Some marketers display a near-religious devotion to Net Promoter Score (NPS) as THE measure of customer experience and loyalty, while others display an equally devout opposition and adopt an anything-but-NPS mantra. Both apostles and apostates of NPS do the field a disservice, as the “best” customer-focused metric should be a matter of measurement and validation, not postulated as a fundamental belief.
We all know that emotional connections are central to our decisions and, perhaps, even to our preferences for key metrics. But shouldn’t the search for the metric to use as a measure of customer focus be solidly anchored in the science of measurement and consumer behavior? Let me offer a few ground rules to help.
Rule #1:The best metric is that which best explains the behaviors companies want to motivate.
No key performance indicator (KPI) is perfect. That is, no customer KPI explains or predicts customer behavior, the strength of customer relationships or delight with a customer experience with anything near 100 percent integrity. Rule #1 is about loyalty behaviors, the behaviors that create value for a company. These behaviors include, among others, continuing to be a customer, giving a company a larger share of household wallet or spend and recommending the company to others. One KPI is more useful than another because it does a more thorough job of explaining the customer behavior or outcome that the company wants to promote to create value.
Like every customer-focused KPI, NPS has its strengths and weaknesses.How does NPS stack up on this dimension? Pretty good. Across every study I have seen, Promoters are less likely to churn and are more likely to own more products, give a larger share of their spend and recommend a company or a product than a Detractor. So far so good.
But this is also true for every major customer metric, whether NPS, Customer Effort Score (CES), simple satisfaction or other measures. None of these metrics will lead a company in the wrong direction. But which performs best in explaining value-creating behaviors? Time and again research suggests that composite indexes typically are better predictors of actual behavioral outcomes than single variables such as NPS.
We see similar results when linked to customer behavior across the range of industries – whether we are talking about the persistency of life insurance, share of hotel stays, retention of phone/cable/any customers or the software and hardware recommendations of IT Pros. We see it in B2C and in B2B. The differences may not always be dramatic but there always are differences: composite CX metrics outperform single variable measures in explaining how customers behave.
Rule #2: The only way to determine what best explains loyalty behaviors is to measure and test the results.
Industry norms are great. But the only way to confirm what best explains loyalty behaviors among YOUR customers, for YOUR firm, is to (Rule #2) measure and test the results. Your CFO will be interested in the norms; but they will be compelled by your own company data.
Measurement requires some patience, as the explanatory power of your measurements today can’t be established for perhaps six to 12 months or longer. That is, what measurements today best explain customer behaviors over the coming year?
You can, of course, cheat a little: Technically, measurements at time period 1 can’t explain the outcome at time period 1 (strictly speaking, cause and effect can’t happen simultaneously) but it is not at all unreasonable to start with simultaneous measurement and explanation and then to further validate the findings over time.
Don’t just take my word: Companies are wise to capture multiple metrics so they can test different measures and combinations to determine which has the most meaning and explanatory power for their business and customer base.
Rule #3: There is no one universal best metric; the optimum KPI will vary by the business context.
One size doesn’t fit all. So Rule #3 is that there is no universal best metric and the optimum KPI may vary by the business context: the company’s business model, sales channels, competitive context, value proposition and strategy.
The old rule of thumb was that homeowners moved every eight years or so; today it’s less often. Either way, mortgage brokers, lenders, servicers and realtors, for example, would go broke if they focused on the likelihood of repeat business eight or more years down the road. NPS may well be the ideal metric for these firms that have infrequent transactions and a limited portfolio of products for cross-selling and which rely so heavily on the recommendations and referrals of customers.
Measures other than NPS, on the other hand, may be better for businesses with more frequent fee-generating transactions or those with high customer acquisition and infrastructure costs with profitability dependent on long-term relationships. Here customer retention KPIs might be more important to creating value than the possibility of recommendations. For firms in sectors where customers typically split their spend, cross- or upselling and capturing a larger share of spend would seem an appropriate objective and companies would be wise to pick that KPI which best explains these outcomes.
Rule #4: The preferred metric also depends on what is being measured: customer relationships and customer experience are not the same.
Rule #4 is a corollary of #3: In addition to being dependent on the business context, determining the preferred metric also depends on what is being measured. Customer relationships and experience are inextricably intertwined but they are not the same thing. Companies running both RNPS (Relationship NPS) and TNPS (Transactional NPS) programs, for example, almost always are troubled by the issue that TNPS scores typically are far higher. It’s not that one is right and the other wrong; rather, they are measuring different things.
NPS was created as a relationship measure. Is it surprising that great NPS scores on call-center experiences, for example, many of which entail simple administrivia, are not necessarily strong predictors of business outcomes? Similarly, Customer Effort Score may be a great metric when measuring the performance of your online help or self-service functions, but based on both on research and on face validity, CES is not sufficient as an overall relationship KPI.
Beyond the science of measurement, it also is important that KPIs pass the sniff test of credibility with internal stakeholders, especially senior leadership. Metrics that make sense to staff and with which staff can identify are far more likely to rally support and galvanize action than measures that seem abstract and disconnected from the customer. Customer service reps of all stripes, for example, know that measuring their performance in terms of the volume of calls they handle is at odds with what customers would consider great service.
While measurement is more science than art, it is important to appreciate that often times the differences in the explanatory power of various metrics is more an issue of multiple shades of grey than the distinction between black and white. Given the inevitable issues of sampling and measurement error, it is important not to overemphasize marginal differences. It is far better to galvanize senior leadership support (and funding) for a “good” measurement program than to fall on your sword in a fight over the “best” metric. So if senior leadership is committed to NPS, this commitment might outweigh better explanatory power from a different metric.
Taking actions
Best metrics aside, actions trump scores. Understanding what is driving or influencing the KPI and taking actions to strengthen performance is far more important than the decision on which metric to use. Sure, the metric matters. In many instances, however, there are a number of highly-correlated KPIs with similar explanatory power. Regardless of the metric, the focus should be on what is driving customer assessments and improving performance on what matters. A few suggestions:
* Set priorities: Everything isn’t important and trying to solve for everything is a sure-fire way to accomplish nothing.
* Make the investment in action-planning: Identify the internal processes and issues that are the root cause of what customers are telling you.
* Be sure to walk-the-talk internally: A “customer-first” mentality has to be organically integrated into the DNA of the organization, not simply mandated from above or written on posters in the break room. This means executive-level involvement and visibility, constant communications and involvement at every level of the organization.
* Motivating employees or associates with incentives makes sense but this is an area with potential land mines, so be careful about the reliability of measurements being used and unintended consequences.
*Be certain to differentiate between risks that undermine customer relationships or experiences and opportunities to enhance customer focus – and always focus first on attending to risks, as the payoff from mitigating risks always exceeds the value of further improving areas of strength.
Always remember the ultimate objective: influencing customer behaviors to create value for the firm. And if you find the holy metric along the way, give me a yell.
