As someone who’s worked in the service industry for nearly 20 years, I know managers have been looking for that “magic bullet” measurement of customer satisfaction – especially one that could be tied pretty closely to profits.
A couple of weeks ago I heard a lot of talk about something called a “Net Promoter Score” (or NPS) and how it was being used in many companies as this “magic bullet”. I was intrigued and bought the book that explains it, “The Ultimate Question” by Fred Reichheld.
What is the Ultimate Question? It’s pretty simple: “Would you recommend this business to a friend?”
Reichheld believes that this one question tells us more about a customer’s overall satisfaction than any other, and he claims to have done an extensive amount of research to back it up.
The customer is asked to put the answer to the question on a relative scale of 1 to 10, 10 being the highest level. Those who give scores of 9 or 10 are called “Promoters”, those at 7 or 8 are “Passives”, and those at 6 0r less are “Detractors”. The NPS is calculated by taking the percentage of Promoters and subtracting the percentage of Detractors.
What’s a good NPS? According to Reichheld, while he claims the average for most companies is around 10, anything over 50 indicates a company that is generating more “good profits” than “bad profits” – that is, the company is making money from providing satisfying customer experiences worth recommending to others, rather than through more revenue focused, reputation damaging tactics (like “user” or “administrative” fees, or charging your customers that have been with you the longest the highest prices).
The key theory here is (and this is where the tie to profit comes in), the more “good profit” that is generated, the greater the chance for sustained long term growth.
Does it really work? The author cites several examples of companies that have adopted either the NPS or something similar to it, measured and managed to it, and achieved great success. Enterprise Rent-A-Car was the primary example, and based on their track record and the fact that they passed Hertz as the #1 car rental company, it wasn’t hard to “see” the connection between great customer service and “good” profits.
On the other hand, Dell Computer is also cited as a high NPS company, and based on my experiences and a LOT of other evidence in the blogosphere to the contrary, I really can’t find too many “Promoters” of Dell these days, and their growth has certainly slowed down considerably lately.
While it’s a mixed bag, nevertheless the book and all the “buzz” has interested me enough that our company is going to start generating our own NPS scores on a trial basis. Any measurement that is essentially grounded in the “Golden Rule” (Reichheld notes this many times in the book) cannot be too far off the mark.
Plus, it’s an opportunity to look at “word of mouth” in a measurable way, at the very least. In the end, the whole theory is not far removed from what one of my business mentors told me was the “secret” of success – he said, “my boy, you treat your customers faithfully and well, and you will make money, it’s as simple as that”.
Simple yes, but every customer is different – that’s where the complication comes in. I’m looking forward to sorting it all out a little better with this measurement. I’ll let you know how it goes – in the meantime, if you are in the service business, this book is well worth a read.