Fred Reichheld is one of the world’s leading business consultants and has extensively researched customer loyalty (a result of customer satisfaction) for the past thirty years. His research has shown that the two most common indicators to business growth are:
1) Customer Satisfaction
2) Staff Morale
He believes that the measurement of customer loyalty can be simplified down to one simple question;
‘How likely is it that you would recommend this business to a friend or colleague?’
The results of this question can be used to calculate your Net Promoter Score, known as your NPS. The NPS has been widely adopted as a key measurement across the business world and has been described by the CEO of GE as ‘the best customer metric I have ever seen.’
Customer responses to the question above are scored out of ten and are ranked as follows:
– Those scoring a 9 or 10 are promoters – very satisfied customers.
– Those scoring a 7 or 8 are known as passives – easily wooed by the competition.
– Those scoring 6 or below are detractors – unhappy customers.
Your NPS is your percentage of promoters minus your percentage of detractors. The percentage of passives is not used, however the more of them, the lower the score, so they do influence your NPS.
According to Reichheld your NPS is the most reliable indicator of your business’s potential for growth. His research has shown that the fastest growing businesses tend to score 50 – 80% with the average score falling in around 5% – 10%.
In 2006, Mark Ritson, Associate Professor of Marketing at the Melbourne Business School , used NPS to predict the growth of companies operating in Australia at the time. Top of his list to grow was Aldi, and one of the most likely to fail was Swedish car manufacturer Saab. Since his report Aldi Australia have gone on to record profits and more than double in size. On the other hand Saab nearly went bankrupt in December 2009 when parent company General Motors announced they would discontinue making Saab cars due to the brands poor performance.
At a busy time for business such as Christmas nothing could more important than making sure that every customer who interacts with your business walks away satisfied. Not only will they spend money with you now but they will go and tell others to do the same, as well as returning themselves. The best way to know whether you are achieving customer satisfaction is to measure NPS. It is my belief that every business in Australia should be measuring this indicator.
It’s interesting to note that ALDI have always scored very well on NPS despite the fact they do not champion customer service. This suggests that customers will judge your business on its overall offering not simply the level of customer service. Customer satisfaction is not the same as customer service. This Christmas make customer satisfaction the number one number to watch and future sales will look after themselves.