Net Promoter Score (NPS) - which measures the likelihood of a customer to recommend a company a friend or a colleague - has provided businesses with a lot of benefits since it was first introduced by Fred Reichheld, Bain & Company, and Satmetrix in 2003. It's a simple, understandable metric that enables executives to easily determine the relative health of a company's relationships with its customers. Because it's so simple and easy to understand, it has also played a significant role in elevating the importance of customer experience among senior executives.However, NPS also has its detractors (pun intended), including criticism as to whether it can be used as an accurate predictor of business growth. Meanwhile, others have questioned whether and to what extent actual "detractors" (people who rate a company 6 or below on a scale of 1 to 10) are overstated in NPS scoring.
One company that's taken NPS to the next level is ForeSee, a provider of customer experience analytics. In May, ForeSee introduced The Word of Mouth Index (WoMI), a metric that's aimed at more accurately distinguishing between positive and negative word of mouth. I recently had a chance to catch up with ForeSee President & CEO Larry Freed, who just published a book on the topic: "Innovating Analytics," to explore the subject a bit deeper.
Q: Since ForeSee began testing WoMI with clients, what have you learned?
A: Many clients have historically used NPS for reporting but not much else. Now, they're taking it a step further to improve the quality of the insights and identifying and acting on negative word of mouth.
Another group of clients are trying to reach out and talk to detractors. Businesses will call these people and discover that many of these customers aren't really dissatisfied, they're loyal customers.
Q: In the book, you talk about the strengths and weaknesses of NPS. What are the strengths and weaknesses of WoMI?
A: There's no one single metric that's perfect. From that aspect, there are a couple of weaknesses of WoMI. There are still going to be people for some companies that are very likely to recommend and those that are very likely to discourage. We dug deep into that. It depends on the intended receiver of that recommendation. So if you're a customer of a Flash sale site, you may recommend that to people who are interested in the thrill of the hunt and finding a bargain. Sometimes that's as important as the product. There are also shoppers that don't like the thrill of the hunt. They simply want the products to be there and buy them.
Another example could involve a luxury automobile. A 40 year old who's been successful in business might be interested in buying a BMW. For someone fresh out of college, it might not be the right time for them.
The other thing that's important is that if you only use a single metric like WoMI, that's not going to measure all of the outcomes of the customer experience like loyalty, churn, etc. It's a huge improvement over NPS but you need a system of metrics to give you insights into the business.
Q: In addition to "promoters" and "detractors," there are also a lot of customers that are "passives" - they don't voice their opinions -- good or bad -- about a company's products or services. Are there ways that business leaders can analyze and act on customers that appear to be dispassionate?
A: There are. It's a little bit of a Holy Grail. You can't get water out of a rock but you can drive customers who are dispassionate to be passionate in two ways. One is to move them up the continuum and provide them with increasingly better experiences. They may be loyal to you but this may lead them to become more satisfied and more loyal and trigger that passionate emotion that they may recommend you.
The other way is to use marketing techniques to get them to recommend you, such as incenting them with bonus points through loyalty programs if they recommend you.
Q: In the book, you list customer retention as one of the four drivers of business success. Some executives seem to be so focused on acquiring new customers that they appear to overlook the importance of customer retention. What's your take on this?
A: I think you hit it on the head. The excitement is on the acquisition side of the business. Yet everyone learns in business school that it's far more expensive to acquire a new customer than to retain an existing customer.
McDonald's no longer gets by on word of mouth. Google is in the same spot. They grew by providing a great experience and word of mouth. But now it's about getting people to sign up for Google Docs and other apps. Businesses go through cycles but just about any business you look at goes through this renewal.
In the end, it all comes down to delivering a great customer experience. If you provide this to customers, they're more likely to buy from you and they're more likely to recommend.