Why companies fail on NPS?


Why companies fail on NPS?

Wednesday, April 3, 2013


By now, most of you following my blog would have known about NPS or Netpromoter (ABC of NetpromoterThe Power of Word of MouthBad Profits). To refresh, NPS is based on one question – “on a scale of 0 to 10, how likely are you to recommend my company, my service or my product to you friend or a colleague?” Customers rating 9 or 10 are Promoters while those rating from zero through 6 are Detractors. NPS is % Promoters minus % Detractors. 

Because empirical studies show a strong link between NPS and financial performance, thousands of companies jumped onto the bandwagon to be part of the pack.  However, only a few have truly benefited from this system.  What happened to the many who continuedmeasuring NPS?

A recent research by Ron Shevlin about the growth rate between NPS users and non-users showed an interesting outcome. Contrary to popular believes, NPS users tend to grow slower than the non-users in the financial industry. The study shows a growth of 4.1% for NPS users versus 5.4% for non-users for the checking account from 2011 to 2012. The consumer loan grew by 5.3% versus 6.5% for NPS users and non-users respectively during the same period. The writer thus concluded that NPS has no impact or correlation to business performance! (The detail of the research is available in here: http://thefinancialbrand.com

The above conclusion may be true if a company only measures the score and occasionally dosomething with the result.  If the financial institutions in the study only measure NPS, there is really no any difference between the two populations under study. This is not just isolated for the financial industry but it applies to just any industry. When there is no structured and rigorous process in managing the customer feedback, then sadly such initiative is simply good-for-nothing. 

In fact, you do more harm to your company and the customers by just measuring NPS. You tend create a false impression of customer’s health. This causes un-necessary joy or anxiety to your workforce that results in deteriorating productivity. The customers, on the other hand, are inundated with useless surveys that will only annoy them for inactions.

Companies that only measure NPS and do nothing more is a sure formula for failure. I came across many companies proudly claiming to measure NPS but everything else that happened in the company suggests the total opposite. Customers are screaming for help and attention but no one really cares. 

Some companies find creative ways of adding the NPS question to their existing lengthy surveys. Because of the complexity of the existing long surveys, adding another question is only adding further complexity. The survey results are presented with many indices, including NPS that does not encourage action nor follow ups. Such survey results could be statistically significant but is of little or no use for operational improvements. 

These results will do well as colourful charts and graphs on powerpoint slides. With some luck, these slides may end up into management review slide decks. Typically such management slide decks are heavy on financial performance, sales and order forecast, business development or marketing activities and a bit of human capital stuff. So you can guess how much time will be allocated on customer loyalty.

Other companies use free survey tools to conduct NPS surveys. There is nothing wrong with such free tools but when a system is not designed on the principles of NPS, such tools lack a robust follow-up process.  Companies will be able to measure the NPS but will not be able to close the loop with detractors fast. This becomes prevalent when the number of survey increases.

Many of the companies that did not make it to the ‘hall of fame of NPS’ often get frustrated and will lose all hopes on NPS. From such failed attempt of the many companies, Bain & Company reduced to three basic essentials required to build a successful NPS journey.  Those are:

- Develop simple and reliable metrics to sort customers into Promoters, Passives and Detractors. It is critical for the metrics to be trusted, robust and understood at all levels. To do so, companies need to motivate ethical reporting of the metrics by not linking the metrics to employees’ compensation at the early stage.  Often when this is done without first having a customer centric DNA, results are manipulated to make it look good. Such irresponsible practice damages the company’s reputation.

- Next, develop high velocity learning, action and recovery of closed loop process. Companies need to have a robust process in place to share the customer feedback - first with the employee(s) that is most responsible for customer to create such feedback. Second, the manager needs to close the loop with the customer, especially the detractor as soon as possible. Great companies at average close the loop with detractors within 48 hours. 

Imagine the amount of impact this would have on employees and customers. Employees will learn faster than ever from the immediate sharing of customer feedback while that event is still fresh in their minds. Contrast this with the traditional method of sharing an average score and common themes of customer feedback three months or much long after the event.

Disgruntled customers will have a renewed confidence in your company. They see that the company is taking sincere effort to improve the situation.  Sometimes, such call back could even convert a detractor into promoter. Customers understand things can go wrong at times, but they cannot accept when companies do not take action to improve. 

- Finally, companies aspiring to take this arduous but rewarding journey must make earning customer loyalty the company’s strategic priority. Without commitment from the top, it will all just be a lip service. Great companies are prepared to make investments on structural improvements based on customer feedback. The leaders walk the talk by sometimes attending to customer’s issue directly. Such act not only intensifies the company’s value system, but also sends a strong message to the workforce of the serious commitment from the top.

If companies are not doing all of the three above, they are only living in a delusion that customers are coming back to them out of sheer loyalty. Worst, they are cheating themselves that all is well!

Satya Narayanan