The Net Promoter Score has been used for years to help companies understand the role customer loyalty plays in the financial health of their organizations – assisting them in determining what actions should be taken to drive referrals and longer customer relationships.
Richard Owen, CEO of Satmetrix, joins us to discuss how the role of NPS has changed over the years, how social media has changed the game, and some basic rules of thumb for understanding what the score means for your business.
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Small Business Trends: Can you tell us a little bit about your personal background?
Richard Owen: Englishman by birth and an American by naturalization. I got my first degree in the U.K. and my second from MIT here in the U.S. I spent my entire career in the technology industry. Half with Dell Computer Corporation and the other in software companies in Silicon Valley.
Small Business Trends: Can you talk to us a little about Satmetrix?
Richard Owen: We’re a software company. We have customer experience management technology that looks at customers’ end-to-end journey through their experience, and creates analytics around that that helps companies figure out how to create higher lifetime value for the customer.
We have large data sets we’ve built over a decade of experience that tells companies how they perform and should be performing in terms of how they treat their customers. We also have substantial expertise in the methodology, in the Net Promoter Score (NPS).
Small Business Trends: Can you give us the definition of what Net Promoter Score is?
Richard Owen: Net Promoter Score started as a business metric, looking to see whether there was some kind of linkage between customer loyalty and the financial performance of companies. It was discovered there was a pretty good correlation between the growth of businesses in any given industry and the willingness of customers to recommend companies in that industry.
The metric is really based on asking customers whether they would recommend the brand to a friend or colleague. People who very strongly feel they’d make that recommendation become promoters. People who are more negative about that are detractors. The percentage of promoters different from the percentage of detractors represents the Net Promoter Score.
Small Business Trends: Ten years ago, there was no Facebook or Twitter. No smartphones and very limited text messaging. How has the Net Promoter Score changed over time, if any, in helping understand the link between customer loyalty and financial performance?
Richard Owen: Customer recommendations and word-of-mouth have grown in importance almost every year over the last decade. Social media’s really put the spotlight on word-of-mouth and brought that into the public and open space. It’s accelerated consumers’ willingness to share experiences in real-time.
There’s been a seismic shift in the balance of power from producers to consumers. Social media’s really accelerated that, and that’s led to a lot of businesses doing well (that found ways to capitalize on that).
Small Business Trends: Can you talk a bit about what good Net Promoter Scores are?
Richard Owen: It turns out every industry has a threshold at which success really starts to play out for the companies that exceed that level. We know some industries are characterized by very, very high levels of customer excellence.
Other industries aren’t characterized by dramatic differentials in customer experience. These are often industries where there are more significant switching costs or reduced competition. So they often have very low levels of Net Promoter Score still being successful in the industry.
So, there’s no one score that applies. It’s very industry specific.
Small Business Trends: What are some of the things, if any, to get those Net Promoter Scores up?
Richard Owen: There are a few things everybody should be doing just as a matter of course. You should be making an effort to recover detractors. When you identify customers who have a negative experience, it’s important to try and recover them.
Small Business Trends: What should a company do that doesn’t feel it’s seeing the financial benefit from its efforts to raise its NPS score? Is there a lag time between the NPS going up and financials following suit? Or is there something they need to look at and maybe tweak a little more in how they measure the NPS?
Richard Owen: Well, there could be multiple reasons. There could be a lag time. Companies focused on NPS are typically doing so with a view to improving their business performance over a multi-year. They’re not necessarily going to see the immediate impact on their business. So, there is a time-lag effect.
It’s possible they’re not actually measuring a very accurate Net Promoter Score. They may have very poor response rates, or have selective data. So they could be looking at the data and thinking they’re improving when actually what they’re really suffering from is poor quality of data. So, they could be looking at the wrong data.
Small Business Trends: And is the NPS a good metric that can be used by any size business?
Richard Owen: I think there’s a philosophy behind this that does apply to any business.
Small Business Trends: Where can people learn more?
This is part of the One-on-One Interview series with thought leaders. The transcript has been edited for publication. If it's an audio or video interview, click on the embedded player above, or subscribe via iTunes or via Stitcher.