Last week, I talked about how important it was to build advocates for your company. Advocates are easier to upsell, they buy more and they spread good word of mouth. On the other hand, detractors use up resources, are hard to please and most likely spread negative word of mouth. I suggested that one of the ways you can avoid creating detractors is to focus on good profits and avoid bad profits. Bad profits are the kind of revenue that leaves your customer feeling like they were taken advantage of - service charges, change fees and termination fees.
The crucial question is how many of your customers are advocates and how many are detractors. Fred Reichheld points us to the Net Promoter Score (NPS). He states that there is only one question that you need to ask of your current customers: Would you recommend us to a friend? The question probes both dimensions of loyalty; satisfaction with the product or service and satisfaction with company values. A score of 8-10 is a promoter, 6 & 7 are neutral and less than 6 is a detractor. Using the formula:
P-D = NPS
You will be able to measure your Net Promoter Score. This score will allow you to see the relationship between profitability and NPS. A crude segmentation mapping might look something like the one below.
You can then map your customers to this grid and get a good idea of who your profitable customers are. Now that you are armed with this data, what can you do with it as a company. I will explore this idea more fully in the next post.
Are you using this type of research in your company? If so, I would love to hear how you apply it to your business decisions?
[tags] Net Promoter Score, Fred Reichheld, Advocacy [/tags]