The three ultimate questions – why loyalty is only a third of the answer

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You know sometimes someone points out an idea to you that seems so obvious, you wonder why it didn’t occur to you before?

It happened to me recently. The someone was the inQuba CEO, Mike Renzon. And the idea was the crashing together of two old concepts; NPS scores and customer value. But the result was unexpected and made me realise that loyalty can only be 1/3rd of the ultimate question.

Firstly, and to get this out of the way, I’m not affiliated to any particular metric. I’m passionately in support of asking customers what they think and acting on the results – but the metric itself is secondary. If I align with anyone’s view it’s likely to be to Bruce Temkin’s ‘atheism’. But what’s the right headline question? Well, that’s the topic of this blog.

Advocacy Loyalty is only part of the equation

Let’s think about the NPS question; “How likely is it that you would recommend [brand] to a friend or colleague?” Taken literally, this is an indicator of whether you are going to get more customers. The more promotors you get, the more positive recommendations are made and the more new customers are likely to arrive. But what we haven’t asked is whether the customer would stay themselves, or buy more, which is why high NPS results don’t always correlate with repeat or increased spending. In fact this break in the logic is one of the reasons why in some cases it’s possible to prove that there is no correlation at all between NPS results and customer behaviour.

So what’s the gap? What does the NPS question leave un-asked? There are two critical questions left:

  1. “How likely is it that would stay with [brand] yourself, or re-buy when the time comes?”
  2. “How likely are you to buy other products and services from [brand]?”

The first one is of course an indicator of retention, and the second is an indicator of the number of services provided – a share-of-wallet question.

loyal customer image chris

Put the three together and we have:

  1. # of customers indicator (NPS question)
  2. retention indicator
  3. # products held indicator

Which coincidently are the three factors that drive the value of your customer base;

# of customers x length of tenure x products held (multiplied by $ per product, to give a $ value).

Suddenly it becomes apparent why NPS leaves many Execs unconvinced of the business case of customer experience, or wanting more evidence. Alone, it’s only 1 of the 3 dimensions that drives the value of the customer base. Use all three and you’ll have a much more direct indicator of your future business performance.

Republished with author's permission from original post.

Chris Severn
Co Founder and Director of The Customer Experience Company. Expert in Customer strategy, and delivery of customer improvements in service, sales and marketing, and across online, call centres and retail channels.

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