effect, its marketing department” (Reichheld 4).

LOYALTY

Successful businesses always try to measure customer loyalty. Loyalty is defined as the willingness of someone—a customer, an employee, a friend—to make an investment or personal sacrifice in order to strengthen a relationship.  A loyal customer might be someone who continues to do business with a supplier that gives him/her outstanding customer service and overall value, even if the supplier’s prices are not the lowest on the market.

Customer loyalty, then, is about more than repeat purchases (Reichheld 3).  Someone who purchases again and again from a company might not necessarily be loyal to that company—the service or company could be close to the consumer’s home, or the consumer may be indifferent.  A customer may go to the convenience store on the corner every morning not because he or she prefers it, but because it’s on the route to work and saves the most time.  The opposite is also true: a loyal customer may not make repeat purchases because of a reduced need for a product or service.  Someone might buy new exercise equipment less often as he gets older and exercises less.

If customer loyalty is not just about repeat purchases, then what is it about?   Willingness to promote a company is a strong indicator of loyalty and growth. When customers recommend that company, they’re putting their reputation on the line—and they’ll only do that if they’re passionately loyal.

WORD-OF-MOUTH MARKETING 

A loyal customer is one who spreads the value of the business to others, leading new people to the business and helping the company grow.  How many times have you overheard someone recommending a service or product to another?  Perhaps you’ve heard something like, “You have got to try my hairdresser!” or “That new grocery store has the best produce and they have amazing prices!”  Services or products that are recommended to us by someone we trust are much more likely to prompt us to action.  Because of the personal nature of communication between individuals, product information communicated in this way has an added layer of credibility.  Consumers are more likely to trust a good or service recommended to them by people they trust or consider credible—and this kind of recommendation usually almost always happens through word-of-mouth.

Word-of-mouth is one of the most credible forms of advertising and plays a major role in customers’ buying decisions.  When customers act as references, they do more than indicate that they’ve received good economic value from a company; they put their own reputations in jeopardy. As mentioned earlier, customers will risk their reputations only if they feel intense loyalty.  (This also shows that loyalty is not about repeat purchases—someone who has moved up economically might buy more luxurious cars now, but will recommend a lower-end automaker to her nephew because she is still loyal to the car company she chose all those years ago.)

Social Media and Word-of-Mouth

Facebook, Twitter, Blogger, Yelp, and epinions.com are just a few of the enormously popular social media outlets available on the Internet that give consumers a place to express exactly what they are thinking or feeling. Often times, these outlets are also a great place to promote or demote a company, product, or service: one tweet, one Facebook post, one blog entry can reach hundreds of thousands (even millions!) of people within minutes.   Customer perceptions can spread virally. This can work wonders for marketers if the person tweeting is giving positive feedback about your product; it also can mean that negative feedback reaches thousands of people before you have time to stop it. It’s more important than ever to gauge the effect of word-of-mouth marketing, and the best way to do this is by calculating Net-Promoter score.

NET-PROMOTER SCORE

Simply asking whether a customer is satisfied or dissatisfied is not enough.  In fact, few customers, even those abandoning one company for another, classified themselves as dissatisfied (Keiningham et al. 53).”Satisfied” customers can still defer to a competitor, or discontinue business with a supplier altogether (because—as mentioned before—maybe a customer no longer needs a product, outgrows a product because of aging, can afford something more luxurious because of increased income, etc.).   For most companies in most industries, getting customers enthusiastic enough to recommend a company is crucial to growth (Reichheld 7).  The question, then, is not “How satisfied were you?” but “How likely are you to recommend our product to a friend or family member?”

How does it work?

 Net-Promoter Score (NPS) is based on the fundamental perspective that every company’s customers can be divided into three categories: Promoters, Passives, and Detractors.  Just one question—How likely is it that you would recommend our company to a friend or colleague—is enough to separate respondents into these separate groups.  Respondents rate how likely they’d be to recommend the company on a scale from 0-10, with 0 being not at all likely, 5 being neutral, and 10 being extremely likely.

 Image Courtesy of Qualtrics Labs, Inc.

 PROMOTERS (score 9-10) are loyal enthusiasts who will keep buying and refer others, fueling growth.

PASSIVES (score 7-8) are satisfied but unenthusiastic customers who are vulnerable to competitive offerings.

DETRACTORS: (score 0-6) are unhappy customers who can damage your brand and impede growth through negative word of mouth.

To calculate your NPS, take the percentage of customers who are Promoters and subtract the percentage who are Detractors.

The Net-Promoter Score focuses not on quality, satisfaction, or value, but on how customer word-of-mouth—both positive and negative—can advance growth (Keiningham et al. 53). Fred Reichheld, one of the World’s Top 25 consultants according to Consulting Magazine and a Fellow of the management consultancy Bain & Company, developed the Net Promoter Score based on his research in measuring customer satisfaction and its link to revenue growth and profitability.  His research showed that, in most industries, there is a strong correlation between a company’s growth rate and the percentage of its customers that are “promoters.”  (The size of the company, one should note, has no relationship to their net-promoter status [Reichheld 7].) Reichheld’s research among 4,000 companies showed NPS to be 100% accurate in indicating whether a firm would grow or shrink (Keiningham et al. Longitudinal, 40). The more “promoters” your company has, the more substantial its growth.

Perhaps the best part about Net-Promoter Score (besides being able to predict growth) is how simple it is to calculate. You’re gathering responses you can easily interpret and communicate.  The wildly popular book Made To Stick suggests that making ideas and goals clear depends on how concrete they are—our brains remember concrete facts (Heath and Heath 100).  We must explain our goals and ideas in terms of human actions and sensory information.  The message you send to employees—“Get more promoters and fewer detractors”—is clear-cut, actionable, motivating, and concrete (Reichheld 1).

USING NET-PROMOTER SCORE

Your Net-Promoter Score will provide you with valuable information.  You’ll get insights into how to get more promoters and fewer detractors.  Reichheld suggests comparing your company’s scores from region to region, branch-to-branch, sales rep to sales rep, and customer segment to customer segment.  Uncover root causes of differences and share best practices from your highest-scoring groups,” Reichheld said. “Also survey your competitors’ customers using the same method. How does your company stack up against the very high bar of 75% to 80% net-promoter score?” (1).

You can match survey responses from individual customers to their actual behavior.  You can further survey detractors to see why they aren’t likely to recommend your business to a friend or colleague, and then fix any recurring problems those detractors present.  NPS presents a chance to improve business and gain more promoters and decrease the number of detractors.  If you can specifically target those who are detractors and work to change their minds, it’s proven that revenue will grow.

Works Cited

Heath, Chip, and Dan Heath. Made to Stick: Why Some Ideas Survive and Others Die.

New York: Random House, 2007. Print.

Hennig-Thurau, Thorsten, Kevin P. Gwinner, Gianfranco Walsh, and Dwayne D.

Gremler. “Electronic Word-of-mouth via Consumer-opinion Platforms: What Motivates Consumers to Articulate Themselves on the Internet?” Journal of Interactive Marketing 18.1 (2004): 38-52. Print.

Keiningham, Timothy L., Bruce Cooil, Tor Wallin Andreassen, and Lerzan  Aksoy. “A

Longitudinal Examination of Net Promoter and Firm Revenue Growth.” Journal of Marketing 71.3 (2007): 39-51. Print.

Keiningham, Timothy L., Lerzan Aksoy, Bruce Cooil, and Tor Wallin Andreassen.

“Linking Customer Loyalty to Growth.” MIT Sloan Management Review 49.4 (2008): 51-57. Print.

Reichheld, Frederick F. “The One Number You Need to Grow.” Harvard Business Review: OnPoint Edition (2003): 1-11. Harvard Business Review. Harvard Business School Publishing Corporation, Dec. 2003. Web. 18 May 2011.

<https://hbr.org/download/3898747/R0312C-PDF-ENG/R0312C-PDF-ENG.PDF>.

Richins, Marsha L. “Negative Word-of-Mouth by Dissatisfied Customers: A Pilot Study.” Journal of Marketing 47.1 (1983): 68+. JSTOR. Web. 18 May 2011. <http://www.jstor.org/stable/3203428>.